Those looking for evidence showing the business case for the sharing economy are probably glad to hear the latest news from Airbnb, where venture capitalist Peter Thiel is expected to invest $150 million, putting the company’s valuation at around $2.5 billion. Still, even successful companies like Airbnb have a point or two they want to prove, such as if the company can generate benefits to stakeholders and not just to shareholders.
And the benefits are definitely there – according to a new study commissioned by Airbnb (and conducted by HR&A Advisors), the company’s contribution to San Francisco’s economic activity is estimated at $56 million a year. Sounds impressive, right?
Yet, while it’s clear why Airbnb is glad to show such impact (hint: the fight over the city’s hotel tax that the company is required to pay now), it is less clear if the study presents the whole picture or just the part Airbnb wants San Francisco to see.
Let’s look at some of the main findings of the study:
More economic activity
From June 2011 to May 2012, Airbnb guests spent $56 million in total in San Francisco. $12.7 million was spent on lodging, $11.8 million on food and beverage, $10.8 million on retail, $9.8 million on services, $5.7 million on entertainment and so on. Interestingly, although almost 80 percent of Airbnb guests say they choose to use the company’s services because they can save money this way, they actually spend more money in total compared to hotel guests – $1,100 compared to $840 respectively. The reason is that the average stay of Airbnb guest is 5.5 days while hotel guests spend only 3.5 days in the city.
Providing locals with substantial income
Airbnb is also contributing directly to the livelihood of the many residents that offer their apartments and houses to Airbnb guests. According to Forbes, Airbnb hosts made an average of $9,300 annually for listing a home and $6,900 for listing a private room or shared space. The study found that people who rent their homes on Airbnb use the income they earn to pay for rent/mortgage (56 percent of the hosts), vacation (45 percent), other household expenses (45 percent), or as extra spending money (54 percent).
A positive impact on local neighborhoods that are “off the beaten track”
“Airbnb represents a new form of travel,” says Airbnb CEO and co-founder Brian Chesky. “This study shows that Airbnb is having a huge positive impact — not just on the lives of our guests and hosts, but also on the local neighborhoods they visit and live in.”
Chesky was referring to the findings showing that 72 percent of Airbnb properties in San Francisco are located outside the central hotel corridor and more than 90 percent of Airbnb guests visiting San Francisco prefer to stay in neighborhoods that are “off the beaten track.” In addition, over 60 percent of Airbnb guest-spending occurs in the neighborhoods in which the guests stay, indicating that local business might enjoy a greater share of Airbnb guests’ spending.
No real damage to the hotel industry
You might think that the success of Airbnb comes at a cost to San Francisco’s hotels, but the study presents a totally different picture. It shows that Airbnb has not cannibalized the local hotel industry – hotel occupancy and prices have both actually increased in the years since Airbnb launched, TechCrunch reports.
One of the reasons is that the supply of hotel rooms has remained constant. “We don’t have any new hotels being opened,” explained Hotel Council of San Francisco Executive Director, Kevin Carroll. “From an inventory standpoint there’s nothing new coming onto the market, and at times, when occupancy is high across the city, Airbnb can soak up that extra demand,” he told Huffington Post.
So, is this the real picture?
Well, it depends how you look at it. Here’s another way to look at these figures: According to the study, about 14 percent of the guests would not have visited the city if not for Airbnb. Dividing $55.8 million in an average spending of $1,100 per guest gets you 50,727 Airbnb guests a year. Now, 14 percent x 50,727 x $1,100 = $7.8 million. Adding the difference between the spending of average Airbnb and hotel guests for the rest (86 percent) of Airbnb guests would give us a total of $19.14 million.
There are also negative effects that should be taken into consideration, such as lost hotel tax (at the time of the study Airbnb guests did not pay city hotel tax – the city is currently trying to get Airbnb to pay up). According to my calculations, the loss from all guests that would visit San Francisco even if Airbnb wasn’t around is $2.02 million. So now the net contribution of Airbnb is $17.12 million (19.14-2.02). It’s still an impressive figure, but certainly less impressive than $56 million.
The study highlights some important benefits of Airbnb to local economies, from spreading the money of visitors in a larger number of neighborhoods to making a substantial contribution to the livelihood of residents, many of whom (60 percent) have an income less than San Francisco’s median income. Yet, to fully understand the impact of Airbnb we need also to take into consideration other factors, such as the impact on hotels, city’s income and expenses and even the local housing market that some argue that is also influenced by the rise of Airbnb. So, as they used to write in academic papers, further research is still required here.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.