Hotels without rooms – car rentals without cars

Managing risks in operations is important. And as my colleagues Serguei Netessine and Karan Girotra say
if you can manage risk successfully or get your customers to pay for it, you should take more of it. This is after all where the opportunity lies. Some companies actually go even further – they try to eliminate risk completely. How?

Consider a hotel, for example. What is risk for them? Obviously, it is that rooms will be unoccupied and their expensive investment into building, staff, etc will not be generating returns. How do they typically manage it? Well, dynamic pricing comes to mind – if the room is unsold, chances are its price will drop, or it will be put up for sale through a different channell, like Priceline or Hotwire.  Some companies, like Airbnb, eliminate this risk altogether. Here is how NYT describes it:

Since its debut in 2008, the company, based in San Francisco, has booked more than two million nights of lodging all over the world. But it’s not a hotel. Instead, it allows people to rent out their entire home or apartment — or just a room or a bed — to others who find Marriott boring or want to see life in a new area as a local would.

Airbnb owns no real estate and employs no maids, only programmers. Even though they are, strictly speaking, not a hotel, but they compete with ones. They reinvented the hotel business model by shifting the investments risks to hosts who rent out their beds and apartments.   They picked up some other risks, such as unreliable hosts and irresponsible guests, but all in all their model is working.  The list of such companies goes on, look at the peer-to-peer car sharing like Relay Rides or Getaround, virtual call center LiveOps, even Amazon marketplace.  Shifting risk to a party that is willing to accept it can be really a win-win solution.

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2 thoughts on “Hotels without rooms – car rentals without cars

  1. Pingback: How do you make money forecasting? | Operations Club 351

  2. I would classify Airbnb as more of a substitute then an actual competitor. If I were a major hotel chain, I would look more closely into this small market that is producing significant returns over the past few years.

    There are many potential outside factors that could diminish the quality of consistency within the company. Personally I would never stay at a host’s house, even if the price was low enough. I have no idea how clean is the environment or what type of people I might be staying with. There are a lot of specifics to be worked out, however there is potential for growth in this business.

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