Which business model suits you better? Check the article and find out!
When Kayak business model trumps AirBnB model
Today, the size of the global travel and tourism industry is $7.6 trillion. The stock price of Priceline (NASDAQ: PCLN) as of June 8, 2017, was $1,890 and Expedia (NASDAQ: EXPE) was $146, which is incredible.
The legendary Kayak was acquired by Priceline for $1.8 billion in 2012. Moreover, AirBnB’s latest valuation in March 2017 was $31 billion.
The sheer size of this industry and those companies’ successes have inspired startups to follow their footsteps.
The thing is, whose footsteps would be more suitable and, thus, profitable? It’s not an easy question to answer, since every founder’s skills, talents, and passions differ.
For instance, you might find something is easy to tackle, but others may not find it so. Also, timing plays a major role in success.
AirBnB, for instance, owes their success to the “good timing” of breaking into the accommodation market just in time of the anticipation of a huge design convention in San Francisco in 2007. This explains why a certain business model works for some, but not for others.
In this article, we will discuss the pros and the cons of both aggregator (Kayak like) and peer-to-peer sharing economy (AirBnB like) business models. We will also discuss when you would know when to change direction a.k.a. “pivot” from one business model to the other.
Kayak business model
The Kayak one is a business model in which a site is designed as a travel aggregator offering travel suppliers and online travel agencies (OTAs).
In one place, the search engine can compare offers from various sources and provides customers with the best deal. This would save customers much time and obtain information is fast and easy to access.
One case in point is EliteMeetings, which has been operating since 2006, is a B2B aggregator of venue locations serving meeting and event planners.
It includes 4,200 supplying hotels and resorts worldwide and allows users to generate RFPs, which is powered by SpeedRFP, for multiple venue locations.
The Dusseldorf-based Trivago is an aggregator for finding the lowest price for hotel rooms worldwide. By September 2016, their revenue has reached $650 million with initial funding of only 1 million Euros.
As any other business model, this aggregator comes with its pros and cons. Here I’ll explain five of the main pros of this model.
1. Ease of populating
The site with hundreds or even thousands of products within a relatively short time. This would make the site looking impressive with so much inventory.
2. Focus on their website
It allows the aggregator to focus on their website capability instead of worrying about individual travel programs. This would require investing in more on reaching out to potential customers and providing them with the fastest search capability.
3. Consistent quality of supplies
Since most suppliers have existed for quite a long time, they have built strong brands and customer service experiences.
Since it’s automated, the founder can focus on building the brand and getting more users. Aggregator-based services focus on marketing outreach and promotional activities to build their brand and loyal evangelists.
5. Professionality and experience
It provides a peace of mind that the suppliers are professionals and experienced in the industry, thus are responsive to customers’ needs and wants.
The several disadvantages of this business model include a dependency on suppliers, limited ways to monetize, and unclear responsibilities whenever there are complaints received from customers.
However, considering the pros that seem to outweigh the cons, this model can trump other business models, including peer-to-peer sharing.
Airbnb business model
AirBnB is one of the pioneers of the most popular peer-to-peer sharing model. You probably have experienced Airbnb rooms by yourself and know how it has been disrupting your travel experience. Today, approximately 200,000 travelers book their rooms through Airbnb.
WithLocals is a site that matches tourists with their independent local tour guides. It’s also known as the peer-to-peer marketplace, where local people can offer experiences and skills to travelers. Among the experiences they offer include explorations, foods and culinary adventures, adventures, fun classes, and others.
VBRO, which stands for Vacation Rental by Owner, is similar to Airbnb in many ways, except that the properties are usually vacation rentals. It was founded in 1995 and acquired by HomeAway in 2006. Its sales are quite impressive with 127 inquiries per vacation rental property per year.
Here are the advantages
1. Unlimited suppliers
Anyone with excessive asset or time can join independently.
2. Price advantage
The system offers lower prices compared to traditional channels when it’s implemented for accommodations (Airbnb versus conventional hotels) or travel experiences (WithLocals versus tour bureaus).
3. Positive impact on the environment
This system provides a positive impact on the environment by using unused resources. VRBO allows property owners to rent out their vacation homes that they rarely use.
4. Cultural exchange
Tour and activity guides at WithLocals, for instance, provide more ingrained direct cultural experiences that most conventional tour activities miss.
However, there are cons as well
1. Difficulty in verifying good intention of the suppliers
Including performing background checks. It’s important to do proper checks on every site and individual that apply as partners to ensure an appropriate level of commitment.
2. Untaxed transactions
Cultural activities often include informal activities, which may or may not be officially taxed.
3. Overnight stay taxes
Third, many cities lose overnight stay taxes imposed on tourists. However, Airbnb has made arrangements with cities to pay “tourism taxes”.
4. Rent control violations
For instance, New York City, Santa Monica and San Francisco have rent control for rental apartments, so there have been many violations related to short-term rentals like Airbnb.
5. Hard competition for traditional businesses
This business model may hurt existing professional with licenses, such as conventional hotels and licensed tour guides.
Takeaway: when to change pivot
With these two major models for travel sites (Kayak and Airbnb), how do you know which one is more suitable for your business?
When using peer-to-peer sharing model, it could be slow to scale because you need to wait for people to sign up. It was also hard to maintain the quality of services and commitment. So, pivoting to aggregator would allow a business to scale really quickly and the quality of suppliers are more likely up to par.
However, it doesn’t mean that the aggregator model is better than peer-to-peer sharing model, as both have their own advantages and disadvantages. Every case can be different.
In general, pivoting requires fast action, so you don’t want to waste too much time on something that would require many resources to fix and handle.
However, it is often the only feasible thing to do so, that you can move forward with more confidence.
In conclusion, choose the most suitable business model for you, as every startup has their strengths and weaknesses. Things that may not work for some may work perfectly for you. Take case studies and best practices with a grain of salt and curiosity.
Which model suits better your business? Leave your opinion about the article in the comment section below. I’d love to hear from you!