The Role of Disruptive Innovation in Transforming Tourism Accommodation: A Case Study of Airbnb

1.0 Introduction

This essay entails an analysis of innovation in the tourism sector. The analysis specifically focuses on the impact of disruptive innovation on the growth of informal tourism accommodation.  This goal is achieved through the integration of the disruptive innovation theory which stipulates that the creation of new markets occurs through the introduction of new products and services into the market. Introducing new products progresses gradually until the said product or service gains ground in the market. Based on the literature, my argument is that the emergence of disruptive technologies, specifically internet technology, has significantly contributed to the disruption of tourism accommodation, which is evidenced by the fact that the technology is providing ordinary consumers an opportunity to be part of the tourism accommodation sector contrary to the traditional view that tourism accommodation can only be supplied through hotels, restaurants, and resorts.

Tourism is an attractive economic sector that potential investors can consider in their quest to generate a high return on investment.  The industry is comprised of different segments such as the travel and accommodation segments. The industry’s attractiveness emanates from the fact that it is characterized by diverse forms of tourism, for example, such as leisure, business, sports, and educational tourism (Banes & Orboi 2015).  The industry’s future growth is also likely to be spurred by governments’ commitment to promoting the industry’s growth through the implementation of different programs. For example, the UK has established the National Tourism Board to enhance the competitiveness of the UK as a tourist destination (Visit Britain 2017).

Accommodation constitutes an important component of the tourism industry because tourists need to be provided a place to rest and relax in the course of touring different destinations (Clegg & Essex 2000). Conventionally, accommodation was largely limited to hotels and restaurants (Liu et al. 2015).  The attractiveness of the accommodation market segment has contributed to a remarkable transformation.  Barnes, Dora, and Orboi (2015) emphasize that the industry is characterized by a significant degree of competition and dynamism.  An example of transformations that have occurred in the sector is underlined by the emergence of the informal accommodation segment in which individuals are accepting to leave their houses for tourist accommodation.

Disruptive innovation or technology has extensively taken over the application of technologies that were conventionally considered dominant in undertaking different operational aspects such as establishing and maintaining interaction with customers (Hedberg & Chang 2007). Examples of such technologies include the internet technology.  Kaplan (2012) emphasizes that developing disruptive innovation capability has become a requisite aspect in the business quest to achieve growth and protect their market. Thus, disruptive technology will play a fundamental role in promoting the future of the informal tourism sector.  Tourism development especially in developing countries is hindered by different aspects amongst them the shortage of facilities, lack of adequate knowledge on how to attract tourists, and poor infrastructure (Schmitz & Tsobgou 2016). Airbnb Company is an example of a firm in the tourism sector that has ventured into the informal tourism accommodation sector.  The firm operates as an online marketplace that provides tourists around the world an opportunity to make reservations for accommodation through different internet technologies (AiAirbnb017).  Thus, AAirbnb’ssuccess is hinged on the development of interactive technologies such as the Internet. Its capacity to provide accommodation to tourists emanates from the incorporation of the concept of leasing as opposed to constructing accommodation facilities.  This has further been facilitated by an increase in the number of homes to let and apartments, which has been spurred by growth in the housing industry. Thus, the owners of Airbnb Company succeeded in entrenching the concept of disruptive innovation in the global tourism accommodation segment. Through its business model, Airbnb is likely to spur the future growth and development of the tourism sector.

2.0 Analysis   

2.1 Tourism accommodation and disruptive innovation theory

Firms in different economic sectors have experienced winds of change that have led to the remarkable transformation of the sector and subsequently the firms’ operational approach. Amongst the notable impacts of the changes being experienced is an increase in the intensity of competition (Clement 2013).   King and Baatartogtokh (2015) stress that the intensity of competition currently being experienced by firms in different sectors threatens even businesses that are perceived to be the strongest and most resilient.  To survive in the dynamic business environment, businesses must be innovative.  Firms in the tourism and accommodation sector must continually develop and experiment with new products, channels of distribution, and technologies in the quest to enhance competitiveness (Crotts & Gupta 2013).   Competition in the tourism accommodation sector has become fierce.  One of the factors that have led to an increase in the intensity of competition entails the fact that the sector has become very attractive.  Available statistics show that the demand for accommodation has increased significantly as illustrated by Appendix 1.  Thus, industry players who distance themselves from implementing continuous improvement may encounter problems in the quest to remain competitive (Crotts & Gupta 2013).

Ramdorai and Herstatt (2015) assert that innovation can either be disruptive or sustaining.   Sustaining innovation entails improving a firm’s products and services along its core dimension depending on the extent to which it generates value to customers. Sustaining innovation can either be actualized through radical or incremental approaches (Ramdorai & Herstatt 2015). Even though managers of tourist firms have emphasized the importance of building distinctive capabilities, integrating customer focus, and improving their level of investment, they are not adequately committed to dealing with disruptive innovation (King & Baartartogtokh 2015). The term disruptive innovation was conceived by Clayton Christensen to refer to the technological innovation that culminates in the establishment of new markets (Obal & Ibrahim 2016). Conversely, Clayton Christensen (2017) defines disruptive innovation as the process via which a firm develops and introduces new applications into the market until when the particular product or service gains root in the market. In some situations, the product or service introduced might ultimately displace competing firms that may be considered to be well-positioned in the market (Guttentag 2015). Appendix 2 illustrates the fact that disruptive innovation is progressively becoming a key approach that businesses are increasingly applying in the quest to attain sustainability. Disruptive innovation improves the probability with which customers at the bottom level of the supply chain access products conventionally considered inaccessible or a reserve of a few such as the high-income consumer group (Clayton Christensen  2017).

Obal and Ibrahim (2016) corroborate that disruptive innovation emanates from markets that are largely considered low-end footholds or moderately new markets.  Amongst the reasons that contribute to the emergence of low-end footholds entail the fact that most businesses operating in different economic sectors largely target customer segments that they perceive to enable them to generate high revenue. Moreover, most entrepreneurs and business organizations overemphasize consumer groups that demand ever-improving products.  Because most businesses largely focus on a particular customer group in the quest to generate high sales revenues, a significant number of businesses ignore the less-demanding consumer groups (Christensen & Raynor 2013).  This aspect is well underlined by the fact that tourist accommodation has traditionally emphasized on establishment of ‘star hotels’ that focus on maximizing and improving the accommodation facilities in restaurants (Tussyadiah & Zach 2015).  In the course of their operation, the ‘star hotels’ targeted the wealthiest consumers with adequate financial resources and time to purchase leisure services.  Nevertheless, the emergence of the informal tourism accommodation sector, whose growth has been promoted by the innovation of digital technology such as the Internet, has led to significant growth in this sector.

Disruptive innovation results in the emergence of a new market in a particular economic sector that did not previously exist.  Christensen and Raynor (2015) accentuate that disruptive innovation results in the establishment of a new customer base.  For example, disruptive innovation results in the transformation of certain groups of consumers who would have previously been considered non-consumers into an ‘emergent customer group’.  This explains why disruptive innovation presents a remarkable threat to firms operating in different sectors.  As a relatively new entrant into the tourism industry, Airbnb Company has contributed to the disruption of the tourism accommodation market segment. The firm’s success in disrupting the tourism sector has originated from its adoption of a unique business model that allows consumers to lease their homes either on a short-term or long-term basis to tourists. The firm has actualized this outcome via its website.

By employing internet technology, Airbnb has succeeded in disrupting the tourism accommodation sector by creating an opportunity for ordinary individuals to provide tourist accommodation facilities (Guttenbag 2015).   In the initial stages, the disruptive product introduced into the market is characterized by remarkable underperformance, which emanates from the fact that the product has yet to gain market recognition. Crotts and Gupta (2013) accentuate that the emergence of disruptive innovation concerning tourism accommodation has improved the affordability and accessibility of tourism products and services. This arises from the fact that the fact that the emergence of informal tourism accommodation has provided consumers with an alternative approach to accessing accommodation facilities by tourists.  Thus, there is a high probability of entrepreneurs in the informal tourism accommodation sector experiencing considerable growth in the future. Christen and Raynor (2003) affirm that products of disruptive innovation have remarkable potential for growth hence aiding the firm in generating a considerably high level of income.

• Components of Disruptive Innovation Theory

Disruptive innovation theory is based on four main elements as expounded herein.

1. Progression through a path aimed at sustaining innovation; the theory of disruptive innovation postulates that disruptive innovation within a particular industry occurs through a distinct trajectory. The foundation of this element is that the innovation of products and services in different economic sectors progresses through discrete paths that companies follow in the quest to improve their products and services. Evidence of sustaining innovation is highlighted by the fact that most companies that have integrated innovation as a key component of their operation undertake year-on-year improvement of their products to remain competitive.  For example, automobile companies may focus on improving the horsepower of their automobile brands in the quest to strengthen the degree of customer appeal. Hence generates high sales returns.
2. Disruptive innovation outshoots the customers’ needs; disruptive innovation products culminate in the provision of a unique experience that results in the satisfaction of the customers’ needs. Additionally, it is considerably difficult for customers to surpass the opportunities inherent in products of disruptive innovation.
3. Failure of incumbents to optimally exploit the opportunities in the industry; one of the premises of disruptive innovation is that incumbent firms operating in a particular industry fail to identify and deal with potential disruptors. For example, the incumbents fail to allocate or allocate inadequate resources to industry players.  Disruptive innovation theory accentuates that disruptors avoid competing directly with incumbent competitors.  On the contrary, they adopt a divergent approach by targeting consumer groups considered as low-end customers.  Banes and Orboi (2015), highlight that disruptive innovation thrives on the ignorance of bofincumbent businesses on the threat posed by potential disruptors.
4. Incumbents struggle to compete with the disruptors; Christensen asserts that upon gaining ground in their respective industries, the disruptive innovators eventually outperform the incumbents.

3.0 The impact of disruptive innovation on tourism accommodation and the possibilities of influencing the future development of tourism accommodation

Despite the significance of tourism in promoting a country’s economic growth, its success in achieving this outcome depends on the contribution of the respective supporting market segments amongst them accommodation. Schmitz and Tsobgou (2016) cite the shortage of tourism facilities as a major issue that might hinder the industry’s future growth. Tourism accommodation constitutes one of the fundamental components of the industry’s growth.  Conventionally, tourism accommodation involves renting accommodation facilities from businesses, for example, hotels. This approach to tourism accommodation has been disrupted by the y emergence of the informal tourism accommodation model (Guttenbag 2015).   However, Ramdorai and Herstatt (2015) affirm that the concept of renting private homes for tourist accommodation purposes dates back to the 18^th century. Black (1985) asserts that this concept was widely applied during the Grad Tours in Europe.  Nevertheless, the growth of informal tourism accommodation has over the years been hindered by the effectiveness with which homeowners identify and establish a link with potential clients/tourists to make reservations on accommodation.  Moreover, a lack of trust between homeowners and potential guests has further been a major factor that has hindered the growth of formal tourism accommodation (Guttenbag 2015).

Development in internet technology presents a critical disruptive innovation that has significantly contributed to the elimination of these obstacles. For example, the entry of reputable online tour and travel agencies such as Airbnb has significantly contributed to the aversion of fear by homeowners in renting their homes/spaces to clients. This arises from the fact that online travel and tour companies such as Airbnb guarantee to owners that their property will be safeguarded.  One of the factors that have enabled Airbnb to succeed in exploiting the growth potential inherent in the informal tourism accommodation market segment entails the fact that it has been able to nurture a high level of trust amongst homeowners.  Airbnb leverages the public reviews that homeowners post on different online platforms such as social media. The reviews posted through different online platforms have enabled Airbnb to develop a positive market reputation. Subsequently, the firm has been able to provide informal accommodation facilities to tourists across the world at a considerably low cost.  Thus, Airbnb has contributed to re remarkable improvement in the affordability of tourism facilities.

Ramdorai and Herstatt (2015) emphasize that Internet technology has led to the emergence of a new approach to the provision of tourism accommodation facilities. Christensen and Raynor (2003) argue that the growth of Internet technology has led to the development of an online tourism accommodation marketplace.  This trend is likely to progress into the future due to the high rate of internet penetration that is currently being experienced in different regions as illustrated by Appendix 3 (Internet World Stats 2017).   The development of online technology has contributed to an increase in the space available for tourism accommodation.  This trend is likely to increase in the future. This arises from the fact that individual consumers have a chance to participate in the provision of tourism accommodation facilities. Robles, Stok, and Mesko (2016) emphasize that internet technology has led to the emergence of peer-to-peer accommodation.

Considering the opportunities inherent in the informal tourism accommodation sector, entrepreneurs have taken advantage of Internet technology to provide an alternative approach to tourism accommodation. Online travel agencies have adopted a unique approach to the provision of accommodation by establishing a strong network with individuals using online technology which encourages individuals to let/lease their houses/homes for tourism accommodation purposes at a fee.  Examples of such companies include Airbnb, Orbitz, Travelocity, and Expedia (Christensen & Raynor 2003).

By leveraging online technology, Airbnb has succeeded in offering alternative tourist accommodation facilities. Integration of online technology has further enabled Airbnb to attain a global market presence.  Currently, the firm has been able to provide accommodation to tourists in over 65,000 cities distributed across 191 countries (Airbnb 2017).   Thus, the Internet has significantly increased the rate of disruption in how entrepreneurs provide accommodation facilities to tourists. One of the factors that will enhance the future growth of informal tourism accommodation entails the emergence of a ‘sharing economy’, in which the internet has acted as a catalyst.  Robles, Stok, and Mesko (2016) emphasize that sharing is an old concept among individuals. Entrepreneurs are increasingly exploiting the concept of sharing as opposed to ownership.  The development of Information and Communication Technologies (ICT) has allowed entrepreneurs to establish online communities.  To establish an online community, Airbnb has implemented Web 2.0 technology. This technology has enabled the firm to establish and maintain an effective peer-to-peer accommodation. Web 2.0 technology has significantly improved the extent to which individuals share information and digital products and services.

The growth of the sharing economy coupled with internet technology presents a perfect opportunity for the growth of the informal tourism accommodation sector. This arises from the fact that companies such as Airbnb that have ventured into informal tourist accommodation will be able to leverage an extensive online community. Therefore, the growth of online technology will present a perfect opportunity for Airbnb to connect with ordinary consumers across the globe who can leave their homes for a specified period for tourism accommodation. Based on this approach, Airbn will be in a position to enter into new markets. By leveraging the internet as a disruptive technology, Airbnb will be in a position to take advantage of changes in the tourism industry. For example, the firm will be able to take advantage of opportunities in the business and sports forms of tourism. To illustrate this, internet technology will enable Airbnb to collaborate with individual homeowners during mega sports events such as the Olympics and business conferences in providing accommodation to sports tourform.  Based on this approach, one can argue that Internet technology will continue to disrupt the tourism accommodation segment. Thus, there is a high probability of the informal tourism accommodation segment undergoing considerable growth in the future.

4.0 Conclusion 

The essay has provided critical insight into the role that internet technology has played in the disruption that has been witnessed in the tourism accommodation segment. This has been achieved through the application of the disruption innovation theory, which outlines the process through which new products/services are introduced into the market hence disrupting the operational approaches of incumbent firms.  Internet technology has extensively stimulated the growth of the informal tourism accommodation market. The technology allows entrepreneurs to link with homeowners across the world hence improving access to accommodation facilities that tourists can use in the course of touring at an affordable rate.  Technology has enabled firms such as Airbnb to venture into the online marketplace in the quest to provide accommodation to tourists across the world. The growth in the rate of internet penetration being experienced in developing economies presents an opportunity for further disruption of the tourism accommodation market segment.  Thus, there is a high probability of future growth and development in the informal tourism accommodation market segment.

Despite the likely potential for growth, the future growth of informal tourism accommodation might be hindered by a lack of trust between homeowners and potential guests especially in markets where where the concept of informal home ownership is new.  Thus, to succeed in exploiting the disruptive capacity of internet technology, entrepreneurs in industries such as Airbnb must focus on the most appropriate approach to develop their global reputation.

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Appendix 1

The trend in growth in demand for accommodation in the European Union (2006-2015)

Appendix 2

Disruptive innovation