Conceptualization of changes in tourism industry’s distribution channels: The case of peer - to – peer business models and sharing economy platforms
SOFOKLIS SKOULTSOS
Scientific Collaborator at University of the Aegean, Technological Educational Institution (TEI) of Sterea Ellada
ALEXIOS-PATAPIOS KONTIS
Scientific Collaborator at University of the Aegean University of the Aegean and at the Technological Educational Institute of Athens
EFTHYMIA SARANTAKOU
Scientific Collaborator at the Hellenic Open University and at the Technological Educational Institute of Athens
ABSTRACT
Current paper focuses on the new business models which changed and affected the tourism industry. The scope is to identify the relative framework and the operation of these new business models by describing their operation and their actual evolution, even though the research is limited in this particular field. The evolution of peer – to peer business models and sharing economy platforms altered the opportunities for the potential customer and impacted the industry in various ways. As a result, local authorities tried to react to the new circumstances mainly by creating the appropriate legal framework. The responses took place at national, regional or even local level. The paper discusses these approaches as well as the impacts that sharing economy has on the Greek tourism industry.
Key Words: Sharing economy, peer-to-peer, Greece, distribution channels.
INTRODUCTION
The structure of the global tourism industry has been changed quickly during last decade mainly because of the growth of communication technologies and changed distribution channels. Firstly, each tourism business can directly reach the final consumers due to new distribution channels. Additionally, the rise of alternative distribution channels contributed to the development of new business models that are based on the peer to peer (P2P) connection and network. The new business environment brought up several concerns about the co-existence of traditional industry with the new business models because of the existence of negative impacts. At first this paper discusses in a theoretical basis the evolution of distribution channels in the tourism industry and further down the rise of sharing economy and P2P models. Additionally, the level of impacts of these changes to the hospitality sector are analysed as well as the response from the industry in several countries with a focus on legal framework.
EVOLUTION OF DISTRIBUTION CHANNELS IN THE TOURISM INDUSTRY
The increasing international competition in the touristic sector, as well as the particular conditions in the trade of touristic services, have made it impelling for tourism enterprises, among other things, to focus on extroversion and on the mechanisms that are linked with the market, highlighting the catalytic role of tourism marketing channels. The information and communication technology has made possible the simple and direct link between consumers and suppliers (Kracht &Wang, 2010; Buhalis & Law, 2008), which has transformed not only the structure of tourism distribution channels but has also facilitated a multitude of other businesses configurations (Kontis & Lagos, 2016; Sarantakou & Τsartas, 2016). The key points of resultant push and pull manifest itself with efforts at intermediation, disintermediation, and reintermediation of tourism distribution channels and business models, as we knew them a few years ago.
Touristic Enterprises present significant peculiarities which are relevant to the conditions of production, formulation, promotion and sales of the touristic services (Supply) as well as with the consumption of these services by the tourists (Demand). Thus, in a sector where sensitivity and space and time peculiarities of the services produced are great, the strategies used by marketing channels acquire a vital significance for the competitiveness and the sustainable development of tourism enterprises, since they constitute the commercial frontispiece for the totality of the managerial and operational procedures that are executed in every business unit (Cooper & Lewis, 2001). Especially for tourism, Kotler, Bowen and Makens (2013) support that a well-managed distribution system can make a difference between a company with a leading part in the market and a company which is struggling to survive, in the sense that the channels of touristic marketing stress the vital importance of the bidirectional interconnection that exists between producers and consumers aiming at the sale of the produced and provided services. Often enough, high-quality services that can derive from an adequate organization and be running a hotel can remain unconsumed or show signs of reduced performance, if the gap between potential consumers and the hotel cannot be bridged with the best possible conditions.
Over the past years the importance of Marketing Channels is becoming more and more acknowledged by most businesses as the main strategic variable of marketing mixes for obtaining a viable competitiveness advantage (Armstrong & Kotler, 2012).According to this fact, businesses are forced to pay greater attention to their management in the broader sense of the term (Cespedes 1998), since the new conditions render as inadequate the treatment and handling of marketing channels just as a mechanistic procedure only. The aforementioned attitude is becoming more and more established because of the radical rearrangements in the structure of the financial, producing and commercial arena (Freyer & Molina 2008, Coughlan, et al. 2006). Developments and changes in the whole of the touristic and commercial circuit affect the total of the involved parts of the marketing channels such as accommodation providers who look for innovating policies and practices for an efficient promotion and sale of their production by constantly redefining the role and function of marketing channels that they use (Kontis & Lagos 2016).
CONTEMPORARY BUSINESS MODELS IN THE TOURISM INDUSTRY
During last decade, major changes took place regarding the structure of the tourism industry. The rise of new technologies, online reservations systems and mobile applications led to new circumstances. Also, the wide use of social media connected people at a global level and set a contemporary reality not only in the field of travelling but also in doing business in general.
SHARING ECONOMY AND PEER -TO – PEER (P2P) BUSINESS MODELS IN THE GLOBAL ECONOMY
The new reality in the global economy includes the sharing economy platforms for which various attempts have been made to define it. It has to be mentioned that sharing economy is referred also as shared, collaborative, peer or access economy (Juul, 2017). In particular, sharing economy platforms have been defined as “new marketplaces that allow services to be provided on a peer-to-peer or shared usage basis” (OECD, 2016). Also, according to European Commission (2016) is that “Sharing Economy[1] … refers to business models where activities are facilitated by collaborative platforms that create an open marketplace for the temporary usage of goods or services often provided by private individuals.”
Sharing economy can be used only in the service sector but also to the retail one. It has been argued that sharing economies …. “are those that allow individuals and groups to make money from underused assets. In this way, physical assets are shared as services.” (PricewaterhouseCoopers, 2015, p.5). Specifically, this new business model has been widely used in the following sectors: Hospitality, Food & Beverage, Transportation, Retail and Consumer Goods, Media and Entertainment (PricewaterhouseCoopers, 2015).
Sharing economy and P2P business models are usually include three types of stakeholders in their operation. At first, the service providers are those ones that decide to share assets, resources or even time or skills. They can be individuals (peers) or professionals. Secondly, customers are the users of these services or assets and thirdly there are the platforms that connect consumers with providers in order to complete their transaction. The purpose of the transactions in these platforms could be profit or not (European Commission 2016).
The rapid growth of these business models is based on various factors that derived mainly from the community’s and everyday life characteristics. Specifically, major factors that act like catalyst to the adoption of P2P and sharing economy models are the following: technological advancements, global and national economic conditions, community engagement and alteration (Nudler, 2014; Hellenic Chamber of Commerce, 2015;). It is obvious that technological advancements are a catalyst to the emergence of the new business models. The opportunities for communication through the use of internet and the development of transaction systems allowed sharing economies to grow. The latter systems have been developed enough to offer safe and low-cost software. Moreover, the wide use of mobile phones together with GPS applications increased the “ease of use” of sharing economy platforms. Additionally, in sharing economy and P2P models, trust is the new currency. Due to this fact, the wide use of social media and the direct communication that they offer, build higher levels of trust between peers and the appropriate friendly environment for this kind of transactions. Social media contribute to the development and preservation of trusted networks. Also, new trends can be easily promoted and expand through the social media networks. Finally, feasibility of reviewing an experience or a peer is a prerequisite for the growth of P2P. (Hellenic Chamber of Commerce, 2015).
Additionally, the global economic recession that started at 2008 contributed to further growth both of demand and supply of sharing economy. A growing number of customers seek lower-priced products and services. Simultaneously, the decreased income forced people to search for opportunities for additional income. This combination led to increased demand and increased offers of all kind of sharing experiences and products. Other forces that contributed to the rise of P2P models are: internationalization, cultural shift to sharing and urban activism (Hellenic Chamber of Commerce, 2015).
SHARING ECONOMY AND PEER -TO – PEER BUSINESS MODELS IN THE TOURISM INDUSTRY
Sharing economy and P2P models are now a part of the tourism business and have affected the hospitality and transportation industry a lot. Initially, sharing economy platforms begun with the idea of “Couch surfing” (www.couchsurfing.com) that offered alternative lodging options especially for young travellers. This idea reached 120,000 cities and 9 million members in 2014(Hellenic Chamber of Commerce, 2015) and it was followed by similar projects such as house exchange (www.homeexchange.com). Nowadays, sharing economy and P2P models offer a wide variety of tourism services. Table 1 shows several indicative examples of types of tourism services offered by this kind of models.
Table 1: Examples of sharing economy in the tourism industry
|
Platform/Description |
Relative Numbers |
|
Accommodation |
|
|
Airbnb Short-term accommodation rental platform
|
|
|
HomeAway Vacation rental platform – primarily generates revenue through subscriptions paid by homeowners.
|
|
|
Couch Surfing Hospitality exchange and social networking platform
|
|
|
Transportation |
|
|
Uber Ride-sharing and technology platform |
|
|
BlaBlaCar Ride-sharing company based on sense of community |
|
|
Dinning |
|
|
VizEat Meal-sharing platform connecting hosts and guests . |
|
|
Travel Experience |
|
|
Vayable Online marketplace for personal tours and travel experiences.
|
|
Source: Adapted from OECD 2016:91
The most well-known P2P platform is Airbnb (www.airbnb.com) that managed to be the leader in the market by offering apartments in low –prices compared to similar services by the hotel sector. Figure 1 shows the global hotel groups capitalization of the market compared to the one from Airbnb. It is obvious that this particular platform can be concerned as one of the leaders of the market globally. A general conclusion is that sharing economy is the result of this new way of doing business at a global level which made a dynamic entrance in the tourism and hospitality industry.
Figure 1: Global Hotel Groups market capitalization versus Airbnb in billion US dollars
(Source: Adapted from Hospitality On (2015) in European Commission 2016)
IMPACT OF P2P MODELS AND SHARING ECONOMY TO THE TOURISM INDUSTRY
An ongoing debate is taking place for the impacts of these types of business models to tourism businesses. It has been argued that P2P models (for profit) brought an imperfect competition to the market especially - mainly because of the price. Hoteliers are forced to deal with labour law, tourism fees, taxes, consumer protection and various others issues that increase the cost of their businesses (Hellenic Chamber of Commerce, 2015). On the other hand, owners of apartments (offered in P2P platforms) operate under a “grey” legal zone and they are able to avoid most of the above-mentioned costs. As a result, these apartments cannot be easily competed by the hotels in terms of prices. It has been argued that 2** and 3*** hotels are the most affected by the operation of these platforms as they are not able to compete in prices and they don’t have the possibility to change a lot their offered product (Hellenic Chamber of Commerce, 2015). Also, Zervas et. al. (2016) argued that hotels may change their investment policies and as a result the entry and exit of the market will be impacted. In general, they stated that (p.31) “…, competition by Airbnb is potentially harder for incumbents to adapt to, compared to competition by other hotel firms”. Also, critics of these platforms argue that there is a threat to safety, health and disability compliance standards (Juul, 2015: 4). Moreover, part-timers are increased together with the lack of security in the working environment.
On the other hand, sharing economy platforms and P2P models are considered to offer more flexibility to the customer. Also, they have been promoted as opportunities for customization of the experience, for “meeting” the locals and for authentic experiences that are different from the traditional tourism product (Juul, 2015). Another point of debate is the sustainable services that are offered through short -term rental platforms (e.g. Airbnb). This is the case not only in the tourism industry. Sharing economy has been successfully promoted as sustainable way of doing business. It has been stated in a study of US adults that 76% of customers believe that sharing economy is better for the environment. In the same study 86% declared that sharing economy makes life more affordable and 78% that builds stronger communities (PricewaterhouseCoopers, 2015).
THE RESPONSE OF THE TOURISM SECTOR AND LOCAL AUTHORITIES
It is clarified that the variety of impacts depends on the side of approach (supply or demand). Obviously, the advantages and positive impacts of sharing economy to the demand side are much more than the ones to the supply side. The growing expansion of the sharing economy has also brought a number of reactions inside and outside the boundaries of the tourism sector. Τhe debate revolves around issues of entrepreneurial innovation along with the prospect of introducing regulation that will secure competition on a level-playing-field. The diversity and scope of the sharing economy makes it incredibly difficult to regulate. The most common approach to date has been to attempt to apply traditional forms of regulation as individual issues arise.
RECENT EXAMPLES OF INTERNATIONAL EXPERIENCE IN RELATION TO THE REACTION OF DESTINATION AUTHORITIES.
In many countries, the provision of tourism services in the accommodation sector is highly regulated. This can include environmental and construction permits process, licensing or standards for accommodation, as well as operating standards. For example, the renting out of rooms/apartments in residential areas avoids land-use regulation and zoning codes. Many hosts of short-term accommodation rentals tend to be commercial leasing companies looking to avoid fees and taxes associated with traditional regulations (Samaan 2015). The co-existence of highly-regulated providers with unregulated competition creates a strong risk of unfair competition and regulatory arbitrage. This fact is evident from concerns about the use of sharing economy platforms by businesses to bypass regulations (OECD 2016)
Governments are being called on to begin re-thinking current legislation to include sharing activities that do not neatly fit into existing regulatory frameworks. The majority of jurisdictions have created new permitting regimes. Regarding the fact that existing regulatory frameworks are highly localized, short-term rental provisions vary widely. Region and Cities have a wide range of approaches in dealing with the service, from stringent regulation (Santa Monica) to fairly laissez-faire, or cooperative effort with platforms like Airbnb (Amsterdam, London).
Figure 2: Comparison between Amsterdam and Santa Monica legislations
Common restrictions include geographic caps, maximum durations, maximum rentals per year, occupancy limits, and exclusions for multiple dwelling residences. Among the problems that city governments and state regulators foresee with Airbnb: the potential to upend landlord-tenant relations. Table 2 presents a set of guidelines and rules that a city may want to consider when adopting rules that allow Short-Term Rentals. From the above analysis derives the fact that the majority of the measures used for limiting apartments offered by P2P platforms are closely linked to the following goals. The primary goal is to keep the sharing economy platforms at a level of non-professionalism or non-business in order to reduce unfair competition.
Additional goals are: the preservation of low cost of everyday life of citizens and tax collecting from this new business activity (see Table 2) (OECD 2016:100). It has to be mentioned that in the current period (2016-2017) measures are implemented at specific areas in order to reduce the negative impacts of P2P business models. These areas are mainly metropoles (such as and the measures are implemented either urgently or on a regular basis (Barcelona, Berlin, New York State, Paris).
Table 2: Rules and guidelines for Short Term Rentals
|
Measures |
Regions or Towns |
|
Obligation to register |
San Francisco, Santa Monica, Amsterdam Berlin, Barcelona, Catalunia, Greece, Portugal |
|
License (usually Municipal license, or business licence) |
Catalunia, Austria, Ireland/ Reykjavik |
|
Limitations on the duration of the lease
|
New York City (30 days), Austria and Amsterdam (60 days) San Francisco, Santa Monica, Amsterdam Berlin, Barcelona, Greece (60-90 days) Madrid (mimimum duration of 5 days) |
|
Restrictions on the number of rented properties or beds |
Britain (4 beds) Austria (10 beds) Greece (max two properties) |
|
The owner must live on the property during the renter’s stay |
New York City |
|
Conditions and characteristics of the properties /set of minimum standards |
Ireland/ Reykjavik, Greece |
|
Fire safe regulations |
Amsterdam, Ireland/ Reykjavik |
|
Controls |
New York, Paris |
|
Monitor service quality |
Portugal |
|
Recording data and statistics |
Milan |
|
Agreement of other residents in apartment buildings |
Austria, Amsterdam |
|
Agreement of landlords necessary |
Berlin, Barcelona, Switzerland |
|
Collection of tourism taxes |
Santa Monica, Amsterdam Berlin, Paris, Milan, Zurich, Geneva San Francisco, Portugal |
|
Ban on new license |
Barcelona (Ban on new license in 2014) Berlin (ban short-term rentals without the express permission of local government authorities), New York State (2017), |
Adapted from Hotrec 2015, OECD 2016, Ministry of Tourism, General Directorate of Tourism Policy 2015, Hellenic Chamber of Hotels 2015
THE CASE OF GREECE AND ATHENS
In the case of Greece, the development of sharing economy coincided with the economic crisis. During the period of reference (2010-2015), there was exponential activity in legislating by the competent ministries (Ministries of Environment, Economics, Tourism, Development). Under the pressure of MoU obligations and the prerequisite actions demanded, the relevant legal texts had been changing even in a “daily” basis. Therefore, a new framework for tourism investments was formed. Specifically, in the statements of reasons of the legal provisions the new framework has as basic objectives: 1) to create an investment friendly environment, 2) to simplify and accelerate processes and 3) to repay public debt (Sarantakou & Tsartas, 2015).
Concerning the rise of sharing economy platforms, it can be argued that there is a steady growth in apartments offered in these platforms. According to a relative study from Hellenic Chamber of Hotels (2015)[2], 11,800 properties were listed across Greece and the majority of them (68,3%) were offering accommodation below 103 euros per night. Data shows that prices of Airbnb listings follow the relative prices of the destination as a whole. It is important to mention that more than the half (55%) of the listed properties in Mykonos island offer accommodation over 103 euros per night.
Regarding the city of Athens, the respective data for prices showed that 68% of the properties are below 73 euros per night, 15% between 73-103, and 8,5% for both “100-153 euros” and “over 153 euros” price categories. More detailed data about Athens are presented below (www.insideairbnb.com):
• In the time period 2013-2016, Athens shows a significant development in accommodation sharing.
• Only via the Airbnb platform the number of residences officially rented in Attica has risen from 523 in 2013 to 5000 in 2016.
• New touristic areas emerge in the city (Koukaki, Exarchia etc.) Indicatively, properties that use Airbnb extend in 25 neighborhoods of Athens, out of which 69% are outside the traditional touristic areas.
• Tourists that choose the market of accommodation sharing belong, to a wide extent, to the group of the millennial city break travellers.
• 71% of Airbnb visitors being in Athens for the first time choose Airbnb due to low cost, but also because they seek authentic experiences.
• 98% of the hosts suggest to the visitors their favorite places in their neighborhood or they propose exploring alternative neighborhoods.
THE RESPONSE FROM GREEK AUTHORITIES
The growth of the sharing economy, among the other factors, forced the Greek government to reassess the overall regulatory framework for the tourism sector, to ensure that it best responds to the current realities in the sector. Until recently, Greece had no legal framework for short-term property leases. According to the previous legislation the homeowners could not rent their properties to tourists for 30 days or less, unless they have the operation license issued by the Greek Tourism Organisation. In order for the State to tax the income of individuals from renting housing to tourists, the Greek parliament entered the Law no. 4446/2016 (Government Gazette A 240 / 12.22.2016).
The new law sets a series of strict conditions which must be met cumulatively in order for property rental to be lawful. These conditions prevent the lessor from acquiring a commercial capacity through the provision of organized accommodation services. The law considers as property: a) apartments, b) detached houses, except for houses that are classified as such due to the abolition of the horizontal property establishment, and c) any other form of dwelling. Individual lessors must be registered in the "Short-Term Property Lease Register" of the Ministry of Finance. Their registry number must accompany each rental listing in any means of promotion, digital or not. Any income beneficiary may lease up to two properties. Neither property may be leased for more than sixty (60) days per calendar year in islands of fewer ten thousand (10,000) inhabitants and for no more than ninety (90) days in any other region, unless the lessor's income from all properties leased in this way is less than twelve thousand euros (€ 12.000) per year. The property must have a minimum size, natural lighting, ventilation, and heating, be furnished and have received all necessary building permits. Inspections for any infringements of the above conditions are carried out by mixed inspection teams, consisting of employees of the Ministries of Finance and Tourism.
CONCLUSIONS
The above analysis clarifies the fact that tourism industry and traditional business model have been set aside from P2P business models (either for profit or not). This situation caused many responses from traditional businesses. These responses focus (till now) on the appropriate legal framework that can protect the hotel sector. The reaction may have a successful result of limiting the operation of sharing economy in the short or in the midterm. Nevertheless, it is obvious that sharing economy and P2P models evolve rapidly in a way that cannot be followed easily by the tourism industry. It has to be referred that from November 2016 Airbnb introduced in its platform the opportunity to offer local tour guides, based again on the P2P models together with reservations to restaurants. Apparently, sharing economy and P2P models will continue to grow (maybe with lower growth rates). In any case, research in a – regular – basis need to be done in order to discuss further necessary actions that can contribute to the co-existence of traditional tourism industry with the new business models.
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