Business Model Analysis - Collaborative Innovation in Hotel Industry - Essay Example

Collaborative Innovation. Name: Date: Affiliation: Introduction. Collaborative innovation is a new trend in the business world referring to the development of projects in which multiple users share what they are developing (Akalip, 2011). Usually, they are large projects in which an individual user is not capable of developing alone. An example of such projects is Linux, which is developed by volunteers and able to compete on a large scale with large enterprises such as Microsoft (Akalip, 2011). A collaborative economy refers to a strategy where both consumers and business owners will work together to develop more sustainable alternatives to ensure that end products can meet market needs. The rise in collaborative is largely influenced by social media where business owners and consumers can interact. Many companies today have laid emphasis on community relations, corporate philanthropy, and social responsibility as tools towards collaborative innovation. Several benefits are associated with a collaborative economy. First being networking oriented, Business is operated by networking. Through a collaborative strategy, businesses are able to link up and hence small businesses can grow rapidly and even compete with giants. Another benefit of collaborative innovation is that when like-minded companies come together, they are likely to be a source of inspiration and support for each other. When an entrepreneur meets other entrepreneurs in the same field, feelings of isolation that are felt will disappear (Akalip, 2015). Through the network, businesses will be able to brainstorm ideas and come up with ways to solve challenges. Such support is not only essential but also very meaningful to start up entrepreneurs that are struggling with their businesses. With this kind of support and inspiration, they are able to push their businesses to high limits. Another advantage that comes along with collaborative innovation is that they allow symbiotic selling. A small business can link up with other similar small businesses. In that particular network, they can form a referral system or can come up with some exhibition. They invite their customers to the exhibition in a bid to add value to each of their individual customers. This is an important strategy to allow businesses to increase their visibility. Through collaborative innovation, the risk in business can be shared among different entities. In the same light, the costs of running the business are also shared. Finally, collaborative innovation brings with it the advantage of economies of scale. For instance, small business can link up in the purchasing of goods or services like health insurance and end up enjoying the same discounts that large corporations enjoy. One downside of the collaborative economy is that it might cause a decrease of tax that is collected. For instance, the Airbnb service allows people to rent out spare rooms in their houses. People that rent out these rooms would have lived in hotels, which pay tax to the government while themselves (tourists) are a major source of tax (Baker, 2014). Another disadvantage is that a collaborative economy can lead to a decrease in the minimum wage of people in some sectors. For instance, Uber service has its taxis flooded in many cities. In some cities, the government regulates a number of registered taxis so that taxi drivers can get a certain income. With the likes of Uber and Lyft getting into the economy, the wages of many people that rely on taxis are likely to drop (Baker, 2014). The Accommodation Industry: Traditional Model. The collaborative economy has posed quite a huge challenge in the accommodation industry. In Australia tourism is quite a huge market and accommodation providers led by hostels feel that a shared economy my bring years of investments to the drain. Hostels refer to low budget and short-term accommodation where backpackers and other travelers rent out a bed together with other guests. In a hostel amenities like lockers, Wi-Fi access, and computer terminal are often scarce. Unlike hotels that have extra amenities such as king size beds, golfing facilities and luxurious dining, hostels employ the basic strategy of just somewhere to sleep. Some hostels may, however, have added services such as bike rentals and tour guides just to ensure that their guests can familiarize themselves with their surroundings (Bunda, 2014). Unlike Hotels, hostels do not have a star rating system since they are ideally supposed to offer similar services. Many Hostel guests are backpackers. There is no general definition to define who or who is not a backpacker. However, the general definition of backpackers may be travelers ranging from 18-30 years who most likely prefer low budget accommodation and do not care a lot about luxuries. A back packer is defined by certain characteristics such as the ability to put up with people, ability to do things more cheaply, less time conscious and watching how to spend their money (Bunda, 2014). They love adventure and will travel internationally on a constrained budget. During, their journeys, they often suffer various hardships mostly due to their strained budget hence will be interested in hostels rather than hotel accommodation. Hostels attract backpackers based on security, cleanliness, location and hostel services. Unlike the hotel industry that has a complicated governance structure, the hostel industry has quite a simple governance structure. Hostels are mostly independently owned although there are a few voluntary hostel chains. Transactions economies play a huge role in determine the governance style adopted by both hostels and hotels. For hotels, most of their guests are concerned about how the uncertainty associated with the quality of the hotel could affect their stay. As such, they would prefer to stay in hotels that have a well-known brand name to reduce this uncertainty. A hotel can attract clients based on one primary factor; reputation. To be unknown in the hotel industry is completely tragic. This is the traditional model of the industry and does date has been maintained. Asset specificity is also a huge consideration for hotels. They have to be equipped with conference facilities for the business traveler or resort climate for the tourist, hotels that have loyalty reward programs also have the ability to attract a huge clientele (Bunda, 2014). For hostels, the situation is a bit different. They will either choose to incur transaction costs or will bear very little transaction costs. The backpacker is less concerned with the uncertainty associated with accommodation. Backpackers are less concerned about asset specifity. Although they may pay attention to the location or the amount of cleanliness observed, they are little concerned about amenities since they will only be in a particular place for a short period. More to this, their budgets may be constrained. For hostels, it becomes quite easy to adapt an easy management and operation model as opposed to the hotel industry. Accor Hotels- Australia. ` Accor Hotels is a French Hotel Group operating in 94 countries. The group franchises and operates 3700 hotels in five continents (Buhalis et.al, 2006). The group is also keen in the hostel industry and brands itself as the Base Backpackers Hostels. The company acquired its first hostel in 2002 and today they operate thirteen hostels in Australia and New Zealand. This is in a bid to tap on the backpackers market that has been growing ever since. Under the hotel segment, the group offers top notch facilities in their hotels located in the main cities around Australia. For the hostel service, the team offers regular hostel facilities for backpackers with a few amenities such as swimming pools and tour guides in some of the hotels. Accor has been one of the fastest growing businesses in incorporating hostels into their business model. The group becomes an essential element in understanding the hotel and hostel industry. Under the hotels, the group can give excellent accommodation and amenities to its clients who include tourists and business executives (Buhalis, et.al, 2006). Under hostel facilities, the group offers cheap and affordable accommodation to many backpackers that land in Australia. To attract clients, the company is able to use its name as the first selling point. As discussed earlier reputation is imperative in the accommodation industry. The hotels also use the internet to market and encourage customers to experience Accor hospitality. Generally, for both hotels and the hostels the company is able to use its name to get a competitive advantage over competitors. Airbnb. Airbnb refers to a website where people can list and rent lodging. Founded in 2008, the website today has over 1.5 million listings in 34,000 countries in 190 countries (Tranton, 2016). Airbnb is based in San Francisco and is a privately owned firm. The service offers a connection for people renting out their property and people willing to rent that property. For one to be able to use the service, they must be registered either as a guest or a host. Initially, users in the website only required a working telephone number and a valid email address. However, due to security concerns, people now have to upload a scanned copy of their identification cards. In addition to these requirements, users create a profile by displaying the amenities that they will be offering, the house rules, pictures of the room or house and a brief about their neighborhood. The company has installed a merit system so that users can rate places that they have lived in or recommend these areas to other people (Tranton, 2016). To be able to use the site, a user must create a personal profile. Every property on the site includes a private messaging system, reviews by previous guests and recommendations. The pricing of accommodation is chiefly determined by the owner although it may be determined by other factors such as season of the year (Tranton, 2016). Pricing can be on a daily basis, monthly basis or even annually. The site allows users to upload up to 24 photos of the areas that they wish to rent. In areas where the use of the website is rampant, the company will have photographers that take pictures on the behalf of the client for free. Potential guests are required to message their hosts directly via Airbnb. Once a potential guest asks for accommodation, the host has 24 hours to respond to the request. In case the host accepts the guest’s request, they can put up personal meetings to organize with the guest. After the guest has used the facility, he or she is encouraged to leave a review so that they can give credibility to their host and the site. The company also has an Android and IoS application that allows people to access the site via their mobile phones. To enhance security on the site, each user profile contains a rating, a review or a recommendation. The site also has a private messaging system that allows the guest and the host to communicate. The site also has an online payment system that works round the clock. In addition to this, the company facilitates cleaning fees and security deposits until the client vacates the premises. The company generates income from a 6-12% commission from the guest and a 3% fee from the host (Murphy, 2015). Airbnb is a classic example of collaborative innovation. It has been welcomed openly in most cities and areas around the world due to its ability to offer low cost accommodation. Since 2008, the company has been on an upward trend and was recently proclaimed to be the world’s largest housing provider. The idea was openly received by millions of people hit by the economic recession hence provided an opportunity for them to make a few extra coins. As such, the site can offer income to many people around the world that may not want to stay in top range hotels. Las year in Australia over 30,000 tourists visited in private homes. This trend has put home users or hosts in Airbnb in conflict with tourist operators such as hostels and hotels and the local governments. The Australian government is however very supportive of Airbnb and is willing to support them in every aspect of their Australian venture. The website has allowed more and more tourists to have a different perspective of Sydney and other areas where the site operates by visiting suburbs that they would not have visited before (Murphy, 2015). As conflicts between the website and hotel and hostel owners continue, the site admits that 80% of the properties that were advertised in 2015 were not around areas where hotels operated. There are several reasons why a visitor or tourist in Australia may prefer to stay in someone’s home rather in a hotel. First is that staying in a local house means that one can get information on the ground on a one to one basis. As of such one does not easily get lost in the city and they are able to get reliable information from the host (Tickle, 2015). Another reason is the issue of convenience. It might become impossible to get a hotel in the peak seasons since hotels are fully booked. Airbnb is a good way to overcome this challenge by travelers. However, there has been an issue that has been raised about the protection that is available in Airbnb accommodations. For instance, in hotels and hostels, people have to protect by a fire system that is inclusive of a fire alarm, basic fire control equipment such as fire extinguishers (Tickle, 2015). Private homes may not have this kind of protection for their guests hence endangering their lives in case of fire (Murphy, 2015). Finally, there have been problems with the fact that hosts have the ability to dodge taxes. This is however fought in some states where they demand a certain share of the profit. The business also faces regulation problems in many countries. The business model of these two companies is very different; in the hotel industry we can see that their model is client specific. Hotels will attract a specific class of customers. On the other hand, hostels are specific for the backpackers. Airbnb does not attract any specific kind of client; it is for everyone willing to experience a difference from the traditional hotel and hostels. Another consideration is the cost and convenience. For a visitor, they may not be well familiar with the city that they are in. Rather than roam looking for a hostel or hotel, it is convenient to book a room with a local family. Regarding cost, Airbnb offers less costly services compared to hostels and hotels. Unlike hotels and hostels that will have to invest brands and other amenities, Airbnb does not have to undergo all these pressures. Conclusion The hotel industry will revolutionize in the next few years. It will not only be Australia but all over the world. Ultimately we can see that there is a huge disconnect between the traditional accommodation industries with what is being offered by Airbnb. There is, however, the need to control the sector since millions may stand to lose their livelihood owing to technology. References Akalip, N (2011). 5 Key Benefits of the Collaborative Economy, Mashable. Retrieved from www.mashable.com Baker, D (2014). The Downside of the Sharing Economy, Counter Punch. Retrieved from www.counterpunch.org Buhalis, D et.al (2006). Tourism Business frontiers. London: Routledge. Bunda, R. (2014). The Business of Beds: An Exploration of Hotel and Hostel Business Strategy. Honors Scholar Thesis. Paper 350. Retrieved from www.digitalcommons.uconn.edu/srhonors_theses/350 Hartley, J et.al (2015). Creative Economy and Culture: Challenges, Changes and Futures. London: Sage Murphy, J. (2015). The Airbnb Effect: Tourists Shun Hotels for Private Stays. The Huffington Post. Retrieved from www.afr.com Nicholas, S (2016). Here to stay: ‘Disruptive’ Sharing Economy worth $500m annually to NSW, Sydney Morning Herald. Retrieved from www.smh.com.au Scott, S (2012). The Airbnb Expert’s Playbook. App that Automates Short Term Rental Management Growth. New York: Renting your space. Tickle, M (2015). The Australian Hotel Industry Cries Foul over Airbnb, RN. Retrieved from www.abc.net.au Tranton, P (2016). Airbnb: The Basics and Tips for Beginners. New York: Conceptual Kings. Read More