Updated: Dec 9, 2019
In late 2014, a young real estate negotiator (REN) attended a talk on investing in London properties. The talk was in a swanky part of town in a posh sales gallery. A very good presenter was explaining how his company rejuvenated properties and sold them to investors.
His company also assisted in the rental management using a platform called AirBnB. He showed some of the properties that his company had listed on AirBnB to give show the audience the daily rates and potential income for the investor.
The REN was intrigued by this platform. "AirBnB...." he thought to himself, "perhaps I could use this platform to help my clients rent their properties out."
This was a period when the market had begin slowing down and the REN figured that he could leverage AirBnB to manage rentals for his clients and get paid to do it. It would be a win-win situation.
He went home that night and explored this site called "AirBnB." It was a strange concept this company was promoting - paying to live in strangers' homes. How people from different parts of the world trusted each other to be good guests and hosts was beyond him but the concept seem to be working in London and many cities in the U.S.
After doing some rudimentary research and checking, the REN approached 2 clients and asked them if they'd allow him to list their properties on AirBnB. He'd take a small percentage of all revenue and pay the balance to the clients.
He also negotiated that the clients will pay all utility bills including electricity, water, and internet and other costs like assessment, quit rent, air-conditioner maintenance, pest control, and furbishment.
An agreement was quickly put in place and within 2 months, the REN had two properties listed on AirBnB. Within a coupe of days he had his first booking and thus began an exciting journey that was filled with plenty of adventure.
Very quickly the REN had become a hospitality entrepreneur.
Within a year he had grown to 9 listings. In the following 2 years he acquired over 40 listings with a view to keep expanding. He was even recognised as one of the most experienced and successful AirBnB hosts in Malaysia by the Asian Property Review.
But trouble was looming in the horizon. There were signs but the hospitality entrepreneur did not see them. AirBnB prices were on a downward spiral. It was becoming very difficult to maintain economically viable prices. Many hosts were reducing their prices in the wake of stiffer competition and a price war ensued.
By mid-2018, profits were severely down. On 28th Feb 2019, the hospitality entrepreneur shut the doors to a short-lived but glorious AirBnB business after his last guest had checked-out.
That entrepreneur was me.
This post is relevant to you if you're an AirBnB host or going to be an AirBnB host or a property investor. It is relevant to you because thousands of property owners today look at short-term accommodation as a viable model for generating cash flow.. It prepares you for AirBnB in 2019.
Today, if you want to succeed with AirBnB and short-term accommodation in general, you have to think out of the box. It is therefore important for you to know what the situation on the ground is, how to steer through present challenges, and what the future holds for short-term AirBnB.
To understand AirBnB's evolution, the challenges hosts face in 2019, and how to overcome those challenges, we have to go back 5 years at least.
AirBnB Was the Perfect Platform for Short-Term Accommodation
The keyword here is "was."
In 2014, when AirBnB was at less than 5,000 listings in Malaysia it had an almost cult-like following both here and internationally. Hosts revered their roles and guests felt like genuine guests in someone's home. Everyone felt like part of a global community that was changing the way people travelled.
If you're familiar with AirBnB's website in 2014, it had a warm, human-centric interface.
This represented the culture that permeated the organisation down to their hosts on the ground. Hosts in general took great personal pride in the whole process of hosting. It was rewarding both personally and financially.
Before any booking took place, there was a 2-way communication between the guest and host. Guests introduced themselves, explained the purpose of their trip and asked relevant questions. Hosts responded and clarified any concerns.
A sufficient degree of trust was built and both sides looked forward to the experience. It was quite normal for many hosts I knew to fetch their guests from KL Sentral and show their guests around. These people were more like ambassadors for Malaysian tourism.
I had taken many of my guests for dinners at some of the most unique places. I knew a host who stocked his own house with instant noodles, biscuits, and drinks for guests who arrived late at night when it was difficult to find restaurants.
All this was about to change.
AirBnB Starts to Face Intense Competition
AirBnB is a unicorn. It's growth has been nothing short of phenomenal. They had tapped into a market that had been "under the radar" and exploited it with an application that made the idea of homestay more palatable to travellers.
They did this brilliantly.
Between 2009 to 2014, AirBnB had grown from a single listing in San Fransisco to hundreds of thousands of listings making it worth billions.
Very quickly, other online travel agencies (OTAs) who traditionally served the hotel markets realised that the homestay or short-term accommodation market was lucrative. They jumped in, hook, line and sinker.
Established brands like Agoda, Booking.com, and Expedia had deep-pockets and were able to gain significant market share.
Adding to the list of its competitors in Malaysia in 2019 are Hyatt House, OYO, and Tune Hotels.
These OTAs leveraged their legacy platforms that were not really designed for homestay guests. There was no conversation that took place. There was no rich interaction between host and guest. It was,,,well, pretty much the same as booking any other hotel.
In responding to stiffer competition, AirBnB became more like these OTAs. By 2019, AirBnB's website was a "colder" commercial representation of its former self. It was a factory of listings optimised to get as many bookings as possible.
OTAs have historically only competed on price. There's no real differentiator between Agoda and Expedia for example expect in price. Both platforms regularly urge the hotels listed with them to offer last-minute discounts, seasonal discounts, mobile discounts and other promotions in an attempt to be more attractive to visitors.
AirBnB took this slippery path. It began encouraging hosts to lower prices.
It Is No Longer Easy to Be Profitable as a Host
By 2018, some of the best hosts I knew were abandoning AirBnB. They were unable to host profitably and they'd rather call it a day than lower their hosting standards to try and remain profitable.
In the building where I had most of my listings, hosts got together in multiple meetings to try and standardise prices and stave-off an impending price war. These meetings were unsuccessful because a price war was already happening elsewhere.
As more and more hosts responded by reducing prices to maintain a decent occupancy, they unwittingly became accessories to their own doom.
While AirBnB should be worried about this, they seem to be clueless as to the realities on the ground. In a recent meeting with an AirBnB representative, one of my clients was told that her booking rate was impressive and above the average in KLCC area. The AirBnB rep found it odd because my client's prices were, in her words, "very high."
Her advice was that my client should drop her prices to the market average. It did not appear to register that at average prices, even with an 80% occupancy, my client would not be profitable.
This experience made me realise that AirBnB's office in Singapore is far removed from the ground realities in Malaysia. Their data gives them averages (that they've been pushing down to build market share) but they don't seem to know how much it costs to own a property in KLCC for example.
AirBnB's growth rate in Malaysia is still impressive as of this writing. However, it is plateauing. This is exacerbated by hosts leaving the platform after struggling to make a profit.
In June of 2018, eMarketer revised its growth prediction for AirBnB from 17.6 million new users by 2020 to just 6.1 million users. A 65% downgrade.
Morgan Stanley researchers also reported AirBnB's growth is slowing down citing a peak in penetration, issues surrounding privacy, legality, and security and competition from OTAs.
As a matter of fact, latest figures show that Booking.com has beaten AirBnB in STA. According to this article, Booking.com has recorded 748 million bookings since 2007 for home stays compared to AirBnB's 500 million in the same period.
What Used to Work Is No Longer Useful
As I got better at hosting on AirBnB, I discovered a formula that worked well. Back then, hosts who followed this formula did very well. I taught this in all my workshops and seminars on AirBnB.
To be successful on AirBnB:
your property had to be in the right location,
the presentation of your listing on AirBnB had to be outstanding,
your pricing should be arrived at by calculating your costs,
you focused intensely on being a good host,
you got yourself listed on as many OTAs as possible, and
if you were an operator, you added on more listings over time.
The right location for me were properties that were:
As close as possible to many tourist attractions or easily accessible to tourist attractions
Within 500 meters of public transportation stations
Within 500 meters of a good shopping mall
Within walking distance of entertainment and recreations centers
Accessorised with great amenities and facilities
The presentation of your listing was primarily influenced by photographs. It was absolutely essential that you hired a professional photographer to take brilliant pictures of your property. The title and description of your listing were the next focus points, in that order. Highly descriptive titles and descriptions that emphasised benefits over features nudged potential guests towards booking.
Instead of pricing yourself by looking at your competitors, it was important to look at costs first. You see, most new hosts are more concerned with occupancy and tend to forget profitability. The correct way to price yourself is to look at your total monthly cost first. For example, if your monthly mortgage instalments plus other costs like internet, water supply, electricity, maintenance, insurance and taxes amounted to RM4,000 per month, you would derive your daily rate based on covering these costs with a 50% occupancy. Therefore your daily rate would be RM267.
Intensely focusing on being a good host was to give your guests the best possible experience. Hosts who went out of their way to do good for their guests were rewarded with commensurate reciprocal from their guests in the form of 5-star reviews and kind words of appreciation.
After mastering AirBnB, it was natural to get listed on all the other major OTAs namely Agoda, Booking.com, Expedia, TripAdvisor, and HomeAway.
Get all this right, and you only had to increase more listings in order to increase your profits. It was a formula that worked predictably.
All this has changed now.
It is still important to be in the right location but competition in the right locations are intense. Malaysia has over 60,000 listings now.
Today, everyone has great presentation. Most AirBnB listings have professional photography and great deco. There's AirBnB Plus which presents qualifying listings very professionally. (Ironically, there was a time when most AirBnB's were an AirBnB Plus as far as guest experience was concerned.)
Price wars encouraged by AirBnB means it is more difficult for hosts to price themselves profitably.
As AirBnB is now more mainstream, guests are expecting hotel-like services and less appreciative of hosts' efforts. Hosts on the other hand are less and less concerned with guest experience as they struggle to survive.
Being on all OTAs now does not necessarily mean higher bookings and adding more listings now could mean bigger losses.
Don't get me wrong, you still need to use the formula above but it will not guarantee success like before.
So, What Can You Do for More Bookings Now?
In the current competitive environment, out-of-the-box ideas are called for. In fact, continuous innovation in your approach is the only way to guarantee success. Here's what some of the most successful hosts are doing now...
#1 Have a Strong USP
This has always been the cornerstone of success as an AirBnB host. A USP means a unique selling proposition. In that breath, what is unique about your property? What makes it attractive? What makes it stand out?
One of the most successful AirBnB's in the world is the Mushroom Dome Cabin. At a glance, it does not look like anything the most sought after AirBnB would look like. However, it is unique. The dome is partially made of glass which allows you to look into the forest from your bed. There's a deck built on the trees making it feel like part tree-house. The shower get is walled with travertine tiles and has skylight coming in. All in, this listing has a strong USP.
Plenty of hosts feel that they cannot find a USP for their listing. In my experience, most of them are wrong. If you put enough effort at it, you will find a USP that is in tandem with your personality.
#2 Think of Yourself as a Cleaning Company
AirBnB allows you to charge a cleaning fee for every booking. This fee is not visible when your listing appears on search results allowing you to be competitively placed with other listings.
It is shown after a potential guest clicks on your listing.
Successful hosts take advantage of this. Their listing price may be RM150 per night but their cleaning fee could be an additional RM100. Just 10 bookings can provide additional revenue of RM1,000. This is significant income, especially in a competitive environment where there is high downward pressure on prices.
#3 Get as Personal as Possible
Remember that AirBnB had an almost cult-like following? This was primarily because of the meaningful relationships it facilitated.
However, with features like instant book guests and hosts don't communicate like before. As AirBnB's direction moves to "hotel-like" booking features and systems, the reservation process has become more transactional. In this situation, the level of personalisation and depth of relationships between host and guest suffers.
Good hosts however, remain dedicated to building strong relationships with their guests, often leveraging AirBnB's powerful messaging system.
Great your guests electronically. Welcome them immediately after a booking is made, provide them with detailed check-in instructions, tell them how excited you are to host them. Use first names. Get personal.
Follow up with guests during their stay. It can be a simple message this; "Hi Jane, how's everything? I hope you're enjoying your stay. If there's anything I can do to help make it better, do let me know." Such messages go a long way to building goodwill with your guests.
The best part is that all these messages can be saved as templates and quickly delivered to your guests with ease.
The idea is for your guests to feel welcome, cared for, and safe. This ensures good reviews, SuperHost status, and more bookings.
#4 Find a Niche and Exploit It
We had nearly 26 million tourist arrivals in 2018. AirBnB reported that is accounted for 3.25 million guests in Malaysia. That's a lot of tourists and guests.
The worst strategy you can have is to cater for everyone. Instead, you should focus on niches within these tourist arrivals. For example, a host I consider successful is completely focused on French tourists. He lived in France for some years and can speak French.
He makes this known in his listing description and has made his offering very French-centric. French tourists love staying with him and he is booked with impressive occupancy.
AirBnB allows you to have listings in multiple languages. You can leverage this to focus on a specific market. Many people are focused on the Chinese market. It is a big market. The number of tourists coming from China is very large. It is also a very crowded space because many service providers are focused here.
The Vietnamese market on the other hand, is a niche that is getting very little attention. Tourist arrivals from Vietnam is growing and although relatively small, it can keep AirBnB hosts fully occupied.
Niches don't have to be by nationality.
You can focus on big groups, solo travellers, business travellers, adventure seekers and so on. There are many ways you can carve a niche.
#5 Get In On Experiences
If there's one move that AirBnB made in recent times that may be a game changer, it is the experiences feature.
Experiences allow hosts to offer more than just accommodation. Do you know your neighbourhood better than most people? Are you really good at cooking Nasi Lemak? Do you love hiking? Or is there a local cause that you support?
You can make all these into experiences for your guests and charge them for it. For example, you could do a local food trail for half a day and charge RM250 per person including food and transportation. 3 guests on this experience provides you with a hefty profit. Your cost is your time, transportation, and food.
Get really good at this and the numbers can be very encouraging. Far better than accommodation in many cases. In fact, this will also have a a new spillover effect on the local economy. I think this is a big win-win for everyone and is going to be the major differentiator between AirBnB and other OTAs.
There Are Market Threats
The first is the threat of regulation. The government has been talking about regulating AirBnB and some proposals have been made. Currently the Malaysia Productivity Center is collecting feedback from stakeholders. One of the proposals is to put a cap on the number of nights hosts can rent their listings. Such proposals will limit income potential for hosts and make hosting less attractive.
The second is oversupply. AirBnB's impressive growth in Malaysia has not been complemented by a strategy to help hosts remain profitable. I think AirBnB has compromised their hosts for market share and this will have adverse effects on AirBnB itself. The effect of oversupply includes price wars, mediocre hosts, and lower occupancy.
The third market threat comes from budget and boutique hotels. AirBnB has taken affected the budget hotel industry. The budget hotel industry has reacted by crying foul but the smarter ones in the industry are innovating. They've been improving on prices, rooms, services, and location.
Finally, the titans are entering the STA market for a piece of the pie. Companies like OYO, Tune Hotel, and Hyatt are examples of big players entering the fray. These companies have huge war chests and can leverage their resources to crush smaller AirBnB hosts.
The changing landscape coupled with phenomenal growth has made STA a very challenging endeavor for many hosts or property owners. Most property owners prefer to now pass on their apartments to operators.
Operators face an even bigger challenge as they have to remain profitable and please property owners with decent returns while contending with titans like Hyatt, OYO, and Tune Hotels.
The only way forward if you want to be successful with AirBnB is to think out of the box. The ability to innovate on this type of thinking, will determine if your success as a host or operator.