Rise of the Sharing Economy and the Future of Travel and Tourism Industry

Busin l & es te s o M a H n f a o g Hong, J Hotel Bus Manage 2018, 7:2

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a Journal of

n DOI: 10.4172/2169-0286.1000180

o t J ISSN: 2169-0286 Hotel & Business Management

Research Article Open Access Rise of the Sharing Economy and the Future of Travel and Tourism Industry Jeff Hong* Department of Business Management, Borough of Manhattan Community College, City University of New York, USA

Abstract The sharing economy is growing rapidly as platforms permit users to gain access to various assets. An estimated $23 billion in venture capital funding has poured into the sector since 2010. The total size of the sharing economy, however, is hard to estimate as most of the platforms are privately provided. Global travel industry is unmistakably the sector that naturally lends itself to the sharing economy with gross revenue that reached $1.6 trillion in 2017, placing it among the largest and fastest growing sectors in the world. With both direct and indirect economic contributions factored in, travel and tourism industry accounts for 10.2% of global GDP. Along with the rise of the sharing economy, the role of the OTA’s and booking platforms has also seen growth in usage, and is now poised to become indispensable tools in travel planning and booking. As the industry is poised to become a new norm in the global economy, we review the recent trends, and make a projection on the future of the industry and the increasing weight of these online travel assistance platforms and their business models in the sharing economy. As they represent the important future trend of the sharing economy, preliminary assessment is also made about the market potentials for Airbnb and Uber. Further research ideas are also presented after the final thoughts, which involve the testing of the correlation between the sharing economy and the travel and tourism industry, especially in terms of the causality between the revenues in the two industries.

Keywords: Sharing economy; Tourism; Global international The global tourism industry is further expected to grow 3.9% departures; GDP annually and reach $11,382 billion (10.6% of GDP) by 2025. The revenue from visitor exports is also projected to grow from $1,384 Introduction billion in 2014 to $2,141 billion in 2025 with a compounded annual Sharing economy can be defined as an economic model based on peer-to-peer (P2P) activity for acquiring, providing or sharing access to goods and services facilitated by a community based on-line platform. And the use of big data has made it easier to bring together the asset owners and those that want to use those assets. This type of dynamic is also referred to as shareconomy, collaborative consumption, collaborative economy, or peer economy. Sharing economies creates value by utilizing underused assets [1]. Physical assets are shared as services. Car sharing services like Lyft and Uber are a good example. Private vehicles go unused for 95% of their lifetime according to Brookings Institute [2]. Airbnb would be another good example. Airbnb clearly has cost advantage over the hotels, which makes it reportedly about 30-60% cheaper than hotel rates around the world. And it now has become a very popular alternative form of lodging. The sharing economy is growing rapidly as platforms permit users to gain access to various assets. An estimated $23 billion in venture capital funding has poured into the market since 2010. The total size of the sharing economy, however, is hard to estimate as most of the platforms Figure 1: Direct and Total Contribution of T&T to the Global Economy (Source: are privately provided. Airbnb, for example, was valued at about $31 WTTC). billion in its March 2017 funding round [3]. On the other hand, the Uber fleet is nearly three times larger than the number of yellow taxis in New York City, but it still hasn’t gone public, and therefore, there *Corresponding author: Hong J, Associate Professor, Department of Business are few reliable sources for estimates of its market value. The sharing Management, Borough of Manhattan Community College, City University of New economy has created new potential sources of revenue and profit in at York, USA, Tel: 212 220-8388; E-mail: [email protected] least last two ways [4]. Received August 20, 2018; Accepted September 10, 2018; Published September 18, 2018 Global travel industry is unmistakably the sector that naturally lends itself to the sharing economy with gross revenue that reached Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and $1.6 trillion in 2017 based on bookings, making it one of the largest and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169-0286.1000180 fastest growing sectors in the world [5]. Factoring in both direct and Copyright: © 2018 Hong J. This is an open-access article distributed under the indirect economic contributions, travel and tourism now accounts for terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and 10.2% of global GDP (Figure 1) [6]. source are credited.

J Hotel Bus Manage, an open access journal Volume 7 • Issue 2 • 1000180 ISSN: 2169-0286 Citation: Hong J (2018) Rise of the Sharing Economy and the Future of Travel and Tourism Industry. J Hotel Bus Manage 7: 180. doi: 10.4172/2169- 0286.1000180

Page 2 of 11 growth (CAGR) of 4.0%. Total investment on global travel and tourism sector is anticipated to grow as well from $814 Billion in 2014 at an annual growth rate of 4.7% to $1,336 billion in 2025 [7]. The role of the OTA’s and booking platforms such as Hotels.com, Airbnb, Travelocity and Tripadvisor has also seen growth in usage, and is now poised to become indispensable tools in travel planning and booking. Being an avid traveler our self, we have traveled extensively around the world, and used the whole gamut of flight booking services and accommodations extensively as well over the years. And as the industry is on the verge of becoming a new norm in the global economy, we would like to add our two cents to the projection of the future of the industry and the increasing weight of these online travel assistance platforms and their business models in the sharing economy. This paper is intended mainly as a review purely from an actual travel industry consumer’s perspective, not from an industry-insider’s. Figure 2: Global International Departures (Source: World Bank). Overview of the Travel and Tourism Industry The travel and tourism industry is generally viewed as consisting of largely six segments including airlines, lodging, car rental, cruise, rail, and travel packaging. This gives rise to a sizeable industry sector that would potentially account for a huge proportion of the global GDP. As a matter of fact, the number of international travel departures cross the globe has more than doubled to 1.3 billion from roughly 600 million over the past two decades (Figure 2) [8], stimulating new growth of the travel economy to outpace global GDP growth [9]. In 2016, 76.8% of all travel spending resulted from leisure travel, while 23.2% from business travel. Domestic travel contributed 72% to GDP, a significantly larger contribution than international travel with foreign visitor spending at 28% [10]. Travel and tourism is an export sector, as international visitors Figure 3: Annual growth rates of Global GDP vs. Direct T&T GDP (Source: entail foreign spending. In 2016 alone, global visitor spending as WTTC). exports accounted for 6.6% of the total world exports (a total of U$1.4 trillion) and almost 30% of total global services exports (Figure 3). The direct contribution of travel and tourism industry to GDP grew 3.1% in 2016, which was higher than the 2.5% growth rate of the global economy as a whole. For six consecutive years the travel and tourism sector has outperformed the growth of the global economy. The direct contribution of travel and tourism to employment showed 1.8% growth in 2016, directly generating almost 2 million net additional jobs in the sector, and creating a total of around 6 million new jobs through total direct, indirect and induced activities. Overall, it can be concluded that almost 1 in 5 of all new jobs created in 2016 was either directly or indirectly related to travel and tourism.

The Travel and Tourism sector also outperformed several other major global economic sectors in 2016. Specifically, direct Travel and Figure 4: World Industry GDP growth (Source: WTTC). Tourism GDP growth was stronger than the growth in the financial and business services, manufacturing, public services, retail and industry will also support globally more than 380 million jobs, while distribution, and transport sectors, with the exception of marginally the sector contributing approximately 23% of total global net job gains slower growth than in the communications sector (Figure 4). by 2027 according to WTTC. Simultaneously, total travel and tourism Continued growth at global level is anticipated through GDP revenue is projected to account for 11.4% of global GDP with global contribution, job creation, investment and visitor exports, while visitor visitor exports accounting for 7.1% of total global exports. exports are especially making a strong contribution although a general The travel and tourismindustry is projected to even outpace the slowdown in consumer spending is a major concern. Higher inflation global economy through the next decade, while at the same time from rising oil prices, rising interest rates, and a slowdown in job increase its share in the global economic output. In addition, the growth across the world all curbed global spending in 2017. industry is also projected to outperform other major sectors such as Yet, direct contribution to GDP by travel and tourism industry is communications, financial and business services, manufacturing and projected to grow at 3.9% average per year over the next decade. The retail and distribution over the forecast period [11].

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Global Growth Factors and Threats Preventing and mitigating cyber-risks including data breaches will only be increasingly challenging as travel and tourism industry continues Increasing income in most of the emerging world is believed to be a to incorporate and adapt to new hi-tech applications and third- prime mover in global tourism industry, together with the promotional party service vendors. Also, restaurants and hotels will become more efforts by supranational bodies such as UNWTO (United Nations World prone to food safety incidents as they strive to satisfy the demand for Tourism Organization). However, the influence of Brexit and recent locally-sourced, organic food options. Travel and hospitality industry terrorist acts in Western Europe are stark reminders of the downside is in urgent need to beef up investing in Enterprise Risk Management of this interdependence. Natural calamities, terrorism, political unrest, (ERM). outbreaks of some fatal diseases, epidemics and pandemics such as the Zika virus… etc. can possibly dampen the growth of tourism industry Market size and revenue forecast in some regions of the world (Figure 5). Europe accounted for 51% of tourism industry in 2015. Tourism Healthy growth in this industry is driven by rising number of trips, industry in Europe was boosted by increase in international tourists a big chunk of which can be attributed to the online market sales. In in France, Germany, Italy, Spain and the U.K. The tourism industry 2015, online revenue accounted for 21.6% of global sales, and that revenue from the U.K. alone accounted for $142.0 billion in 2015. number is expected to grow to 27.7% in 2017 [12]. North America accounted for $ 1,412 billion in 2015. The U.S. was The customer base in the Travel and Tourism industry that is very the largest market in North America with $ 1,218 billion of revenues in demanding in terms of brand experience, but it can also be brand-loyal 2015, followed by Canada with $ 98.2 billion. The U.S. tourism market as well if the experience is positive. Moreover, the industry also faces is projected to grow at compounded annual growth rate of 4.5% and a constant threat from the intermediaries with bargaining powers by reach $ 1,515 billion in 2020 (Figure 7). providing cost effective solutions to its customers. Asia-Pacific accounts for roughly 9.4% of GDP of the region and is All of the above elements in connection with shifts in the global expected to growth at the highest rate over the 2015-2021 period. The economy, innovation, rising consumer demands, geo-political Asia-Pacific market is likely to get a boost from strengthening economy, turmoil, natural disasters, and pandemics reshaped the travel industry rise in income and increasing infrastructural developments in countries landscape in 2016. A similar climate is also expected in 2018 and such as India, China, Japan and Singapore with over 502 million visitors beyond. Additional changes in the industry such as evolving consumer projected in 2020. mindsets, technologies, new platforms may all transform travel in the According to the research, the industry was both directly and future (Figure 6). indirectly responsible for creating 7 million new jobs around the world. Cybersecurity concerns The global travel and tourism sector as a whole grew 4.6% in 2017, or 50% faster than the overall global economy, which saw a growth rate of In 2018 and beyond, travel and hospitality industry is more likely 3% in 2017 [13]. to become more vulnerable to cyber-attacks and food safety than ever. Travel and tourism sector was the fastest growing broad economic sector worldwide in 2017, with stronger growth than all other sectors across manufacturing (4.2%), retail and wholesale (3.4%), agriculture, forestry and fisheries (2.6%) as well as financial services (2.5%). Among other sectors, the airlines industry was the only sector that grew significantly. European airlines registered passenger growth of 8.1% with more than 1 billion passengers in 2017. With an average annual growth of 3.8% over the next decade the long-term outlook through 2028 remains solid. It is forecast that the travel and tourism industry will be responsible globally for more than 400 million jobs directly and indirectly by 2028 [14]. Figure 5: T&T Global Growth 2017 (Source: WTTC). Key industry players Although some of the conventional top players are still TCS World Travel, DuVine, Gray and Co, Air BnB, Aban Offshore Ltd, Crown Ltd., Accor Group, Balkan Holidays Ltd, G Adventures, Fred Harvey Company, Adris Group [15], the travel and tourism industry has undergone a significant change since the advent of the internet. Travelocity.com probably was the first flagship that introduced and initiated the first move back in the 90’s (Figure 8). OTA’s and internet booking platforms such as Hotels.com offer mileage bonus. Online lodging and accommodation intermediaries such as Airbnb use extensive two-way reviews to vet the mutual satisfaction between hosts and guests. Similarly, User uses two-way rating system, so the driver and the passenger can vet each other out even before using the service. However, the downside is that reviews can be subjective, biased or inflated, inaccurate, and not reliable at Figure 6: Global T&T Revenue (Source: Deloitte PWC, EUI).. times. Although number of reviews cannot always do justice, at least

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half of which, generate annually less than $250,000 in revenue [17] running on outdated low-tech business infrastructure with more than 80% of bookings made offline. The sector faces urgent need for digital transformation to centralize inventory and make online distribution on a global scale. Lately, digital tours and activity aggregators have started to take on the problem. A select few are making some progress. Airbnb is a pioneer in this front. It collaborates with third-party service vendors for culinary, cultural, historical, or artistic experience tours all arranged through Airbnb, which adds to the competitive advantage and strengths of the company. Online or offline booking? Online travel agencies (OTAs) revenue grew at almost five times as fast as the rate of the US hotel market revenue in 2016 [18]. According to some recent studies, hotel bookings through OTAs now exceed total hotel website bookings [19]. The OTA market has now effectively turned into a rivalry between just two brands controlling above 90% of the market after a period of intense consolidation [20,21].

Figure 7: Global T&T Contributions (Source: WTTC). OTAs have also made aggressive investment in their technology capabilities, creating unique and sophisticated digital trip-planning experiences. The most popular travel apps downloaded by US

consumers are those of the OTAs, while hotels hardly make it to the 1 upper tier of the list [22]. OTAs are expanding their ecosystem as well such as private accommodations, tours and activities, restaurant reservations, and more. OTAs are leveraging on this width of diverse product-mix including shopping and booking data, along with massive investment in new technology to open new doors for around personalization in travel (Figure 9). Overall, OTAs and hotels still have room for harmonious coexistence. The deal-hunters who are brand agnostic will continue to shop on OTAs representing a large portion of the travel pool, while OTAs play a critical role in marketing to these customers and delivering them to band name hotels. Also, the commission these hotels for searches through OTA’s would be less expensive than what the search engines now cost them for advertisement. Brand hotels can focus on digital and experiential enhancements to more loyal, higher-spending Figure 8: Global Direct Employment by Industry 2014 (Source: WTTC). target segments like business travelers and frequent leisure guests while OTAs focus on delivering volumes of price-sensitive travelers to these it is a fair measure of one thing – that the object of the review is clearly hotels. a popular thing. One should always use caution, and some extreme Ground transportation: Implications far beyond travel reviews can be brushed off as statistical outliers. The ground transportation is a sector that involves not just actual Bigger Ecosystems: Tours and Activities transportation, but also customer acquisition, demand creation, price Tours and activities are another avenue for leveraging the local and promotion management, fleet operations management, customer service, vehicle purchasing, and vehicle remarketing and recycling. resources. The travel industry is often focused mainly on the big The players also include ride-hailing, car-sharing companies, pure sectors such as hotel and air), and the local in-destination activities are technology players, rental car companies, fleet management providers, often overlooked. The aggregate of in-destination spending, activities, OEMs, and dealers specialized at different points in the value chain. attractions, and events, is the third-largest segment in travel industry, which accounts for 10% of global travel revenue [16]. This sector is forecast to reach $183 billion by 2020. Clearly, there exists a decent The human element of the travel experience opportunity to integrate tours and activities into the digital ecosystems. It goes without saying that technology plays a crucial role in Travel So far, this sector has been largely neglected and dismissed due to and Tourism, but one shouldn’t lose sight of the human connection. For severe fragmentation, lack of standardization, and digital ineptitude. brand hotels, experiences from interaction with the people in the travel The market is comprised of a long chain of small suppliers, more than ecosystem can certainly be a competitive advantage. Travel and tourism 1

Page 5 of 11 industry employs around 300 million people globally— or about 1 in 10 the core of the travel experience, and the future of the travel need to jobs in the global economy (Figure 10) [23]. produce a seamlessly smooth blend of talent and technology, with technology doing more of the technical work—freeing up humans to Despite technological changes, human interaction will remain focus on better service experiences and meaningful connections. Corporate hotel dollars should be directed more towards investing in HR development for better employee experience, which typically ends up in underinvestment in favor of customer experience and digital investments. It is critical that investments in employee engagement be viewed from a new light. The commitment to employee experience can have strategic value as a driver of workplace satisfaction as well as a profit-enhancing initiative (Figures 11 and 12). Rise of the Sharing Economy - Airbnb and Uber AirBnB was founded in Silicon Valley in 2008 as airbedandbreakfast. com. A business model based on other peoples’ assets and service has an advantage of a sort of multiplier network effect. The more people stay at Airbnb or use the service to rent out their excess property, the more valuable the service platform becomes. Besides, there’s an Who Did Hotel and Air Booking for Business Trip? (Source: WTTC). Figure 9: inherent added advantage that the company’s fixed costs are bound

Figure 10: Direct Contribution of T&T to Global Employment (Source: WTTC).

Figure 11: Total Contribution of T&T to Global Employment (Source: WTTC).

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Figure 12: Estimates and Forecasts (Source: WTTC). to be very low. It also lends itself to cheap and easy cross-pollination, since the use of its product involves travel. It’s not just that Airbnb doesn’t have to build the rooms itself, it doesn’t require a physical presence such as offices, employees, etc… to launch its business in new markets (Figure 13) [24]. The net effect is that Airbnb has spent just $300 million of the roughly $3 billion in capital it has raised since its inception. Profit was above $100 million on $1.7 billion in revenues in 2016. Airbnb’s projected EBITDA was $450 million on $2.8 billion in revenue for 2017. Airbnb is forecasting its revenue to be as much as $8.5 billion by 2020 [25]. Airbnb’s projected EBITD is $3.5 billion a year by 2020 [26], which will set Airbnb as the model case to prove that sharing economy can turn into sustainable success. However, Airbnb’s internal numbers could still be a cause for some concerns for investors [27]. In 2016, the annual guest arrivals grew from 40 million in 2015 Figure 13: Reasons for Using Airbnb (Source: WTTC). to almost 80 million, bringing the cumulative figure to close to 160 million since the company’s founding [28]. They’re also broadening their revenue sources by expanding into Trips platform, a new menu of experiences, and other features such as restaurant reservations, events, and meetups. More travel services are planned to be added to this menu—such as ground transportation, grocery delivery, and a service involving flights (Figure 14). Revenue from accommodations only will eventually reduce to less than half of Airbnb’s overall revenue. However, the company also is faced with challenges, from legal battles to competition from HomeAway to safety incidents. Business Model at a Glance Airbnb operates an accommodation exchange that allows prospective service providers to list their excess living spaces available to be leased or rented by prospective users searching for short- term lodging. Although the company also allows users to book for experiences and make restaurant reservations, these services are Figure 14: Airbnb vs. Hotel Industry (Source: Statista). currently a negligible part of its business model [29].

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Airbnb has properties listed in more than 81,000 cities over 191 countries – a scale achieved over just a few years because of its role as just an intermediary. As the business does not require investment in any real estate, its growth depends solely on the number of hosts and guests on its platform. Airbnb’s revenue comes from the fee they charge the host as well as the guest. Currently, the company charges a service fee of 3% of the booking amount to hosts and 0-20% of the booking amount to guests. Probably the only deterrent to Airbnb’s growth is the restrictions imposed by legislative bodies, municipalities as well as communities. Over recent years, Airbnb has managed well to engage with a number of stakeholders to push regulations and rules for making short-term rental easier. What separates Airbnb from a bulk of other multi-billion dollar startups (unicorns) is that it currently shows positive cash flow, and has also seen a positive EBITDA for the past couple of years. Positive cash flow is an added advantage to the already strong competitive advantage of the first-runner with fairly low upfront investment and low barriers to entry. This entails a long list of startups, as their business models can Figure 15: Airbnb Growth Potential (Source: WSJ). be easily replicated by many start-ups ending in a fierce competition with the first mover – forcing the companies to burn cash to capture a larger share of the market quickly. it to compete more effectively with the more well-funded and well- rounded OTAs. Key Drivers of Airbnb’s value Airbnb’s current valuation: According to PitchBook Airbnb is Number of listings: The total number of listings on Airbnb at the currently the second most valuable venture capital-backed U.S. start- end of 2016 stood at 3.5 million and 4.2 million at the end of 2017 up at about $31 billion exceeded only by Uber valued at $68 billion respectively. With global expansion, attracting more hosts in existing [32]. Curiously, Airbnb has raised over $4 billion and yet to go public cities, this figure will cross 5.3 million by the end of 2018. [33]. Meanwhile, closest competitors such as Tripping.com, founded in Average guest arrivals per listing: This metric is simply the total 2010 and have raised a total of $52 million, and HomeAway, founded number of guest arrivals during a given year divided by the number of in 2005, owner of vacation rental site VRBO and considered Airbnb’s listings at the year end. The company recorded 80 million guest arrivals biggest competitor, had raised $510.3 million only before its IPO in 2016, and the estimate for 2017 was 115 million. This is equivalent to in 2011 at which point it was valued at $2 billion. The company was a growth in average guest arrivals per listing to 27 in 2017 from under acquired in 2015 for $3.9 billion by Expedia which has a current market 23 in 2016, which is further expected to grow to 31 per listing in 2018. capitalization of $19.34 billion. In 2004, Priceline Group, which today Taken together with a forecast for 5.3 million listings by the end of boasts a market cap of $86.27 billion, acquired Booking.com for $161 2018, this comes to 164 million guest arrivals for this year alone. million [34]. Average rent per guest arrival: This figure grew from $157 in 2016 Airbnb has solidified its position as a successful pioneer of the to roughly $174 in 2017, which is most likely explained by an increase sharing economy over the years, along with Uber, largely owing to its in average duration of stay and a growing share of more expensive leading role with efforts in technology, and currently estimated to be accommodations. This trend will continue in 2018, leading to an worth at least $38 billion, doesn’t seem to need to raise more money as a average rent of $185 for the year. Using the projected 164 million guest profitable business with nearly 5 million lodging options across 81,000 arrivals estimate from above, this will work out to gross rental income of approximately $30.4 billion. cities in the world [35]. However, considering the global vacation rental market size forecast to reach $193.89 billion by 202, there is still plenty Airbnb’s share in rental income: Airbnb’s share of the gross rental of room for others in the niche [36]. income was around 13.5% in 2016 and around 13% in 2017 according to the estimates for the Gross Rental Income above [30]. The company Rise of Uber and its challenges may eventually need to lower the service fees to expand to more host Uber Technologies Inc enables customers to book drivers using affiliation and guest patronage, which could lead to lower overall share their own cars through its transportation app Uber. It is essentially as a of the rental income to 12.5% down the road. Given the projection for sector disrupting company on a mission to replace taxi as a conventional rental income of $30.4 billion for 2018, revenues are likely to be around public transportation [37]. $3.8 billion (Figure 15) [31]. Since its launch Uber has met protests in the major cities around Since established online travel agencies (OTAs) own many of the globe such as Paris, Berlin and London from cab drivers. Berlin Airbnb’s biggest competitors, who have the added benefit of cross- has since banned it, and London has rejected the firm’s application for selling services to their clients, this is likely to weigh on Airbnb’s growth a new license, pending an appeal by Uber. Over the years it has been in the long run despite Airbnb’s considerably higher current market involved in intense controversies, and therefore, Uber statistics alone share. However, the company is poised to expand its offerings enabling can’t do justice of depicting its growth trajectory, and. Yet, Uber raised

Page 8 of 11 about $11.5 billion in total from 14 rounds of venture capital and private The net revenue growth looks similar to that of the gross revenue equity investors throughout 2009-2016. with $500 million in 2014, which tripled to $1.5 billion in 2015, and the company managed to gross over $6.5 billion in 2016. However, Uber’s growth: Uber’s customer number recorded 40 million / Uber’s adjusted net loss was $2.8 billion at the end of 2016, which most month in 2017, and Uber reached 77% of the United States ride hailing market share by May 2018 [38]. Unfortunately for the taxi industry, likely passed $3 billion after factoring in the loss from selling its China Uber’s fast rise directly correlates with the decrease in taxi usage [39]. subsidiary [42]. From May 2015 to September 2016 there was a steep decline in Yellow In a side by side comparison with Lyft, Uber’s closest competitor and Taxi calls in New York City from over 400k to 300k. In the meantime the second runner in the US market, Uber generated $0.5 billion while calls for Uber grew from then 100k to over 200k while Lyft showed Lyft did only $130 million back in 2014, and Uber managed to triple its a modest growth from close to zero to about 40k calls [40]. Uber’s net revenue and reached $1.5 billion mark, while Lyft generated only success doesn’t come as much of a surprise considering the fast rise in $300 million in 2015. Uber’s net revenue reached $6.5 billion, but Lyft smartphone adoption globally. However, there are many other reasons finished with only $700 in 2016 (Figures 19 and 20) [43]. that contributed to Uber’s success such as pricing overview prior to booking, one-tap rides, driver follow on map, cashless convenience, Uber’s key data points: The following are Uber’s key data points as fare splitting as well as feedback options (Figure 16). well as its key growth drivers: Uber’s revenue: In 2014, total revenue was $2.9 billion just one and Service is available in 83 countries and over 674 cities worldwide a half year after the launch of UberX. In 2015 the total revenue more (Source: Uber). than tripled to $10 billion, and Uber managed to double its annual On average Uber handles 40 million rides monthly and has over gross revenue to $20 billion with net revenue around $6.5 billion in 77% of US ride-hailing market (Source: Wiki). 2016 (Figures 17 and 18) [41]. By 2016 Uber accumulated 2 billion rides in total (Source: Forbes). Gross revenue reached $20 billion as of 2016 (Source: Business Insider). Net revenue reached $6.5 billion as of 2016 (Source: Business Insider). Venture capital raised was $11.5 billion as of 2016 (Source: Crunch base). Uber was valued at $69 billion in 2017 (Source: Bloomberg). Compared to Uber ($6.5 billion) its largest competitor Lyft generated net revenue of $700 million as of 2106. (Source: Future Advisor) (Figure 21). Uber’s valuation: Stacking up Uber’s valuation over other Unicorn startups will help get some perspective. In 2013 Uber was valued at $3.9 billion, while Palantir Technologies, a big data analysis startup, was

already valued at $9 billion and Snapchat’s valuation jumped from $2 Figure 16: NYC Daily Trips: Yellow Taxi, Uber and Lyft (Source: billion to $7 billion by the end of 2013. Uber’s valuation got a huge Toddwshnier.com). boost from venture capital to reach $19 billion in 2014, and Uber has

Figure 17: Uber growth chart (gross revenue) 2014-2016, in billions (Source: Business Insider).

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Figure 18: Uber’s Revenue Growth Rate (Source: Uber’s Revenue and Usage Statistics).

Figure 19: Uber vs. Lyft net revenue 2014-2016, in billions (Source: Future Advisor).

Figure 20: Uber’s Global Revenue Breakdown (Source: Uber’s Revenue and Usage Statistics).

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Figure 21: Uber’s Average revenue per user (Source: Uber’s Revenue and Usage Statistics). never let other Unicorn startups to pass it ever since. Uber’s valuation billion, but it also lost $2.8 billion in 2016, which shows another facet stands at $68 billion as of 2017 [44]. of the company – despite its successful track record, it’s inherently very unstable. Although it grew multiple times the size its closest rival Lyft, Another analysis reports a more conservative version of the it needs to make more efforts to boost its market share in the US. Uber’s company’s valuation at $48 billion using various revenue metrics market share shrank to 77% from 84% in 2017, and most likely that 7% including monthly active riders, the number of rides per year, revenue went to Lyft, the second largest hail-riding company in the US market. per ride, net revenues and revenue multiple as well as basing it on its most recent fundraising in December 2017 [45,46]. One most obvious advantage of the sharing economy is that it doesn’t require huge initial start-up capital or sunk cost. And since Growth with expansion into new markets: With the number of the infrastructure already exists, and can easily be replicated, not built rides per rider trending higher Uber’s monthly active riders grew from from the scratch, it creates a whole new avenue of potential for almost 50 million in 2016 to 75 million in 2017. As Uber doubles down its unbounded growth. Although Uber has yet to show positive profit while marketing efforts on emerging markets, monthly active rider growth is Airbnb has shown consistent growth in revenue and profit, the sharing forecast to remain strong in 2018, taking total rides delivered to around economy seems to have found its foster bed and niche in the travel and 5.5 billion. tourism industry for now. And it is unmistakable that the global travel Growth in total rides, revenue per ride to remain stable: As industry is the sector that naturally lends itself to the sharing economy the number of rides delivered soars, gross revenues expected to cross with gross revenue that reached $1.6 trillion in 2017, making it one of $50 billion in 2018, although revenue per ride (ARPU) may stagnate, the largest and fastest growing sectors in the world [46]. where gross revenues are typically calculated as the total dollar value of the rides billed to customers before Uber takes its fee. Although Further Research Uber’s share of gross revenues has declined lately due to its aggressive The correlation between the sharing economy represented by promotions and incentive payouts to partners, it is possible that its Airbnb and Uber, and the travel and tourism industry, especially in share of revenues could stabilize in 2018 as the company has taken steps terms of the causality between the revenues in the two industries, is to reduce incentive payouts (Figure 21). of particular interest, which couldn’t be dealt with in this paper due to time constraint and insufficient preparation. Further research is Discussion and Conclusion certainly warranted with initial hypothesis being that there is a positive As we have set forth in the overview, the estimate for the global correlation between the revenues of these two industries, and with travel and tourism market measured by its revenue stands at $1.6 further causality testing about whether it, if ever, runs from the sharing trillion 2017 and is forecast to grow by about 3-4% per year on average. economy to the travel and tourism industry or vice versa. Our research Therefore, it is crucial to assess the market potentials for Airbnb and currently in pipeline will certainly look into these questions. Uber as they represent the important future trend in the industry – the References sharing economy. 1. https://www.investopedia.com/terms/s/sharing-economy.asp. Airbnb reported profit just over $100 million on $1.7 billion in 2. https://www.brookings.edu/wpcontent/uploads/2016/12/ revenue in 2016. The company is forecasting EBITDA of $450 million sharingeconomy_032017final.pdf on $2.8 billion in revenue for 2017. Airbnb’s revenue is further projected 3. This is roughly the same as Marriott International after its acquisition of to grow to as much as $8.5 billion by 2020. Starwood Hotels and Resorts Worldwide.

Over the last seven years Uber went from a small startup to one 4. Judith Wallenstein and Urvesh Shelat, Hopping Aboard the Sharing Economy, of the giant global tech pioneers. Along with Airbnb, it introduced BCG the world to a new type of economy. Its gross revenue reached $20 5. Quinby D, Phocuswright Conference, Florida, November 9, 2017; Gross

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bookings are inclusive of airline, hotel, car rental, rail, travel package, and 25. This would rank Airbnb at No. 325 on the Fortune 500 right below Avis. cruise. 26. Airbnb Profits to Top $3 Billion by 2020 6. Turner R, Freiermuth E, World Travel & Tourism Council: Global Economic Impact & Issues 2017; Indirect economic contributions refer to investment 27. The Airbnb Story: How Three Ordinary Guys Disrupted an Industry, Made spending on travel & tourism, government collective spending on travel & Billions…and Created Plenty of Controversy. tourism, and impact of purchases from travel suppliers. Induced contributions 28. Guest arrival is defined as the number of times a traveler checks into an Airbnb are inclusive of spending on food and beverage, recreation, clothing, housing, listing. For example, one person who takes three trips a year will be counted as and household goods from direct and indirect travel & tourism employees. three arrivals, while four travelers in a group on the same trip in the same listed 7. Global Tourism Industry demand, Size and Forecast, 2015 to 2025, lodging would count as four arrivals.

8. The World Bank, International tourism, number of departures 29. As A Rare Profitable Unicorn, Airbnb Appears To Be Worth At Least $38 Billion.

9. Freiermuth T, World Travel & Tourism Council: Travel and Tourism Global 30. Currently, the company charges hosts a service fee of 3% of the booking Economic Impact & Issues 2018. amount and 0-20% of the booking amount to guests.

10. Turner R, Freiermuth E, World Travel & Tourism Council: Global Economic 31. Airbnb projects to generate revenues of $3.8 billion in 2018. Impact & Issues 2017. 32. As of its last round of funding in March 2017 11. Rauch SQ, Phocuswright’s Online Travel Overview: 16th Edition. 33. In 2007 Airbnb rejected an investment offer by SoftBank, which has been 12. Travel and Tourism Industry – SUEVIO. buying up massive stakes in unicorn startups like Uber, WeWork, and the dog- 13. WTTC Travel & Tourism, Economic Impact 2017 World Annual Economic walking app Wag with its billion dollar investment fund. Impact Research 34. What Is Airbnb’s Valuation Right Now? 14. International Air Transport Association 35. Airbnb made $93 million in profit on $2.6 billion in revenue, but an internal 15. Global Tourism Industry demand, Size and Forecast, 2015 to 2025. showdown with the CFO has put an IPO on pause.

16. Alice Jong, Travel’s Tours & Activities Market to Reach $183 Billion by 2020, 36. https://www.infinitiresearch.com/service/technavio Phocuswright, 37. Uber Revenue and Usage Statistics (2017). 17. Oliver Garret, 10 Million Self-Driving Cars Will Hit The Road By 2020—Here’s How To Profit, Forbes. 38. In August of 2015 Uber internal documents were leaked, which gave general public a rare opportunity to take a look at Uber growth rate and other insider 18. Quinby D (2017) Hotels vs. the (OTA) World, What’s Really at Stake as Hotels information. Take on Distributors, Phocuswright. 39. https://www.bizjournals.com/jobs/ 19. Deanna Ting, Hotel Direct-Booking Pushes Really Worked and Owners Were Big Winners, Skift, 40. Toddwshnier.com

20. Quinby D (2017). Hotels vs the (OTA) World. 41. https://www.businessinsider.in/?r=US&IR=T

21. Some OTAs are reportedly spending more than $1 billion on technology 42. Uber Revenue and Usage Statistics 2017. annually. 43. Future Advisor 22. Rauch M (2017). In the World of Travel Apps Suppliers are Nowhere to be Seen, Phocuswright. 44. Breaking Down Uber’s Valuation: An Interactive Analysis

23. Turner R, Freiermuth E (2017) World Travel and Tourism Council: Economic 45. The revenue multiple of about 4.6x was used for Uber for 2018, which is Impact. appropriate given the company’s operating losses.

24. Airbnb certainly opens offices, and it now has dozens overseas offices and 46. Softbank made an investment in Uber reportedly at a valuation of about $48 hires thousands of employees globally. billion in late 2017.

J Hotel Bus Manage, an open access journal Volume 7 • Issue 2 • 1000180 ISSN: 2169-0286