Extraordinary amount of intense debate recently regarding issues around person-2-person (P2P) business models for tours and accommodation.
As I wrote recently, these new business models are certainly disrupting the conventional travel industry. But just because something is new, does it make it better? Was anything actually broken with the previous way of working?
So, lets compare a P2P approach versus how the conventional travel industry would approach the same problem:
1. Can you list a property that you don’t actually own?
With P2P it seems this is quite possible (See this story on Hacker News).
In the conventional travel industry the company that is principal would visit the supplier (yearly), even if overseas, and check that the property actually still exists.
At the same time, a basic heath and safety audit would be carried out as well as a check that the supplier is operating to best industry practice.
The traditional approach wins this one.
2. Who ensures that the product descriptions / images are correct?
With P2P the central website hasn’t any idea regarding the accuracy of the descriptions – well, not until a first customer reports back and comments via a review that all was not as described, by which time they will have had a poor customer experience.
In the traditional travel industry, descriptions/images are challenging to get right, too – however hotels/guest houses know they have to get this right and there are industry systems in place to distribute this content. It’s a fixed problem.
3. Will conventional travel websites wish to partner with P2P players?
Metasearch probably will want to work with P2P (as consumers tend to end up booking direct with suppliers anyway), but online travel agencies are probably less likely to integrate with P2P, primarily due to not wishing to mix an individual-provided service with a business-provided one.
This puts P2P at a disadvantage when working with the existing travel industry. At the moment the P2P players like to be seen as outside of the travel industry, so integration probably isn’t really a problem they are bothered about today.
However at the scale that some of these companies will need to work at in order to break even/attain scale suggested by their funding rounds, they will likely need to work with the conventional travel industry at some point because the industry has the necessary flow of travellers.
4. What are the protections against third party money laundering?
If anyone can list a property, does this introduce a money laundering risk?
The first defence against money laundering is “know your customer”. As a P2P marketplace you can have a situation where you neither know your customer nor your supplier.
In the conventional travel industry if you are transferring the money to a supplier that tends to be a business not an individual. Also tends to be a business you have regular contact with.
You might be money laundering (!) but at least you are not being used by a third party for money laundering without your knowledge…
5. Will P2P tour marketplaces lose their best performing suppliers?
There are 20+ tour guide P2P marketplaces. An individual selling via one of these marketplaces tends only to be bookable once on a particular day.
This approach is fine, but if that individual is in a popular destination they may be able to organise themselves to handle more than one booking a day.
Effectively they then become a tour operator rather than a tour guide. Tour operators (businesses) will have a different set of requirements both from a marketing and an operational perspective.
It actually could actually end up with a situation where a P2P tour marketplace loses their best performing suppliers as these suppliers “outgrow” the P2P platform.
Or perhaps an individual just doesn’t want to be running a tour every weekend but are happy to run a tour every couple of months.
Oddly, this builds a situation where the more successful the P2P tour marketplace is, the harder it will be to retain the individual nature of the suppliers (rather than working with specialist tour operators).
6. Do customers understand that they are buying from a person?
Some of these marketplaces take 100% of the booking revenue up front. In the customers mind this payment to the marketplace makes them believe they are booking with the marketplace.
When something goes wrong (eg. a customer turns up for a tour or accommodation and it isn’t ready, organised etc) the customer may as a result contact the marketplace for immediate resolution.
There will be little the marketplace can do as they don’t have any more knowledge or staff on the ground to fix the problem.
This can only end in a PR debacle as the customer will blame the marketplace yet the marketplace won’t have any capability to resolve it.
Interestingly, at least on eBay if a customer has a bad experience with an individual supplier, people are “trained” to know that it is an individual supplier they should be agitated with rather than eBay.
Also eBay does not have people turning up in the middle of the night at a distant destination and finding they don’t have any accommodation booked, so customer service does not need to handled in real time, 24 hours a day.
7. Are individuals permitted to rent their home/sell a tour?
In most countries the travel industry is a highly regulated industry. The regulation does tend to lock in existing industry structures and leave little room for business model innovation.
However, the rules are there and, until changed, they are the rules we all have to abide by.
For example, with accommodation rental, does the supplier have the right to rent their home? Does their home insurance cover sub-rental?
8. Will people providing accommodation/tours need to be insured?
If paying insurance becomes “necessary”, will that remove the fun, individualistic, accommodation? Will it remove all properties that are not permitted to be listed due to regulations/law, as they will be uninsurable etc?
Will individuals think twice about listing their property if they are prompted with a question about insurance (perhaps built into the listing side of the marketplace), as that will make them think about the downside?
9. Are the P2P marketplaces taking enough revenue share?
Take Airbnb – it takes about 10% or so. Is that sufficient to handle all the customer service questions that will be incoming? Is that sufficient for big customer facing marketing campaigns?
I expect there was a working assumption built into the business model that customer service would be handled directly by the individual property supplier, rather than the central marketplace. Not quite sure that that assumption will turn out to be correct.
Businesses on the other hand don’t mind paying a good % of revenue share, but only if it is a booking they would not otherwise have received.
10. What proportion of “bad” customer experiences are acceptable?
P2P is a high risk, high reward booking for a traveller. The products are mainly great – indeed much more attractive than those provided by the traditional travel industry. However with the great comes the occasional experience failure.
In the traditional travel industry products and services are carefully tuned. This means they are neither brilliant but equally they are never terrible either.
Will P2P marketplaces be able to handle the negative PR from a few poor customer experiences or will a few bad stories kill the concept?
Final question
P2P looks a really fun area to be innovating in within the travel industry. But will we still be talking about P2P in two years time?
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About Alex Bainbridge
Although P2P marketplaces are great resources for travelers who want an alternative experience, the operational aspect should be thoroughly examined. As the article mentions, how much control does a marketplace really have on insuring a smooth, uneventful experience for both the host/guide and the consumer?
This model would appeal to consumers and hosts/guides with a high tolerance for risk or so I’d presume. Would be interesting to see how the market segments out for these types of sites.
All very good questions.
At Hideaways International (www.hideaways.com)we’ve had 32 years of P2P experience,roughly 20 years of that pre-internet, and a dozen or so post internet. I think it’s fair to say we were one of the very first P2P players and ntil the internet came along, we were the go-to destination for vacation rentals by owners worldwide. I’d have to say that in that time and handling 10s of thousands of vacation rentals, we had few problems either on the supplier side or the user side; the occasional owner who experienced careless renters (sitting on living room furniture with wet bathing suits and such)and somewhat more slightly dissatisfied renters. No one was ever ripped-off. However much of that time was operating when a different ethos prevailed. Our success has also been a result of having careful pre-listing requirements and having very proactive follow-up on renter satisfaction. And, perhaps most importantly, I feel it resulted from operating in a club/membership format, a real paid one, not like the fake “velvet rope” invitation-only memberships that are prevalent in the deals space.
In this internet era, the barriers to entry to the P2P business are quite low, attracting all manner of players, so there is much more risk on both sides in P2P because of annonimity, plus a scale of operations tempts and makes it easy for the opportunists (cheaters).
Mike Thiel
Founder/Hideaways International, Inc.
Alex, nice piece.
However if I may – there needs to be some clarification about what the entity is who is playing here. PURE P2Ps are hard to identify in commerce and in law. Private party arrangements are generally outside of the standard terms of any commercial law – civil and criminal. But people who make money are not private parties.
When you have a full marketplace such as eBay or “free” space such as Craig’s List then you can do certain things as the market or as a referral. I would question if a company such as Airbnb (and I name them only because they are the one we can see more clearly) is actually a marketplace? Or is a seller or something else such as an agent or a broker? I am not legally qualified, I hasten to add to the definition with absolute surety. However it seems that by collecting money – any entity is not in the same league as CraigsList, nor would it resemble eBay. So yes – I am asking some of the questions. The basis of these questions have to be to correctly identify the type of entity the company is NOT what it says it is.
Defining what you are for yourself does not escape the long arm of the law. Just because one says something does not make it so.
Whatever one cares to call the party to a transaction – once you have a commercial relationship then there is corresponding commercial (and in some cases criminal) law. I believe this is at the heart of several of these so-called P2P business concepts. But the law has different ways of interpreting it. If you make money then you are a commercial enterprise. As such you are either the seller, the buyer, or a broker/agent.
Pick one.
Just to make it a little more fun – there are heavily regulated sections of the different Marketplaces at various levels of jurisdiction – by this I mean geographic and sector. Just because you clear the rules in one sector/location doesn’t mean that you are clear in another.
About this time – I am sure that some consumer businesses – old and recently started – are starting to call their lawyers and ask questions. Their investors – probably also, if they have not done so already – I would urge them to seek professional advice. I would suspect that more than a few cash strapped jurisdictions are going to be eying these marketplaces/businesses VERY carefully to ensure that:
1. Consumer and vendor protections are in place
2. Marketplace protections make it fair
3. Taxes are collected
4. Laws and guidelines – where and when applicable – are clearly followed.
As we all know – ignorance is no excuse under the law.
Cheers
The P2P phenomenon if far from new. What is Bed and Breakfast, if it’s not P2P? The problem may well be that the likes of AirBnB has seen phenomenal, intentional growth rather than organic, word-of-mouth growth.
They are aggressively pursuing volume – no doubt driven by the many investors expecting high returns. As such, they run the risk of pushing themselves to audiences who are not drawn to them naturally by a shared set of values (connecting with local people, getting under the skin of local places, having real human encounters etc) but because they’ve seen some of the impressive AirBnB ads and promos, which focus heavily on price.
So, it’s inevitable that they now appeal to a wider group than includes bargain hunters and people who care little for the human owners of the places in which they’re staying. Though the AirBnB burglary incident was peculiar in its viciousness, perhaps it was only a matter of time before something of this nature happened.
The majority of our places across Europe are private houses that don’t advertise themselves on their gate posts as B&Bs. They don’t want any just anyone turning up, and would rather have fewer, respectful, thoughtful guests than twice as many bargain hunters. In short, they want people whom they’re happy to have in their ‘homes’. So, we have to think incredibly carefully, when planning our marketing, about how to encourage word-of-mouth (P2P marketing?) rather than about how simply to drive volume. Otherwise, it wouldn’t be long before we faced the sort of PR crisis that AirBnB is having to handle.
Toby Sawday
Managing Direct, Alastair Sawday’s Special Places to Stay
That’s a very important distinction to have made Toby and a credible argument in favour of the retention of more individual, smaller marketplaces rather than allowing companies such as Homeaway to swallow them up at what seems like a gathering pace.
There is a substantial difference between Bed and Breakfast operators and P2P: a license.
And there is a substantial difference between listing site like CraigList (customer pays to publish an ad at their own risk and expense) and an agency like the new guys (the site acts as a financial intermediary and holds on to the money).
Not even eBay acts as a financial intermediary.
But just like eBay, these new P2P sites should focus everything on reputation of both renters and guests, and educating first-time renters about obligations such as licenses, local city taxes, income taxes. If anything, the fact that all these P2P transactions can now be tracked provides a great opportunity to the taxman in all countries.
There is one key difference with eBay though: one thing is to buy a faulty device from a dodgy seller once in a while, another thing is to have dodgy guests in your own home once in a while.
A service is not a good, the safety implications can be devastating.
This article is biased and ultimately bullshit.
p2p traveling is here to stay and is going to eat your lunch whether you like it or not.
@michalis p…
well, that was constructive, thanks.
Why biased? Why BS?
At least try and explain your thinking…
Hi Michalis
Er, thanks
So, question, how would you create trust in a P2P environment where the host and the traveller are unknown to each other?
Thats effectively what P2P comes down to.
Cheers. Alex
Sorry for being anonymous, but I’m going to keep it like that here as well.
This article reads like a typical response from an incumbent being rapidly disrupted. Just because they can’t grasp this new(?) approach, they dismiss it with some arguments, that for me are bullshit. Typical example of this, Bill Gates famously responding to gmail with “How could you need more than a gig?”
It’s common I think for Sillicon Valley to produce/popularize paradigms that were ahead of the existing societal norms and frameworks.
This is happening here as well. The framework is not here yet, but it’s only a matter of time for the industry to (painfully?) adjust to it.
P2P travelling is starting to go mainstream, but is still young. It’s normal and expected for mistakes to happen. It’s part of growing up.
It comes down to trust, I agree with that. Examples will come from reputation schemes already employed by the likes of tripadvisor, and if you look a bit deeper, at the likes of couchsurfing. Shit happens, will continue to happen, but it’s already happening as well. Just look at all the negative comments in hotel review sites.
For me, it’s just another example of an industry being disrupted by internet. The game is being leveled, and more and more people are going to be able to participate and benefit from it, and rightly so.
Anyway, I didn’t want to be insulting.
Best regards and keep it up,
Michalis P.
Michalis –
there is no incumbent in the P2P letting space.
No one is being disrupted, no one is having his lunch eaten, no one is feeling any pain here (a part from a few unlucky house owners having received rogue guests).
The author of the original post is one step beyond, he’s addressing the implementation challenges to be solved to make this a large sustainable business, having witnessed what challenges other business have faced.
So we all agree now it’s a question of trust.
Daniel and Michaelis (anonymous)
Trust is earned. But the law is mandated.
Both are relevant. Developing trust is always a tricky thing. Trust is earned but can be lost in a heartbeat. Consider that you trusted the airline to take you to your destination (IE you trusted them with your life) but when they fail to delivery your baggage they have lost your trust.
On the other hand consider Microsoft. Or indeed Google. You trust them with your work product KNOWING FULL WELL that they will like screw up and either lose your data or not provide you with trustworthy information. Your trust level is much lower but still you dont abandon them because they have utility value.
In the case of Airbnb they have not done anything other than say they will provide a trust based solution. 50,000 for having your trust demolished – is that enough? Do you trust them to pay you the 50,000?
But the law is different. That is not just trust (unless you challenge governments as an anarchist). The law means that there is a guaranteed coverage of protection.
If we assume that Airbnb is pure P2P and they walk away from responsibility that others agree and provide – then we need to depend on the law either to make Airbnb conform or be forced to take the consequences for not conforming to the law.
But in my view Airbnb is not a pure P2P and is governed by a number of laws. For this is must be accountable for its actions.
There is a basis of our society on accountability. Airbnb and anyone else must be accountable for their actions.
Just because the last idiot has not yet been born does not absolve any service provider or reference system.
Cheers
See new TLabs entry on Flat-Club addressing the trust problem in P2P rentals:
http://www.tnooz.com/2011/08/15/tlabs/flat-club-targets-trust-factor-in-buzz-around-short-term-lettings/