Why Amazon should acquire Airbnb, and it’s not for the love of travel

Amazon has set the chessboard to succeed in the travel vertical – in a way that is not expected.

Up until now Amazon’s foray into the travel vertical has been lacklustre at best. Starting in 2012 and running for three years was Amazon Local, a Groupon-like business model for local travel providers.

The steeply discounted “flash-sale” quickly ran its course with customers and never presented a sustainable economic value to the supplier community.

[pro_ad_display_adzone id=”15046″ align=”left”]In 2015, the launch of Amazon Destinations offered locally curated, weekend get-away vacation packages. Short excursions by car have their appeal but the two-fold punch of customer lack of recognition of travel by Amazon and Amazon having to build supply one hotel at a time is clearly not scalable for a company of this size.

Amazon Local and Destinations both shut down operations in 2015.

So, roll the clock ahead to 2019 and to the persistent question of when and how Amazon will enter the $1 trillion travel industry. The merits of re-entering the market head on are questioned given to deep-rooted powerhouses like Google, Expedia, Booking, and the big brands Marriott, Hilton, Hyatt, and their ilk. 

Amazon has proven to have the Midas touch in many verticals but travel remains elusive. However, there must be some interest in travel for Jeff Bezos to invest $112 million in Airbnb back in 2013.

Should he decide to move into the vertical head-on may result in repeating history. So, what approach should Amazon take if this is the next vertical to conquer? The answer is to acquire Airbnb and not for the love of travel.

It’s a Chess Match

Like a chess match, Amazon has made several moves in the travel vertical. If and when Amazon makes the acquisition of Airbnb, it will not be entering it for the love of travel but for around the edges of the travel industry is a treasure trove of opportunity for this retail giant.

Reframe your thinking and you will see that travel acquisition is simply a by-product of Amazon’s true strategy at hand.

Queen’s Pawn to D5: Amazon and Airbnb are complementary and additive businesses

Brian Chesky and his team at Airbnb have thought through what an Airbnb host will need from a business standpoint.

The platform used by millions of hosts is basically a revenue tracking and performance system to run a business.

The platform offers the home sharer with tools to collect and process payment, schedule of revenues to date, security deposit processing, marketing and communication, and even tax reporting. All this within the host’s dashboard once you log into Airbnb.

Plug in a service like Amazon Prime and you introduce the expenses side of the business. Track purchases of all supplies needed to stock the home share. A snapshot of the P&L can help the host track key metrics and optimize profitability. The revenue and expense dashboard become a must-have the host cannot live without.

By bridging the two giants this way shores up this market, rides the growth of both brands and becomes the envy of any competitive retailer sitting outside trying to break in.

On the other side are 150 million users of Airbnb and capturing the retail business at the point of purchase within Airbnb should not be overlooked.

Great, that exotic bungalow in Macchu Pichu calls for hiking boots, rain gear, and a survival kit. Bring the marketplace to the end customer and let the travel transaction complete the real customer journey. 

King’s Pawn to E6: Key placements of key people

In the past year, two key people from Amazon’s executive team have migrated to Airbnb.

Greg Greeley led Amazon Prime division and oversaw the wild growth from product launch. He was with Amazon for 18 years before moving over to Airbnb. He now oversees the Homes division of Airbnb, including the Airbnb Plus program offering vetted vacation rentals with more hotel-like services. This service calls for lots of bathroom and room amenities and other product items to meet hotel-like guest expectations that the host will have to purchase to qualify as a Plus program provider.

The average Prime member spends $1300 a year compared to $700 for non-members, according to Consumer Intelligence Research Partners.

To maintain Airbnb Plus status, a host can expect to spend more than double of a typical Prime member.

The other appointment by Airbnb is Dave Stephenson a 17-year Amazon veteran who served as CFO of Amazon’s worldwide consumer organization which is responsible for Amazon’s global website sales including a handful of subsidiaries. Now he will oversee the fastest and most popular global travel site to add to his inventory of direct channel assets should it join Amazon.

These key placements of Greeley and Stephenson do not suggest a “fifth column” inside Airbnb, however friendly faces and a generation of loyalty to Amazon does paint an interesting picture of where this could all go.

Bishop to D6: With Airbnb, Amazon now has the hotel relationships

Airbnb is in the process of slowly opening up the platform for hotel brands to access.

While individual hoteliers would infrequently maintain rates on Airbnb it was more as trial and error in their local market. Now if big box hotels join the platform, or their own home-sharing business joins the platform, then the hotel relationship dynamic changes in Amazon’s favour.

With Airbnb’s purchase of Hotel Tonight, Amazon would be one step closer to hotel relationships.

What Amazon will do is tap into the lucrative hotel procurement business.  Companies like Ariba, Avendra and others stand to lose ground or at least find a new and formidable competitor. Avendra reports to manage nearly $5 billion in annual purchasing and include as buyers more than half of the top 30 hotel chains. An open door to procurement and RFP processes for large scale purchases of linens, chairs, beds, mattresses, cleaning supplies, and more is Amazon’s forte.

Queen to H4: Amazon owns the data  

Amazon becomes the owner of all the data. By bridging inventory and supply chain controls with an elaborate distribution system and sophisticated data processing platform, Amazon sits in the centre of a data hub to manage, predict, and price yield.

For example, hospitality is a seasonal business and becoming far more dynamic with the onslaught of climate change.  Based on weather patterns, Amazon can predict, supply, and price far more intelligently than any other combined entity.

The data that Amazon, and now Airbnb, sits upon will enable these two companies to basically define the marketplace to upsell the travel customer and prepare the host-hotelier.

This price makers marketplace enables Amazon to benefit from both sides of the transaction from supplying umbrellas for an upcoming trip to selling umbrella holders in preparation for the incoming guest.

Bishop to G3: Amazon has the search volume and the ad platform  

While customers may not think of Amazon as a travel site, this concern can easily be overcome with the right execution of the Airbnb acquisition.

For starters, Similarweb, a website traffic rating service, ranks Airbnb as #2 in website visitors behind the travel category leader Booking.com. In contrast, as a percent of total U.S. site traffic, Amazon eclipses all other sites.

Skift travel research reports that Amazon receives 30 percent more direct and organic visits than the two travel behemoths of Booking and Expedia.

The ubiquity of search in our daily lives and that voice search is the fastest growing category of search (50 percent of all search will be voice driven by 2020, according to Comscore) coupled with Alexa the market leader in voice search installs, illustrates Amazon’s market position in travel-related searches compared to 2015.

With travel category name recognition and high traffic demand, what else can Amazon do to further penetrate the travel space?

Today Amazon runs one of the largest advertising businesses greater than Twitter and many ad networks combined. The company is monetising this traffic in highly efficient ways and how this will play out for competing OTAs vying for attention will be interesting to watch.

As home sharing becomes more mainstream and global (Marriott’s entry and Airbnb $200 million investment in Oyo), coupled with an open platform for hotels to advertise, the adoption of Airbnb could be far-reaching and seriously problematic for Expedia and Booking. Amazon could rival Google for advertising and squeeze the OTAs. 

Check Mate: Game over, Amazon wins

Convenience is the new currency and both Airbnb and Amazon exemplify this. Travel is emotional and Airbnb allows us to craft a dream that is unique and with global appeal. 

The entire travel journey and the marketplace for a host is simple and easy to use and the community sharing keeps customers coming back.

For Amazon, they define convenience. Shopping, buying, returning, even its one-click to purchase is simple and convenient. The convenience to fulfil a transaction with all customer information at their fingertips is truly the currency of the future. Convenience makes customers loyal and hooked.

Today’s millennial is tomorrow’s hotel general manager, procurement officer, asset manager, and travel consumer. They are groomed on the expectation of conveniences and will soon be making considerable business decisions for their company, if not already.

Both Airbnb and Amazon capitalise on the innate desire for convenience – alluring and drawing us back time and again. The combined businesses leverage each other’s strengths, not for the love of travel but to make money. 

Summary

As of today, Amazon has a market cap of over $800 billion and Jeff Bezos is the richest person on earth. Airbnb is expected to be valued at $38 billion at the time of IPO, representing a mere 5% of Amazon’s total value.

The combined entities can benefit each other and become a powerhouse for Amazon in an entirely new vertical. Not even a group of local activists could stop this.

 

See original article here