Airbnb is going to fail, are you ready?

Everyone in the tourism industry is struggling right now and we're going to continue to struggle for quite a while before we get back to where we were. The COVID-19 Pandemic has effectively wiped the industry clean. We're either in lockdown or under travel restrictions so nobody can book our accommodation or even commit to plans they made previously.

COVID-19 is what we call a black swan, an unpredictable event, with extreme consequences. Some people were prepared in business and in their personal circumstances to have enough cash on hand or other contingency plans for a global tourism shut down but for the rest of us, we're really feeling the effects right now.

I wrote this article to talk specifically about the shaky future for Airbnb and how their actions in the last c few weeks have really ruined their relationships with both hosts and guests. You as a host need to be aware of what is going on, what that means for Airbnb and how to be ready to deal with the fallout when the dust settles.

Why Airbnb won (past tense)

Airbnb has been a huge success for a long time. I've followed the journey of the founders and the amount of grit and determination it took for them to get from their very first booking to where they are today. They won't die easily but they're going to struggle to win from here.

They always had a very clear point of difference from the other booking channels. For guests, they promised to stay with a local and to live like a local. They let people rent out a room in their house and for a lot of the early adopters on the platform that was an amazing experience. You had people who were really passionate about being a host and guests who wanted to meet them and interact with the hosts for that kind of experience.

Having stayed in a share house through Airbnb I can say that my experience was great, we got to meet some nice people and they helped us feel very welcome in their home.

However, this was the one and only time I have done this because and only because I had no other option. I like many other guests, I want the privacy and flexibility of renting an entire property where I don't have to share someones space but instead you get your own space to make your own memories, and that's what I want when I travel.

For Airbnb, after one truly nightmarish situation where one of the early hosts had their apartment completely destroyed by a guest and Airbnb did not have the host cover in place. The founders were crucified in the public eye and there was an impending lawsuit that followed as well. They learned a valuable lesson from this which was to always have hosts' backs and from this the host cover was born. This was the value for hosts, you could sign up and Airbnb would take care of everything, payments, insurance and marketing.

Over time, this has been a huge draw card for hosts because they feel safe and secure in their ability to quickly and easily be compensated for any damages caused by guests. Hosts felt secure that Airbnb was always going to stand by them financially so they could be confident in using their platform.

How Airbnb will fall

Unfortunately, this is no longer the case. If any of you have tried to submit a claim recently, they are becoming highly selective with the payouts they approve adn their terms are borderline impossible. In plain English, it is getting hard for hosts to be compensated by Airbnb for guest damage. They also don't allow you to hold a guests credit card to be able to charge them directly for any damages so as a host you don't have many options.

For example, if your house rules say that you charge $250 if a guest smokes in your apartment, you can only be compensated if you can show an invoice or a receipt for cleaning related to the guest smoking. No matter what your guest has done, you won't get paid unless you can show that receipt.

In most cases, that isn't really a problem as if something is broken, you can show a receipt of the replacement or add a link to the item online. However, they do have other restrictions in place that can make it nearly impossible for you to even submit a claim within their parameters.

If you have a same day turnover and you don't submit that claim before the next guests check in then you're not going to get paid.

Tip: If you pay cleaners, make absolutely sure they know to make you aware of any damages by guests as soon as they arrive so it gives you time to get some quotes or find a replacement online before the next guests check in.

One problem I have run into with this many times, is that we have a broken sofa or table that needs to be repaired. It isn't so badly broken that we need to pay $3,000 for a new sofa but we know it is going to cost $250+ to get fixed. There is no possible way to get a quote back from a contractor within the typical 4 hour window between check out and check in.

What is Airbnb?

It is really important to take a step back and think about what role Airbnb actually plays in the transaction. They market your property to people looking for a place to stay. They facilitate the transaction, 'cover' you for any losses (or at least they used to). But that's basically it. It's your house, you create the experience, you make the memories, the personal relationships and you make people want to come back to your place, or not.

Airbnb is a technology company, not a hospitality company. You are the hospitality company and Airbnb is simply a technology company that provides you a service. In this case, they make it easy for guests to book ans easy for you to get paid but at the end of the day, the product is yours and you need to remember that.

Airbnb is a technology company, the whole idea of a technology company is to create what is referred to as a 'sticky' product. This simply means that once someone starts using the product, they don't stop. Apple does this very well and Facebook is also another massively sticky product.

Airbnb is massively sticky for hosts. Once you get set up and start taking bookings, it's unlikely you will leave. If they provide a great service, you might even be loyal to them and not list your space anywhere else. Even if for example, they completely override your contracts and make you lose hundreds or thousands of dollars, you're probably still going to stay with them. You just might not be such a happy, loyal host.

Unfortunately, Airbnb is finding that their product is not so sticky for guests. They don't care so much about the Airbnb brand as they do about the price and quality of their experience. They want the best they can get for the least amount of money.

This is a huge problem for a technology company that does not actually control the service it provides. For instance, one Airbnb can have very different cleaning and service standards compared to another and there is no guarantee of quality or consistency for guests. This is where many hotels and true hospitality providers win. If you visit there once, they remember you, they know your preferences and they strive to make your stay as enjoyable as possible each and every time. For bigger chains, this means that you get this same experience anywhere you go in the world because they all 'know' you and this is why you choose to stay at the same hotel in whichever city you visit.

Airbnb simply can't do that without owning the product and paying people on the ground to make that happen. As a result, they don't have a very sticky product for guests meaning they're free to book wherever they can get the best deal. For hosts on the other hand, nobody is going to stop using them as long as they continue to bring them bookings.

This is why unfortunately for hosts, Airbnb made the decision to look after guests and make hosts pay the bill.

The response to COVID-19

The WHO announced that COVID-19 had been classified as a global pandemic and 3 days later, Airbnb announces they will be refunding every reservation in full across the globe that wants to cancel regardless of the hosts cancellation policy. Guests get a full refund, hosts get nothing.

That means that every host with a strict cancellation policy that secured at least 50% of their reservation now had nothing. For larger properties with 4+ bedrooms, we're never going to get those bookings replaced which is why we rely so heavily on those cancellation policies. If we get a cancellation, we can drop rates to potentially get another booking.

The response form hosts on this has been both heated and divided. Some hosts are applauding the move while others are so angry they want to file a class action lawsuit. This for me was the straw that broke the camels back. I no longer believe that Airbnb has my back as a host. I can't get a payout for guest damage, I can't rely on the income from the bookings and the policies I have in place. So what do they do actually do for me?

Why did they do it?

Since Airbnb started, their main draw card for guests has slowly been eroded by other booking channels like Booking.com and VRBO (HomeAway/Expedia) so that to the consumer, they are all basically selling the same thing. You can get the exact same experience on booking.com that you can on Airbnb. Smart hosts had figured this out already and had their listings published on as many websites as possible to capture as many guests as they could regardless of where they booked.

When COVID-19 came out, Airbnb had the opportunity to gain an advantage in terms of brand loyalty from guests and they jumped on it. By appearing to guests as the good guys that always have their backs, they were able to gain some level of customer loyalty at the literal expense of hosts.

From a purely strategic perspective, I understand the move and I think it is a good one for them. Not for hosts certainly, and as a host myself I fundamentally disagree with their decision.

Unfortunately for Airbnb, their host community agree with me for the most part and they were LOUD in their complaints. So much so that Airbnb has had to take on extra private funding to now pay back some of the money they wrongly paid to guests.

The Airbnb stimulus package

The CEO and founder of Airbnb recently published a 'heartfelt' message to the host community to talk about how he had let us down and that he wanted to make amends. They offered to pay hosts 25% of their normal payout in the event where a guest cancelled as well as a $5,000 grant to super hosts who have been with the platform for more than a year and have less than 2 listings.

This was great and I'm very happy that Brian had the courage to stand up and admit they were wrong. For me, it's far too little too late, especially as even though he was saying sorry for putting that policy in place, at the same time, they extended the policy for another 45 days! When you think about it, you can quantify just how little they care about hosts. They gave guests a 100% refund and at best, hosts got 12.5%. That's 8 to 1 if you want a number to put on it.

Without digressing into a rant about how much I disagree with the decisions and the dirty band aid they tried to give us as compensation, instead I want to talk about how they shot themselves in the foot and what that means for you in the future.

They tried to take market share with guests, then back flipped because of hosts and now nobody is happy. Guests aren't getting their refunds easily and hosts aren't getting their 25%.

The problem is that when a guest goes to cancel, they have what looks like two options.

Option 1

They get 100% of the reservation as a travel credit. If the guests choose to take this option then the host will receive 25% of what they normally would from their cancellation policy.

Most guests aren't interested in this so they don't want to choose it. They don't know when they can travel again and they want the money back more than the credit.

When you do the math, on a strict cancellation policy that means you will get 12.5% of the accommodation amount. Which, if you think about it is less than the service fee that Airbnb charges guests. Which means, they're not really paying hosts anything in this situation, they're really only taking a pay cut on future bookings if the guest even uses the credit.

Option 2

Obviously, people are losing jobs, businesses are failing so people right now want the money more than anything. However, the second option is for the guest to accept the hosts cancellation policy. I'm not sure if this is an effort by Airbnb to try and promote hosts cancellation policies or if it is designed to make them take the travel credit so they get to keep 20%.

In whichever case, it makes cancellation very difficult for guests. The guest obviously wants the cash, so they click cash because they got an email from Airbnb to say if they cancel they get a full refund. The problem is that when they do select the cash option then the guests only get 50% (or whatever your cancellation policy is). The kicker is that if a guest chooses this option then hosts aren't then qualified for the 25% of their cancellation policy.

This is the worst situation because the guests are unhappy, and then Airbnb starts bothering the host to see if they will then give the full refund to the guest. It's just not a good situation.

The hidden third option

If you're a guest, there is an option to get a full cash refund but again, Airbnb has made this very difficult.

At the bottom of the cancellation page there is a 'learn more' button that a guest can click to go to another page where they can submit documentation to Airbnb as proof their reservation has been affected by COVID-19 where they can approve the 100% cash refund.

If the guest can find this option, hosts will also be eligible for the 25% of their cancellation policy.

This option should be front and centre on the cancellation page and the only possible reason it isn't is because Airbnb wants to hold as much cash as possible in their accounts by means of travel credits. This would help them stay alive, effectively give them a 20% discount on the 'refund' because they guarantee they will get their fees out of it in the next 20 months.

Why this won't work

If guests weren't loyal to Airbnb as a brand before, they certainly won't be now. They tried to make a play for good PR for guests but in light of the whole scenario, I think that plan has fallen flat. If they stuck to their guns and held up the guests end of the bargain then there is no doubt in my mind that there would be a significant growth in market share for Airbnb from guests.

Unfortunately, when they back flipped and then made the lives of guests difficult all to give hosts a few crumbs, they lost all momentum and most of the potency of whatever positive PR they could have had from guests. If they had have followed through then guests would be flocking to Airbnb in droves solidifying their market position and making them irresistible to hosts who want to make money.

Similarly, now that hosts know for certain that Airbnb does not cover them, they are all looking at other options. People want to go multi channel, they want to list on websites like VRBO & Expedia where they upheld the hosts cancellation policies. They're now willing to invest the time and the effort required to learn how to create a short term rental business because they've realised that Airbnb is only a channel that brings in bookings, and not even the best one!

People want more control and that is where Airbnb really falls short. On all other booking channels, you as the host are responsible for the damage deposits which means you can withhold the damage deposit if there is damage. You don't need to arbitrate and convince Airbnb or stick to their ridiculous rules to get any money out of the guests when they do something wrong.

As a result, More and more hosts are taking the plunge to go multi channel, to create their own websites which means less market share for Airbnb. We find in our own business, that the vast majority of advance bookings come through both booking.com and VRBO/Expedia. That's where we get the major school holiday 7 and 14 day bookings as well as the other major holidays throughout the year booked out months in advance.

This means that if you're filling up your calendar with bigger bookings further in advance, then Airbnb is going to have less 'stock' to advertise which means less revenue. If I use the average apartment we have under management, roughly 50% of bookings come outside of Airbnb. That means that if Airbnb has the exact same number of listings this year as next year but they all go multi channel, then they can expect 50% less revenue.

There has been a lot of talk on all the Facebook groups I'm a part of about going multi channel and some people are talking about boycotting the platform altogether. So much so that Airbnb released a statement to say that people are not mass exiting their platform, in fact there are more people on the platform than there were 30 days ago. Which means absolutely nothing.

If you go multi channel, you do exactly that, you list on multiple channels. Even though there are now more listings on Airbnb than ever, there is also a much higher % of those listings now on booking.com and VRBO as well.

What does this mean for you

I don't want to linger any more on what Airbnb has done or not done but instead, I want to offer some advice and recommendations for you to help you get ready for the fallout of the situation and the actions of Airbnb.

You can no longer rely on Airbnb

If you read everything above, you've probably realised that there are larger implications and motivations behind the actions of Airbnb and that means you as a host need to be ready for the repercussions.

In the past, you could simply create an Airbnb listing and run a fairly successful short term rental business. You didn't have to worry about payments, insurance or marketing. Airbnb did it all.

Unfortunately, Airbnb has completely dropped the ball on all three. You're no longer covered for damages, you can no longer reliably get paid and there is a high probability that Airbnb is going to significantly lose market share because of this. When they lose market share, fewer guests use the service which means they choose to book elsewhere.

Although Airbnb definitely had nothing to do with the creation of COVID-19, you as a host need to be aware that if you're at the mercy of one channel, you are stuck with whatever they decide to do in good times and bad.

If they raise their fees, you have to deal with it. If they change their policies, you have to deal with it. But if you list your property on all the major channels, you can rely on a competitive market to protect your interests.

Go multi-channel

Although there is a learning curve involved with going multi channel it is not impossible and you can do it without too much effort.

Get good advice, read as much s you can before you start and then go for it. There are people out there who can help you out and I do have some content to be published that will help you get started.

By being on multiple booking channels, you can not only spread your risk but you can also make more money. Booking.com has 6x as much we traffic as Airbnb and by not listing your property there then you're just missing out.

If Airbnb loses market share to booking.com and VRBO, it doesn't mean there are fewer guests booking, it just means they're not booking on Airbnb. You need to make sure you're listed everywhere so you don't get left behind.

Get your own website

As much as having multiple booking channels helps you to maximise your exposure to guests and spreads your risk, there is no better way to take complete control of your bookings than creating your own website.

I wrote a blog article here about how to create your own website for less than $100. It's not as hard as you think and it doesn't have to cost you thousands of dollars.

With your own website, you're in total control. You can write your own rules, make your own contracts and collect your own money. Nobody can take your money away from you when you have control.

Get help

It's always difficult to ask for help, especially when you're facing tough times but don't be afraid to reach out to experienced people that can help you succeed. Join some Facebook groups, subscribe to a YouTube channel, find the best information and you're already ahead of the competition.

Thanks for reading, and if you need any specific help with anything, please reach out, we're always happy to meet new hosts.

P.S. If you're looking to take your Airbnb earnings to the next level and implement the same strategies the big hotels have been using for years to dominate the market...

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