The meteoric rise of Airbnb during the last decade has earned the 12-year-old company the status of a challenger to the supposed Booking.com/Expedia duopoly in the global online travel agency landscape.
Wading through the 350+ pages of Airbnb's S-1 IPO filing reveals some key traits of the company's unique path to success, outgunning competitors of all sizes in the competitive online travel marketplace
Here are some key learnings that marketers might want to keep in the back of their minds when travel comes back and the marketing battle heats up again.
Branding can beat performance marketing in good times... and even more so in bad times
It is common industry knowledge that Airbnb chose from the early days to shun away from the traditional search marketing formula chosen by most of its industry peers. The poster child of the sharing economy took the path of building a strong brand that deeply connected with the desires and aspirations of travelers across the world.
This strategy allowed the company to take off like a rocket ship during the last decade, a buoyant period for the global travel industry. When travel collapsed with the pandemic outbreak, Airbnb was no different from the rest of the industry by hitting the brakes in sales and marketing spend to get into survival mode during the lockdown.
During the third quarter of 2020, with travel picking up again, Airbnb’s strong brand equity outshone the rest of the industry. Direct and unpaid traffic returned to 2019 levels, accounting for 93% of total traffic.
Marketing expenses in the quarter represented 9% of revenue vs. 26% in the same quarter of last year. Quarterly gross booking value finished down 17% year-over-year, significantly better than the overall industry annual trend.
Airbnb’s last quarter generated the highest ever EBITDA in the company’s history, as a result of the low marketing costs and strong revenue uptick.
Airbnb certainly capitalized on the global trend towards private accommodation triggered by the pandemic. Both Expedia Group and Booking Holdings reported alternative accommodation activity as their best performing product line in their respective Q3 results.
But the two incumbent OTAs overall marketing expenses vs. revenue ratio during that quarter was 34% for Expedia and 42% for Booking.com, compared to Airbnb’s 9%.
Among all metrics in Airbnb’s IPO filing, arguably the most powerful one pinpointing the company’s world-class brand strength is the 14 million new active bookers the platform attracted during the first nine months of 2020, despite the significantly lower investment in performance marketing.
There is hope for loyalty in leisure travel - but you need to play the long game
Loyalty in travel has been a hard nut to crack. Customer’s high price sensitivity combined with infrequent purchasing patterns are seen as the main barriers for travel players to build a loyal customer base.
Major airlines and hotel chains built massive loyalty reward schemes on the back of global corporations who send their employees on regular business trips to ensure teams and clients across the globe worked smoothly together.
But COVID-19 has moved the needle from room to Zoom meetings and the change looks likely to have staying power when the pandemic is over. This raises existential questions around the future of corporate travel and the loyalty programs designed around them.
Airbnb’s IPO filing provides some valuable details as to how a mostly leisure-focused travel company has managed to build a loyal customer base during the last decade, despite not offering any specific loyalty or reward program.
Analysis from 2014 to 2018 shows customers’ revenue retention decreased during the second year, start swinging back in the third year and reaching a 100% repeat purchase rate in the fourth year for 2014 customers.
As a result of this extremely loyal customer behaviour, Airbnb was capable of generating 69% of total revenue in 2019 by repeat bookers, up from 66% in 2018.
These numbers make the rest of the industry look pale.
Market leader Booking Holdings has heavily invested in its Genius reward program in recent last years, claiming more than 100 million active members, while Expedia Group offers reward programs for its three core brands (Expedia, Hotels.com and Orbitz).
None though provides public figures on repeat booking rates and the only metric Booking Holdings has touted is a 50% share of direct traffic, without specifying how much of this share comes from repeat customers.
Rewrite the marketing playbook
Travel companies would be wise to review their marketing playbook, taking into account these learnings.
The tried and tested path of the last decade, mainly focused on search marketing and reward programs for frequent customers might not stand the test of time.
Airbnb, perhaps not quite the new kid in town anymore, has proven that a profitable and scalable business can be built around a unique brand position and a highly loyal customer base.