Stefano Sessa
Stefano Sessa 19 March 2015

Why European Airbnb Me-Too Companies Have Failed

Why European "mee-too" start-ups are wasting millions.

Back in 2010 in Europe began a new gold rush: all of a sudden it seemed that the vacation rentals market was a new Klondike: easy money for everyone and chances of getting rich with no need to strain or stretch imagination.

In the wake of AirBnbsprouted the European Housetrips, Wimdus, and 9flats, exact copies, even in the design of their websites, of the original American company. But as every wise entrepreneur and experienced manager, let alone smart investors, should know, copying exactly the formula of a successful business is not possible, as you may be able to replicate 90% of the original, but cannot figure out that the recipe of success of an innovating business, besides the first mover advantage, lies in that 10% of its ingredients that you’ve not been able to focus on, hence you’ve not copied as you did not understand its importance.

Now, nearly five years on, the situation is right in front of our eyes: AirBnb is having triple digits growth year over year, it is one of the hottest Internet Companies, it has a stellar valuation and will soon go public. Its European mee-toos, instead, have already gone through major restructuring, with important staff layoffs, and have significantly lowered their ambitions and, in some cases, their founders and former “top managers” have been fired, the same ones that a few years ago were presented as the wunderkinds of the European High Tech scenario, the same ones that promised to revolutionize the world of online travel, the same ones that were presented on the websites of their venture capitalists as: “we felt HouseTrip offered the best model in a rapidly-growing field. HouseTrip has the vision and passion to win the race in this sector.

Balderton were particularly impressed by the strong team the company has established under the leadership of founder ...”

As a result, for the unwise backers of those European start-ups, we do not see any viable exit strategy that wouldn’t result in the loss of big chunks, if not all, of their investments: decreasing figures definitely exclude the possibility of an IPO, and also the sale to a bigger travel/leisure company or group which could be interested to enter in the overcrowded vacation rentals market is unlikely, since, besides AirBnb, there are already too many experienced players in the holiday homes market: Tripadvisor and its online vacation rentals brands Flipkey and Holidaylettings; Homeaway and all its local platforms (Homelidays, Abritel etc) and other private companies such as the Spanish based Only-apartments, just to name a few. Too many the players, too small the market I would say. The gold rush is over. Wimdualready experienced the lack of interest from other companies when, a couple of years ago, coherently with its Rocket Internet parent company strategy it tried to sell itself “back” to the original (AirBnb) but was rejected.

We should also add that the value of those European mee-toos is low because, besides the fact that those brands have a very low awareness among consumers, they also lack a unique and distinctive personality even before the eyes of, say, any restricted target group of consumers. In a few words they don’t have any marketing positioning which could distinguish them against their competitors and give a valid reason for any group of consumers to choose them over their competitors.

For instance Housetrip, despite having partially changed its top management still claims on its front page : “Book yourself a whole home for less than the price of a hotel room”, which is basically the definition of the category -vacation rentals- hence something that all its competitors could claim, hence nothing that could represent for consumers a valid reason to come back to them instead of going to a competitor. As it’s a generic claim, as it defines the whole market segment, it could work for the market leader, but surely not for a follower. This is a marketing mistake that a student at his first year of marketing classes at university would probably avoid, but seemingly at Housetrip it takes a Ceo and a marketing director with stellar resumes to come out with this …

More: those European start-ups offer less properties as compared to AirBnb and the ones they offer can all be found on AirBnb, then why should a customer book his holiday rental on a replica website instead of booking it on the original one? The other way round, the main question that every CEO and Marketing Director should try to respond before going to the market: What reasons / benefits (tangible and/or intangible) my brand offers to potential customers to choose my product/service over my competitors?

Remains, for our European friends, unanswered. Lack of strategic vision? Yes, undoubtedly. But there is more, as we shall see later. By the way, it’s no excuse that you are smaller and have less to offer as compared to the market leader: a way to distinguish your brand should always be found or, at least, you should give it a try. There are many success stories of smaller companies -as compared to the market leader - that have successfully build their brand on a unique positioning even if they had less to offer with no particular advantage for consumers. The case of Avis rental cars is one of these: they build their success by claiming on their communication campaigns that: “We’re just number 2 (in the market), that is why we try harder”. (Hertz was n.1 in the market).

Another reason that our European wunderkinds could claim for not delivering what was expected from them could be: Wimdu, Housetrip and 9fltas have “only” received ", respectively, 90, 60 and 25 million Euro of funding whilst AirBnb has received $ 826 million to date. Apparently it’s a huge difference, but if we go back to 2012, when the European start-ups had more or less completed their financing rounds, AirBnb had only received $ 120 million after its series B round. So there was no huge difference at the time, but, above all, what made possible for AirBnb to receive further $ 700 million is its triple digit growth year over year, as otherwise the cash flowing in would have drained also for the Silicon Valley start-up; so the blatant lack of performance in terms of growth for the European AirBnb clones is the only reason for not receiving further funds.

Let’s go back to analyze the marketing mistakes of our European vacation rentals start-ups. We’ve already highlighted the first, and probably most important, one:lack of distinctive positioning, due to a lack of strategic vision. The thing is thatthey have not even tried to differentiate their brands against their competitors, as they are “comfortably” sitting on generic claims that are valid for the whole category. Choosing a distinctive marketing positioning that would be effective and relevant for consumers and executing it well ain’t easy, it requires intuition and discipline and vision and knowledge of consumers minds, but this is why marketing executives – and Ceos – are paid huge salaries, so if they don’t even try to make their brand stand out of the crowd what are they in for? And if your brand has no personality, who could be interested to buy it? But this is the original sin of a clone: when you just imitate you do not have any distinctive personality by definition, because you’re going after someone else’s personality. So why a consumer would buy a copy if he can have the original .... at the same price or even at a lower price?

In my opinion, there is nothing bad per se in imitating or replicating a successful business or product (as long as you’re not infringing any patent), I believe that every manager and entrepreneur has, at some point of his career, taken “inspiration” from his competitors; after all Japan and South Korea have based the initial phase of their impressive economic growth on such a strategy: their companies were exactly replicating Western products in order to acquire the knowledge that, later on, allowed them to start innovating; they simply bought western products, dismantled them piece by piece, and then they went to market with a re-branded clone. I still remember the ugly Daewoos which were the exact replicas of the Opel-General Motors models. But then why this strategy worked for these far East companies and not for our European vacation rentals start-ups? The answer is simple: yes, theJapanese and Korean companies were offering copies, yes the copies were less attractive than the originals, but these copies had much lower prices. And this is still a strategy that works for some products or services, because customers that cannot afford the original product are willing to buy a similar, although less attractive, less complete, less reliable, product if, and only if, there is a clear price advantage.

The above seems obvious to us, but not to the marketing executives of our online vacation rental agencies. At first let’s point out that these are only distribution platforms as they do not have control over the product (apartments) and over their prices. It’s the owner of the accommodation or its manager that sets the price, the agent is just adding a mark-up on top of it. Therefore you can find the same Paris apartment of Mr Noiret on, say, AirBnb and on Housetrip with different final prices, and this can happen for two reasons: first, the mark-up is different (AirBnb adds a 10-12% mark-up, whilst Housetrip adds a higher mark-up, in the range of 15 to 17%); second, nothing prevents the landlord to set different prices for his property on the two platforms. But even assuming that the price set by the owner is the same on the two websites, the apartment will be more expensive on Housetrip! Yes, you got it right: the clone is more expensive than the original ! Wimdu and 9Fltas, as far as we know, have mark-ups that are closer to AirBnb’s mark-up, but again, why should I buy from a clone if there is no clear price advantage? We’ve just highlighted the second reason of their failure: prices on European mee-toos are equal or even higher than the prices on AirBnb., a direct competitor of our vacation rentals booking platforms, as well as the absolute leader in the online accommodation market (hotels + vacation rentals), has built part of its success by keeping its promise of the "Best price guarantee", a controversial obligation among professionals that must respect this obligation by contract if they want to sell their rooms on, but, as Don Vito Corleone would say, it represents, for a consumer, “an offer he can’t refuse”.

Now, what about design, another marketing “tool” to leverage in order to make a brand memorable? Everybody knows that Steve Jobs was maniac about design, everybody knows the importance he attributed to the design of his computers and smart phones, but maybe not everybody knows that he gave the same importance to the design of the packaging of his computers and smart phones as he did with the product itself. This is just to remind that also the design of the packaging plays a role in the purchasing decision. Since we’re talking about websites, in this case the element to take into consideration is the look and feel of the site, its logo, its graphic elements and its fonts (colors, choice of the fonts, size of the components, etc.), its images, its photos etc. We have already mentioned that, consistently with their followers approach, they have chosen to imitate or otherwise not to differentiate significantly themselves from the original, potentially causing confusion among consumers, to the benefit of AirBnb, which is the stronger brand.

But there is more: AirBnb has understood from the beginning that the quality of the photos of the properties is extremely important as well, because the apartment in Paris shot by our friend Mr. Noiret himself with his cell phone, without the right lighting, showcased, for example, on Wimdu looks like a bad copy of the same apartment on AirBnb, as here the pictures have been taken by a professional because AirBnb offered the shooting for free to Mr Noiret. Then again, to resume our recurring question, the top management of our European friends never asked themselves why a customer should book an apartment for his holidays on their platform, which offers less choice (less apartments), whilst, on the same time, the customer gets the impression that the overall quality of the listings - thanks to the professional pics - is much better and the prices are lower on Airbnb?

Let’s conclude by having a glance at the online marketing techniques that have been used. We should take into consideration Search Engine Marketing (SEM, Pay per Click, display advertising etc), Search Engine Optimization (SEO) andSocial Marketing (Marketing on social networks). From this point of view, our European friends have been working on SEM scholastically, and on the on site and off site Seo, as would any beginner in online marketing. AirBnb, however, has been using in a very effective way Social Marketing, they have put in place innovative strategies, they have created online communities all over the world, whilst their European counterparts have just done a few, basic tactics in this field. AirBnb does not even have good or better positions in terms of natural results on search engines (mostly Google) for their relevant keywords in the geographical areas where they are operating; but, despite this, they have been growing exponentially. One should wonder how the Silicon Valley company managed to grow that much with no relevant positions (first page) on Google.

Since AirBnb has no outstanding natural search results on Google, we suppose that they have been somehow penalized by the Google algorithm. This shows that the importance of the natural positions onGoogle search results is no longer what it was before; hence nowadays an online platform can grow without heavily relying on the “moods” of the Google algorithm, as AirBnb has demonstrated. So where is the secret? The answer is hacking growth. AirBnb has used this techniques and continues to use them very effectively. Online marketing has changed, SEO and SEM are techniques that shall still be used, but, alone, they no longer guarantee the success of an online platform even if they are used effectively. The incredible performance of, say, Whatsapp, that has become the favorite instant messaging app of hundreds of millions of people without spending a single online advertising dollar should be known perfectly by all the marketing executives dealing with online marketing. But this is not the case for the management our European Vacation rentals platforms, as they have not used any hacking growth technique to date, and in some cases they prefer to waste money on television advertising. You may wonder which hacking growth techniques AirBnb has been using to grow at over 100% rates year over year ... well, this is another story, probably it will be the theme of another article.

Now, does someone still wonders why the AirBnb European mee-toos have failed? I am wondering what was written in the business plans that granted million Euro funding for these start-ups. The situation I described was largely predictable 2 years ago: I am no marketing genius but that is more or less what I told back then in a comprehensive analysis that I made for free and that I presented to the top management of one of these companies, along with a strategic marketing proposal. The same analysis and the consequent proposal were sent to their backers. The attitude of the management was: we know better than you; a few month later they had been fired. As Shakespeare would say: "Something is rotten in the world of European high tech".

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