Airbnb has recently agreed to acquire HotelTonight, a last-minute online hotel booking platform, for a reported price near the company’s most recent valuation of $463 million (Bloomberg, NY Times). This marks the largest acquisition to date for Airbnb since the high-end travel website Luxury Retreats that occurred at $300 million in February of 2017.
Founded in 2010, San Francisco-based HotelTonight seeks to tap into unused inventory mainly in urban areas by offering last-minute hotel bookings. Contrary to Airbnb’s rapid growth, HotelTonight has had more a modest funding history. In 2015, the HotelTonight had to lay off 20% of its employees in hopes of increasing profitability. By some measures, the company has stagnated in recent years — according to research firm App Annie, it hasn’t had cracked the top 100 iPhone apps since 2016. This enabled Airbnb to acquire the business for approximately the same price investors paid in 2017.
Since its inception, HotelTonight has leaned toward a boutique hotel culture, one that “caters to this idea of providing experiences and Instagram-able moments for millennials” according to founder and CEO, Sam Shank. Although the acquisition is certainly a change of strategy for Shank, who has been talking about taking HotelTonight public for over two years, Shank acknowledges that "we knew people wanted a better way to book an amazing hotel room on-demand, and we are excited to join forces with Airbnb to bring this service to guests around the world. Together, HotelTonight and Airbnb can give guests more choices and the world's best boutique and independent hotels a genuine partner to connect them with those guests."
The interesting point about this acquisition is the stark contrast it has with Airbnb’s established pattern of competitive harm to the hotel industry. According to a 2018 scholarly research report by MIT postdoctoral fellow Andrey Fradkin and Harvard Business School professor Chiara Farronato, the local hotel industry in the top 10 US cities that hosted Airbnb’s largest market share reported an average 1.5% net loss in revenue and 1.3$ loss in total nights booked after Airbnb established a presence. With the recent additional services Airbnb has added, the damage to hotels has only grown. However, the acquisition seems to represent a diplomatic offering to the diminished hotel industry and an acknowledgement of Airbnb’s inability to fully meet existing demand.
In an effort to become more of an end-to-end travel platform with its ultimate goal to become the “Amazon.com Inc” equivalent for travel, Airbnb has begun to highlight hotels more prominently on its website, even introducing a loyalty program starting last year. It has more than doubled the number of rooms available ranging from boutique hotels and bed-and-breakfasts to hotels and resorts.
HotelTonight fits into Airbnb’s model and will help Airbnb cater to growing consumer demand for same-day bookings. The acquisition of HotelTonight also provides Airbnb a safety net against potential future regulations limiting rental availability due to local housing laws that could negatively impact their profitability. For example, in July 2018, New York City passed a bill that would have allowed the city to more easily determine whether a property owner was legitimately renting spare living space or illegally appropriating long-term rental properties for short-term Airbnb use, which could ultimately contribute to a housing shortage. The bill currently remains under appeal. Going forward, Airbnb can now use HotelTonight’s supply to replace lost revenue were a city such as New York decided to further regulate Airbnb’s presence, which would eliminate high-volume hosts and thus a large number of listings. This strategy would also lead to greater retention of customers who would otherwise resort to other short-term living options, and simultaneously serve as a customer acquisition tool. This would cater to those disinterested in Airbnb’s private host offerings, but lean more towards established, traditional hotel offerings at discounted prices. Given that almost 90% of first-time customers that booked a hotel room through Airbnb later returned to book a private host listing, Airbnb can cleverly leverage HotelTonight’s listing of hotels to serve as an extension and sales for new customers to its core hosting business.
HotelTonight’s app and website will continue to operate independently but Airbnb will eventually integrate its boutique hotels and bed-and-breakfast listings onto its site. Once the acquisition is complete, HotelTonight’s founder will report to Airbnb’s president of homes.