Source: Pegasus

The sharing economy came with the promise of revolutionizing the way we purchase goods and services, creating a frictionless world where buyers are connected to sellers, thereby cutting out the middleman and bringing down costs to consumers.

The promise came to fruition. Today, an innovative breed of startups are giving consumers more choice, control, and convenience than ever before — nowhere more so, than in the travel industry.

Yet there are signs that sharing economy accommodations are losing appeal. Since launching a decade ago, Airbnb has become the undisputed poster child of an alternative form of travel. Its rise to fortune has been nothing short of breathtaking, with a valuation of $31 billion in May 2017.

However, the world's second largest startup (after Uber) is not having things all its own way. There are signs that the sharing economy bubble might have burst, and that Airbnb's growth is stuttering amid a shift in travel preferences.

While far from a crisis, Airbnb's unrelenting success appears to be slowing, giving hotels a chance to win back some valuable ground.

A series of unfortunate events

Airbnb has suffered a series of setbacks in recent times, leading commentators to speculate on whether the company needs to go back to basics. Most recently, its New York bookings risk getting slashed by half as the New York City Council voted for the company to hand over the names and addresses of its hosts in the city in order to crack down on illegal short-term rentals.

Things are more turbulent in Europe where the EU has issued Airbnb an ultimatum over a lack of price transparency. Separately, city officials across Europe are clamping down to keep Airbnb's rental prices in check and restrict short-term stays. In Japan, almost 80% of Airbnb's listings have been removed as a result of the country's new home share (or minpaku) law.

In addition to the regulatory issues, Airbnb frequently seems to be in the headlines with stories of misbehaving guests and lawsuits. Just recently, Paris forced the home-sharing giant to take down tens of thousands of listings that didn't comply with local laws. Frustrated local residents in various cities have also been vocal about rising rental costs and mobs of tourists due to Airbnb's presence.

With citywide crackdowns, regulation battles, and lots of PR plate spinning, this industry heavyweight has been left slightly bloodied and bruised. Arguably, it might be just a case of riding the waves. Yet beyond the headlines and disputes, there are signs of something a little more troubling.

Growth seems to be slowing

Relatively speaking, Airbnb continues to see impressive growth. But a new report by Morgan Stanley (as covered by Skift), reveals how overall adoption is slowing.

In a survey of over 4,000 adults, the amount of travelers using the platform during the 12 months up to October 2017 rose by 25%, which is an increase of 330 basis points. By contrast, last year's survey saw an increase of 800 basis points.

Morgan Stanley found that brand awareness of Airbnb has never been so high. Yet that hasn't translated into more beds being filled. So what might be going on?

Morgan Stanley's analysts feel that the company might simply be too big, or that it's just become so mainstream that the same level of growth is too hard. Some cite the fact that more travelers are concerned over privacy and security. But is there something else at play?

Reevaluating the hotel proposition

The story of decline might be less about Airbnb, per se, and more about a reevaluation of the benefits hotels offer. Historically, the hospitality industry has sold itself on a form of uniformity that guarantees reliability in both service and experience.

Airbnb arrived on the scene as a fresh and exciting alternative to this format— a rebuff to chain hotels and stuffy corporate values. The company's focus on localness and experience-based travel led it to great success, especially among younger generations seeking a deeper connection to the destinations they visited.

Yet according to two recent surveys, overall interest seems to be waning. In MMGY Global's recent Portrait of American Travelers (POAT) survey, 33% of respondents said that they are interested in using shared economy accommodations this year, compared with 41% last year.

There's also an indication that travelers are warming once more to the hotel proposition — even Millennials, Airbnb's largest audience. In a report by Allianz Global Assistance, 33% of this demographic said they believed traditional services provide the best overall experience, which is up from 22% in 2017. A significant 38% of Millennials also said traditional services provide better customer support when things go wrong.

In a written statement, Daniel Durazo, director of communications at Allianz Global Assistance noted, "This is the first time we've seen intent to use sharing economy services decline, particularly among Millennials, which is surprising as they led its early adoption."

So why the change in attitudes? It may well all be the consequence of a maturing demographic whose life circumstances are dictating new priorities. As many become parents or seek greater comforts, the traditional services and amenities that a hotel provides has undoubted benefits.

Is the love affair really over?

Slowdown in brand adoption is, of course, inevitable. Growth cannot be exponential, and the world's biggest companies all face tough times. Competitors up their games. Consumer preferences change. The love of a brand begins to wane. This is the nature of the marketplace.

So what we might be seeing with Airbnb is an inevitable consequence of consumer behavior, magnified by its own impossibly fast success. Yet it's important to remember that the company is hardly floundering. The love affair might be on the rocks, but it certainly isn't over.

Airbnb is enjoying substantial growth in competitive markets. According to its own data, a 90-day cap on its London listings hasn't stopped the company reaching close to 20,000 rentals a week in the UK capital; that's up from 1,000 listings as of just 2013.

In addition, it's worth pointing out that Airbnb might be worth more than any other hotel company, rivaling that of the world's largest OTAs.

As we discussed in a recent post, a raft of improvements including major product changes may also help it win new audiences and reignite interest among its loyal base of customers.

Good news for hotels?

On the whole, it might be argued that a decrease in growth and stay intent is good for hotels. But there are some who don't see Airbnb as a direct competitor. More than that, they feel it could be an ally.

Recently, Airbnb began welcoming boutique hotels onto its platform — (something that HomeAway has also started doing), charging commission fees between just 3-5%. This could prove a profitable alternative for hotels compared with distributing through OTAS, where commission fees range between 15-30%. If enough hotels make the move, this could force OTAs to bring down their commission fees to remain competitive.

In the end, Airbnb may actually become a bigger rival to OTAs as it expands its platform towards becoming an end-to-end travel company.

Where are things heading next?

Airbnb has enjoyed incredible success since launching a decade ago. It has become synonymous with a more authentic, local style of travel, while promoting the idea of new experiences over reliable comforts. Loyal customers have bought into its ethos and the rest is history.

But a new chapter may be about to be written — one where the untouchable industry giant sees expansion slow as travelers revert back to traditional hospitality offerings.

Airbnb most certainly has the resources to pivot, but hotels will always be able to offer their own unique mix of appealing qualities, including luxury on-site amenities, and around-the-clock service. Given the changing sentiments among travelers, now's the time for hotels to capitalize on their value proposition.

About Pegasus

Pegasus combines high-tech innovation with high-touch service to give hoteliers more control over their revenue and distribution strategy than ever before. Following their merger with Travel Tripper, Pegasus enables hoteliers to better connect with their guests through an innovative and flexible platform of Reservations, E-commerce, Global Sales, and Business Intelligence solutions that help hotels drive demand and increase revenue and profitability, including the Pegasus CRS, named Best CRS 2022 by Hotel Tech Report. With more than 30 years of experience in global distribution, Pegasus serves hotels across 120 countries from eight offices worldwide in New York, Scottsdale, Las Vegas, London, Paris, Frankfurt, Tokyo, and Hyderabad. For more information, visit www.pegs.com.