In the 2010s, over 80 -year-old music and film industry empires have collapsed in front of our eyes. Yet few hoteliers took notice. EMI and MGM seemed to belong to another world. However, the same force which undermined the entertainment industry is now eroding the hospitality industry. Airbnb and the so-called “sharing economy” can prove as devastating for hoteliers as peer-to-peer has been for the entertainment industry. Knowing the millions of jobs at stake, this could very well be one of the major public policy challenges of the 21st century.
Sharing is not caring
Studies are unanimous: sharing economy consumers are not driven by altruism. They are driven primarily by self-interest. Not paying for music, or paying less for a room, seem to be the main reason for choosing peer-to-peer over buying a disc, or choosing Airbnb, over booking with a regular hotel.
The new-age, neo-cyber hippie trends of sharing one’s belongings, the cooler way of consuming, the protest against a hard capitalist system, all of that has become mere folklore. The well-publicized narrative of the inflatable mattress on the floor, which allowed students to save, travel and meet is but a founding myth, now used as advertising, which cannot hide the commercial reality of hundreds of thousands of apartments offered for short term rentals in the face of hoteliers.
Sharing is destroying
The sharing economy isn’t the new online flower power it is masquerading for. It is, at the opposite, an expression of the law of the market in its most brutal form.
Its success is based on cut-throat cost-saving and price competition. It also leads to monopolistic power. Airbnb boasts 1,000,000 rooms, more than any of the current hospitality groups. The largest hospitality group in the world, Intercontinental Hotels Group plc, offers 720 000 rooms. Airbnb’s financial market value has reached 20 Billion US dollars, more than twice IHG’s market cap. It’s a business. It charges substantial fees to both host (3%) and guest (6 to 12%).
One reason for this incredible competitive edge is simple. Airbnb employs 1500 people worldwide. In the US, hotels employ nearly two million people. In the European Union, two million four hundred thousand people are directly employed by the accommodation industry. How much are these jobs worth to society? Auditors have calculated that each new job created by a government scheme, in the UK for example, cost taxpayers over 200,000 Euros.
By the way, young people, below 35 years old, represent half of the hospitality workforce in Europe. At a time when the youth unemployment rate reaches 50% in Greece and Spain, can governments afford to let those jobs to go up in smoke?
Sharing is concentrating power
The hospitality industry is made essentially of small, if not “micro” enterprises. 1.7 million such enterprises trade daily in the EU. Will they soon be facing one online giant? Why isn’t Airbnb facing more online competition? Because sharing economy leaders enjoy massive “network externalities”, meaning the more people use it, the more people will use it. The same goes of social networks, or even computer operating systems.
The sharing economy is not as economically democratic as it claims, since it concentrates power in the hands of a monopoly. What is less democratic than replacing millions of businesses, who compete fairly, by one? Initially consumers feel the benefit, as they pay less. Eventually, the outcome may prove different. Monopolies are not famous for maximizing consumer’s welfare.
Sharing is dividing
Who benefits from Airbnb, apart from the platform itself? First of all, the hosts benefit. Those who have access to property, real estate space in prime locations, which they can afford to rent-out. That is to say not the poor, not the young, not the unemployed, not the single moms. We must debunk the myth of the sharing economy as an alternative for the have-nots to cater to the have-nots.
The current hospitality sharing economy, which was supposed to bring people closer, is increasing the divide between those who have access to property, and can make more money from it, and those who don’t. Nothing new, Flaubert 150 years ago wrote that the world is split between landlords and tenants. The so-called sharing economy does not bridge the divide.
Will the hospitality industry be the next music industry?
Three years ago we all witnessed entertainment giants, EMI and MGM, founded in the roaring twenties, file for bankruptcy or getting broken up and sold for a fraction of their former worth. Yet, few hoteliers took notice. The collapse of entertainment empires seemed very foreign. However their fall was caused by apparently harmless individuals who started sharing music and movies online, the very same way seemingly inoffensive individuals started sharing their rooms on the internet. The former resulted in massive wealth and jobs destruction which hit thousands of artists, technicians, theatre employees, disc manufacturers and retailers. CDs and DVDs are now a thing of the past.
Could hotel rooms share the same fate? When everybody stopped paying for music, artists called for consumers “responsibility”, to little effect. What will hoteliers call for? Music and film online sharing was, and still is, illegal. The entertainment industry had the law on its side, and yet could not ward off disaster. Airbnb, until proven otherwise, is very legal.
Because hospitality is one of the fastest growing sectors of the world economy, it may, in the short run, be able to stave off the shock. But in the middle run, what should we do?
Hoteliers can first focus on two things the sharing economy does not provide: safety and food. Moreover because our sector is so labor intensive, it is hoteliers’ collective duty to raise governments’ awareness. When all democracies are putting so much resources into creating jobs, allowing the sharing economy to destroy yet another sector is sheer folly.
Hoteliers need help. Such help could, for example, take the shape of lower VAT rates on hotel rooms and higher VAT rates on online room rentals, at no cost for taxpayers. It would incentivize job creation and discourage job destruction. Hoteliers and everyone else’s future is at stake.
About the author
Igor Sekulic is currently Business communication Senior Lecturer at Ecole Hôtelière de Lausanne, with 20 years expertise in the entertainment and event industry.
Professeur agrege de l’Universite in social sciences, former student of the Ecole Normale Superieure, his research focuses on social sciences and popular culture. He taught in Nantes University, France, Cesar Ritz Hotel School, Switzerland as well as in the Washington State University Bachelor in Hospitality management program in Switzerland. He served 8 years as manager of the Montreux Jazz Festival management office. He is also the co-founder of Film Export UK the UK film export body representing British cinema at all film markets worldwide, and creator of the London screenings. He is also the producer of several feature films released internationally, among which the sequel to the French box office hit Les Visiteurs.
