Is the Sharing Economy an Opportunity or a Threat?: A Case Study on the Swedish Hotel Industry

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STOCKHOLM SWEDEN 2018,

Is the Sharing Economy an Opportunity or a Threat?

A Case Study on the Swedish Hotel Industry

SALIM CHAHINE HENRIK DANIN

KTH ROYAL INSTITUTE OF TECHNOLOGY

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Is the Sharing Economy an Opportunity or a Threat?

A Case Study on the Swedish Hotel Industry

by

Salim Chahine Henrik Danin

Master of Science Thesis TRITA-ITM-EX 2018:375 KTH Industrial Engineering and Management

Industrial Management SE-100 44 STOCKHOLM

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Är Delningsekonomin en Möjlighet eller ett Hot?

En Fallstudie på den Svenska Hotellindustrin

av

Salim Chahine Henrik Danin

Examensarbete TRITA-ITM-EX 2018:375 KTH Industriell Teknik och Management

Industriell ekonomi och organisation SE-100 44 STOCKHOLM

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Master of Science Thesis TRITA-ITM-EX 2018:375

Is the Sharing Economy an Opportunity or a Threat?

Salim Chahine Henrik Danin

Approved

2018-05-29

Examiner

Niklas Arvidsson

Supervisor

Cali Nuur

Commissioner

Nordic Choice Hotels

Contact person

N/A

Abstract

The act of sharing goods and services is not a new or revolutionary concept in any way. In the internet age, the phenomenon of what has been titled the “sharing economy” has emerged, and touched many different industries and researchers around the world. Incumbent industries, operating in traditional manners, are in today’s society experiencing a pressure to transform. The hotel industry, in particular, is facing the tension of the customers’ shifting behavior, from staying at hotels to using accommodation sharing services instead, such as Airbnb. This study therefore seeks to explore how the sharing economy is impacting the hotel market. A question that has guided the research reads; Is the phenomenon, to the hotel industry, an opportunity or a threat?

The research can be followed through a conducted explorative case study on the sharing economy’s manifestation in the Swedish hotel market, which encompasses an exploration of how hotel actors are perceiving and reacting to accommodation sharing. The case is based on gathered data from reviewing written material and conducting qualitative, semi-structured interviews with hotel actors, experts on the hotel industry and experts on the sharing economy. The empirical material has been complemented and processed with the transformational pressure theory and competitive strategic approaches in mind, along with having notions drawn from socio-technical transition theory whereas a Multi-Level Perspective approach is applied to discuss the transition the hotel industry is undergoing.

This thesis contributes analytically to the research area of the current transformation in the hotel industry, with implications on how traditional hotel actors can adapt to the emergence of the sharing economy. The case study shows how hotel actors in Sweden, being in a currently prosperous state, are alarmingly positive towards the

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growing phenomenon of accommodation sharing hence they perceive it as an opportunity and a complement to the industry as minor negative financial effects are evident. However, we argue that traditional hotel actors will, after a coming period of recession, truly realize the effects of the accommodation sharing phenomenon. This since the adoption of sharing services is accelerated in a weaker financial landscape.

We are of the perception that the phenomenon has resulted in the emergence of a new customer segment, “Mid Stay“ customers. In the study, we conclude that the hotel actors, no matter size or category, risk losing current customers, as well as the opportunity to attract new ones, if they do not transform and adapt to the ongoing change. Accommodation sharing should be perceived as nothing less than a threat that needs to be acted upon soon to remain sustainable in the now thriving hotel industry. However, the sharing economy is not necessarily a threat that needs to, or can, be eliminated, but rather one from which new profitable opportunities are made available for hotel actors to exploit in order to operate in symbiosis with the phenomenon.

Key-words: Sharing economy, Accommodation sharing, Hotel industry, Transformation, Transformational Pressure

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Examensarbete TRITA-ITM-EX 2018:375

Är Delningsekonomin en Möjlighet Eller ett Hot?

Salim Chahine Henrik Danin

Godkänt

2018-05-29

Examinator

Niklas Arvidsson

Handledare

Cali Nuur

Uppdragsgivare

Nordic Choice Hotels

Kontaktperson

N/A

Sammanfattning

Delning av tjänster och produkter har funnits i urminnes tider och har genom åren berört många industrier och forskare världen över. I eran av internet har fenomenet vuxit och kallas idag för “delningsekonomi”. Vissa etablerade industrier, som arbetar på ett mer traditionellt vis, upplever i dagens samhälle ett tryck på anpassning och förändring. En industri, som i synnerhet upplevt detta är hotellindustrin. Resenärer har nämligen förändrat sitt beteende och mer börjat använda sig av delning av bostäder.

Denna studie syftar till att utforska hur delningsekonomin påverkar hotellmarknaden. Frågeställningen har utgått från; Är fenomenet ett hot eller en möjlighet för hotellindustrin?

För att besvara detta är studien upplagd som en utforskande fallstudie. Syftet har varit att studera delningsekonomins manifestation på den svenska hotellmarknaden och hur aktörer uppfattar och reagerar mot delning av bostäder. Studien är baserad på granskning av insamlat skriftligt material samt från kvalitativa semistrukturerade intervjuer med hotellaktörer, experter inom hotellindustrin och forskare inom delningsekonomi. Det empiriska materialet har alternerats med teorier kring industriellt transformationstryck, konkurrensstrategier och socio-teknisk systemteori där ett multi-nivåperspektiv har applicerats för att analysera förändringen hotellindustrin utsätts för.

Denna studie bidrar analytiskt till forskningsområdet inom den pågående förändringen i hotellindustrin med förslag på hur traditionella aktörer kan anpassa sig till delningsekonomins utveckling. Idag är de svenska hotellaktörerna, som befinner sig i en blomstrande affärsmiljö, alarmerande positiva gentemot delning av

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bostäder. De anser att tjänsten kompletterar utbudet på marknaden med små direkta påvisbara negativa finansiella effekter. Emellertid, argumenterar vi för att efter en oundviklig kommande lågkonjunktur kommer hotellindustrin inse och erfara den negativa effekten av fenomenet med delning av bostäder. Detta orsakat av att delningstjänster ökar i popularitet och adaption under en tid då det finansiella landskapet försämrats.

Vi är av uppfattningen att fenomenet har resulterat i etableringen av en ny kundgrupp, vilken vi benämnt “Mid-Stay” kunden. Konklusionen är att hotellen, oberoende av storlek och kategori, dels riskerar att mista sina nuvarande kunder samt möjligheten att attrahera nya om man inte anpassar sig till den dagens verklighet. Enligt vår uppfattning skall delning av bostäder ses som ett så stort hot som föranleder en förändring. Dagens blomstrande industri är sårbar och en framtida anpassning är nödvändig för en fortsatt hållbar utveckling.

Delningsekonomin bör för den traditionella hotellindustrin inte ses som ett hot som måste elimineras utan snarare en möjlighet för hotellen att finna nya lönsamma alternativ och leva i symbios med fenomenet.

Nyckelord: Delningsekonomi, Delning av bostäder, Hotellindustrin, Transformation, Transformationstryck

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List of Figures

Figure 1. A simple illustration of the usual digital sharing economy transaction process, retrieved

from SOU (2017:26) and translated. ... 2

Figure 2. A bar chart showing the number of articles mentioning the sharing economy through the years. Source: Martin (2016). ... 9

Figure 3. Mappings of the user’s and provider’s motivations for participating in different sectors of the sharing economy. Source: Böcker & Meelen (2016). ...12

Figure 4. A diagram showing the accommodation alternatives being replaced with Airbnb by leisure and business travelers. Mainly, and increasingly, hotels. Source: Morgan Stanley Research (2017). ...13

Figure 5. Different approaches of change. Source: Sommer (2011). ...16

Figure 6. A diagram showing alterations in Airbnb host behavior due to law and regulations changes. Source: Morgan Stanley Research (2017). ...18

Figure 7. Three ways of competitive strategy designed accordingly after Treacy & Wiersema (1993). Source: Treacy & Wiersema (1993). ...19

Figure 8. A multi-level perspective on technological transitions. Source: Geels (2002). ...22

Figure 9. The process and design of how to answer the main research question. ...27

Figure 10. The different types of written materials used in the thesis...28

Figure 11. An illustration of the three different areas from where parties were interviewed; hotel actors, industry experts and experts on the sharing economy...28

Figure 12. Results from a multiple option survey on what it would take for individuals to start using, or increase the usage of, sharing economy services. Source: SOU (2017:26, p.130) and translated. ...36

Figure 13. An annual segmentation of the hotel customers within the Swedish market. The orange and grey bars (two to the left) represent business travelers, whereas the green and blue bars represent leisure travelers (two to the right). Source: The Swedish Statistical Office (2018) and translated. ...39

Figure 14. The occupancy rate of hotel rooms, calculated as hotel rooms on record divided by disposable hotel rooms. 12-months average numbers illustrated. Source: Visita (2018). ...40

Figure 15. One way of dividing the customer segments within the hotel industry. ...41

Figure 16. January-May 2017. Source: Invest Stockholm (2017) ...43

Figure 17. A MLP on how the technological niche of accommodation sharing alters regimes within the hotel industry in a changing national financial state. ...51

Figure 18. The competitive position of Airbnb and the customers they attract. ...53

Figure 19. A simple illustration of the segment that has emerged from the changing customer behavior. ...56

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List of Tables

Table 1. Different approaches further elaborated. Source: Sommer’s (2011). ...16 Table 2. List of interviewees ...29 Table 3. An industry comparison between the Sweden and U.S. hotel market. ...44

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Foreword and Acknowledgements

We, the authors of this thesis, feel the need to express our gratitude to the people who have help us throughout the work. First of all, we want to thank our supervisor, Cali Nuur, for the professional guidance, help and support to ensure a high quality in the research, both in the investigation and writing of the thesis. Secondly, we would like to express a special gratitude to the commissioner and the team at Nordic Choice Hotels. Their insightful knowledge of the hotel industry, and the opportunity to share our thoughts and ideas with them, were extremely helpful during the whole process.

Furthermore, we would like to thank our peer students at the Department of Industrial Engineering and Management at The Royal Institute of Technology for their constructive feedback and interesting suggestions on how to improve the work.

Finally, we want to thank our families and friends for their support and belief in us no matter what challenge lies ahead.

Salim Chahine & Henrik Danin Stockholm, June, 2018.

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1 Introduction

This chapter introduces the topic of the ongoing disruptive transformation faced by the hotel industry with the emergence of the so-called sharing economy. The background includes a general description of the phenomenon and the interaction between participants in the associated Peer-to-Peer sharing platforms. A short explanation of theories on transformational pressure is then presented followed by an introduction of the transformation occurring in the hotel industry. Further, against the background, the problem is explained and the purpose for the thesis is presented. Lastly, suggested delimitations, the study’s expected contributions, and the layout of the thesis are described.

1.1 Background

The “sharing economy” is a term that is nowadays discussed all over the world, both in the public debate and in some academic circles. The fundamental premise of the sharing economy is the action, between individuals, of sharing, lending or renting of certain goods and services, instead of owning or selling them (Wei & Lin, 2017). The sharing of resources among individuals is not a revolutionary concept, or even new, in any way. However, what has been dubbed the “sharing economy” has emerged with the internet age, which has enabled transparency and access to goods and services at an exceptional level of efficiency and scale, as a consequence of the advancement in information and communications technologies (Martin, 2016).

Fueling its growth are social, economic and technological advancements towards a focus on sustainability and trust among peers (Schor, 2014). With collaborative consumption and transparency between participants characterizing the sharing economy’s activities, its adoption has been rapid and broad. There are some conjectures that estimate its economic growth will reach a global annual revenue of 335 billion US dollars by 2025. This is an increase from 15 billion in 2013 (Böcker &

Meelen, 2016; PWC, 2014).

The notion of the sharing economy, as discussed today, extends over a great range of activities, from peer-to-peer (P2P) online marketplaces, to lodging and car sharing services. A simple schematic view of the digital sharing transaction services is illustrated in Figure 1.

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Figure 1. A simple illustration of the usual digital sharing economy transaction process, retrieved from SOU (2017:26) and translated.

An example of a sharing service is the growing lodging sharing company Airbnb, which has provided consumers with a platform where they can act as both lenders of their accommodations and guests to other users. This development is largely as a consequence of the proliferation of the Internet. From the sharing economy’s explosive growth in recent years, political and regulatory debates have sprung with mixed opinions on the sector. On the one hand, the technologies introduced, that ease the process of sharing, are said to empower the people and even reduce carbon footprints (Schor, 2014). On the other hand, the sharing economy is being criticized for being exploitive as digital platform providers sometimes have an economic self- interest in mind (Martin, 2016; Schor, 2014). To no surprise, the reality of the sharing economy sector is far more complex.

Theoretically, in a report by Russell Belk (2014) on the subject of online sharing and collaborative consumption, two commonalities are identified in these practices. The first one being the models of temporary access of utilization and consumption. The second one is the reliance on websites and platforms that allows for connection and content contribution between users, commonly referred to as Web 2.0 (Berube, 2011). With the digital revolution going towards breaking out of its infant stage, it is safe to assume that for a company to survive, putting its head in the sand and expecting emerging challenges to pass is not an option (Zysman & Kenney, 2017).

When studying previous cases of industries going through a transformation, a case that commonly comes to mind is Kodak’s downfall when entering the era of digital photography (Tripsas & Gavetti, 2000). Having underestimated the ongoing change, Kodak lost their momentum and leading position within the photographic film industry. Dahmenian theories of transformational pressure (Dahmén, 1988), become all the more relevant in the study of the occurring change. Dahmén’s work on negative and positive transformational pressure, resulting in tensions in the prevailing systems and forming notions of necessities and opportunities respectively,

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could be essential in understanding whether new technologies and behavioral trends are to be considered threatening or beneficial. Furthermore, theories on business transformation and how to meet the challenges of change, along with competitive strategies as well, give rise to useful models and methods of understanding the phenomena around transformational change.

Transformation in the hotel industry

The sharing economy has an impact in the hotel industry where at one point or another, accommodation sharing platforms have come up in conversations. One such platform is as indicated above the case Airbnb. Going from a small start-up to a multi-billion-dollar corporation, Airbnb is spurring the discussion on the transformation of the hotel industry’s value proposition to the customer. Much like the debates on the sharing economy, opinions on the impact of the network platforms such as Airbnb are divided. Studies, forecasts and discourses on the phenomenon bring up some interesting points. One of which is that the phenomenon is answering to an increased demand for temporary lodging as tourism has risen (Guttentag, 2013; Dogru et al., 2017). Another point is the possible shift in customer demand, where the visitors go from hotel lodging to accommodation sharing, which would negatively affect the traditional hotel industry (Dogru et al., 2017; King, 2017).

This is only strengthened by Airbnb’s penetration into the corporate travel market and the already flexible nature of their service (Morgan Stanley Research, 2015; Ting, 2017). The unfavorable economic effects of the emerging sharing platforms can therefore not be overlooked.

The potential threats and opportunities with accommodation sharing need to be fully realized and taken into serious account by hotel actors, especially in Sweden who are behind in this regard, when moving forward in the digital age. Nevertheless, great potential lies in the mentioned sharing economy that is becoming a much more established form of business (Martin, 2016). Apart from the simplicity of sharing services and goods through structured community-based online platforms, the sharing economy’s rise to esteem comes from societal attitudes towards consumption, having shifted to an increasing concern over ecological and societal issues (Hamari & Ukkonen, 2016). Safe to say is that the use of a sharing economy in businesses will continue to spread. However, the question of whether the sharing of accommodations is a threat or not, and what or if, actions are to be taken, is still an ongoing debate. The sharing economy in the context of the hotel industry therefore gives rise to several questions; for instance, in what manner will the transformation impact incumbent hotel companies? Will P2P sharing of accommodations rise above traditional hotel lodging services? Is the sharing economy a threat or an opportunity?

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1.2 Problem formulation

What we are witnessing is a transformative pressure on the hotel industry that contains both necessities and opportunities. On the one hand, the sharing economy will certainly impact the incumbent hotel industry, with necessities to transform their business models and their general business strategies, including new target segments, offerings and services. On the other hand, the sharing economy brings opportunities as to better utilize resources, creating new revenue streams and increasing customer loyalty through digital platforms (Schor, 2014). Overall, this trend would certainly impact the hospitality industry (SOU 2017:26; Dogru et al., 2017; Martin, 2016). In particular, the hotel industry faces the challenge of customers shifting from hotels to accommodation sharing platforms (Morgan Stanley Research, 2017). This is a problem that is further strengthened by the fact that travelers are less likely to return to booking hotel rooms once they have used accommodation sharing services, such as Airbnb (Verhage, 2016a; Kokalitcheva, 2016). The industry is undeniably looking at different kinds of actions to develop and evolve, including personalizing the traveler’s experience by utilizing new technology (Oskam & Boswijk, 2016). However, these efforts are mainly focused on driving the traditional hotel business forward, and not on the growing trend of the sharing economy, specifically the service of accommodation sharing that is breaching the hotel industry. As argued by researchers at Morgan Stanley (2015), actors in the industry have largely disregarded the potential threat of accommodation sharing Furthermore, the hotel industry is not homogenous and varies from country to country. For instance, in America the biggest customer segment is leisure travelers (U.S. Travel Association, 2017), whereas in Sweden, the customer base has in the last decades consisted mainly of business travelers (The Swedish Statistical Office, 2018).

With accommodation sharing platform’s recent entrance into the business traveler segment (Oskam & Boswijk, 2016; Vidalon & Denis, 2017), this thesis is therefore focused on the Swedish market, meaning it analyses the nature and impact of the sharing economy in the Swedish hotel industry. The potential threats and opportunities need to be fully realized, if actions are to be taken to sustain the now thriving hotel industry in Sweden in the future.

1.3 Purpose and research questions

Against the above background, the purpose of this thesis is to explore and identify how the sharing economy is impacting the Swedish hotel market and how Swedish actors within the industry are reacting to it. This thesis seeks to contribute to the case of the ongoing transformation in the hotel industry, with an analysis of the subject along with implications on how hotel actors can adapt to the emergence of the sharing economy in the context of the accelerating growth of companies within the sector of accommodation sharing. This, in order to make the hotel industry sustainable in the future and avoid a decelerating growth (Codagnone & Martens, 2016). The investigation includes a closer look at the potential threats and benefits

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towards the hotel industry coming from the diffusion of the sharing economy.

Threats such as price pressure and loss off market shares in times of recession, and benefits like opportunities to prosper from the sharing economy.

In order to achieve the stated aim, the following overall research question is posed;

Main RQ: Is the sharing economy an opportunity or a threat to the hotel industry?

The following sub-questions are explored;

RQ1: How is the sharing economy manifesting itself in the Swedish hotel industry?

RQ2: What are the implications for actors in the Swedish hotel industry to meet the rise of the sharing economy?

1.4 Delimitations

This thesis is delimited to the sharing economy’s manifestation in the Swedish hotel industry, particularly the impact of accommodations sharing platforms on the hotel’s lodging services. Meaning our thesis excludes an analysis of the effects on other hotel services, such as restaurants, bars and various forms of entertainment. Further, the study only focuses on the bigger established actors in the industry since these are the ones seemingly neglecting the negative effects of the growing trend of accommodation sharing.

1.5 Expected contribution

The study intends to contribute to the understanding of business transformation and the theory of competitive strategic positioning in the digital age of the sharing economy. In 2017, an investigation was conducted on behalf of the Swedish government to analyze the onset of the sharing economy from a user perspective.

This study concluded that additional research is needed on the sharing economy along with the future risks and opportunities that accompany the phenomenon (SOU 2017:26). This thesis will also contribute empirically to this debate as it sheds light on the threats and opportunities tied to the accommodation sharing phenomenon, in particular in the hotel industry. Further, the study will contribute to the understanding of how a well-established firm, built on a traditional business model, shall handle the emergence of digital “no-asset” models, as the one by Airbnb. The idea is to take note of the transformative pressures that come with the emerging digital sharing economy and the adoption of it, in order to draw conclusion on how Swedish actors are to position themselves in accordance to the phenomenon and its casualties.

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1.6 Layout of the thesis

The chapters following the introduction are structured in a way to provide necessary information on the phenomena at hand in order to fully understand the analysis and conclusions made in the end. Chapter 2 builds on what was introduced in the introductory part, starting by delving deeper into the notion of sharing economy. A literature review of the phenomenon is provided, going in to its origin and discussing its impact seen from an economic, social and environmental standpoint, both on the hotel industry as well as some of the other sectors it is touching. The second part of chapter 2 goes on to present previous research and findings, on the success story and adoption of the accommodation sharing phenomenon in particular. The hotel customer’s occurring behavioral shift is described, along with what actions are being taken to mitigate or promote the disruptive phenomenon around the world. Chapter 2 proceeds to present the theoretical concepts and frameworks used throughout the report. It includes a presentation of the different competitive strategies a business can choose from, a description of business transformation and its elements in short terms, as well as a presentation of Dahmén’s (1988) theories on transformational pressure. The chapter concludes with a description of the Multi-Level Perspective (MLP) model, which is used to explain the adoption of accommodation sharing in a changing financial landscape.

Chapter 3 introduces the methodology of the thesis; we conducted a case study to understand the sharing economy’s impact on the hotel industry in Sweden, along with the intended research process and design. A motivation is given to the chosen gathered data of both written and oral sources, and the research quality is argued for.

In chapter 4, the exploratory case study is presented. This delves into the sharing economy’s progress in Sweden and the trends within the hotel industry, including the actors’ perception and reaction to it. In order to provide a holistic perspective, additional collected material is presented in an industry comparison between Sweden and the U.S. Chapter 5 includes the analysis of the study, along with a discussion on the importance of adapting to the transformation coming with the adoption of accommodation sharing. This is underpinned by the aforementioned use of the MLP within the hotel industry transformation.

In chapter 7, the findings of the study are summarized and concluded in order to answer the formulated research questions. This is followed by our implication for how hotel actors should react to the emerging phenomenon. Lastly, proposed further research for future studies on the subject is presented, some of it tied to the limitations of this work. To make the thesis easier to follow each chapter is summarized at the end of it.

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Chapter summary

This chapter begins with presenting the basic functions within the concept of the sharing economy and expresses its likely growth. The concept of accommodation sharing is introduced, along with a presentation of the theoretical concepts applied in the thesis, such as Dahmén’s theory on transformational pressure. These are then tied to the subjected tensions the traditional hotels are experiencing. Furthermore, different opinions on how hotel actors are perceiving the situation are brought up, leading down to the problem formulation, which reads that both the potential threats and opportunities with accommodation sharing need to be fully realized as they are currently being largely neglected in Sweden. This thesis is focused on the Swedish market, meaning it analyses the nature and impact of the sharing economy in the Swedish hotel industry. This led to the purpose of this work being to explore and identify how the sharing economy is impacting the Swedish hotel market and how Swedish actors within the industry are reacting to it. The study is delimited to the impact of accommodation sharing platforms on the hotel’s lodging services and focuses only on the bigger actors within the industry. Further, it intends to contribute to the understanding of business transformation and the theory of competitive strategic positioning in the digital age of the sharing economy, along with adding an empirical contribution to the Swedish understanding of the accommodation sharing phenomenon.

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2 The sharing economy and understanding the transformation of the hotel industry

In this chapter literature and theory relevant to the study is presented, along with previous research and the development of the subject at hand. The sharing economy and its growth is described, along with the associated accommodation sharing phenomenon. This includes the impact on incumbent industries and consumers.

This is followed by an explanation of the occurring transformation on the hotel industry and previous research on the perception of the disruptive concept of accommodation sharing. Throughout the chapter, theoretical material is described, aiming to contribute to the understanding of the phenomenon at hand, namely business transformation and transformational pressure. The chapter concludes with a description of the Multi-Level Perspective model. The material is later applied in the analysis in chapter 6.

2.1 Sharing economy

Interest around the sharing economy and its influence has in recent years seen a rapid growth among entrepreneurs, innovators and academic researchers alike. This accelerating trend largely comes from the Silicon Valley success stories of two companies that, in a time span of less than five years, made the jump from entrepreneurial start-ups to multi-billion dollar international corporations. These are Airbnb and Uber. The former being the online P2P-platform that allows users to act as both guests and lenders on a short-term basis of their own residential. The latter is Uber, another platform built on a P2P-network that provides taxi services (Lashinsky, 2015; Konrad & Mac, 2014; Martin, 2016). The impact of the sharing economy has flourished into a vibrant diffusion, covered by the media across the world, and paving a road to prosperity for new entrants, entrepreneurs and incumbent companies alike (Schor, 2016). Much due to its means of promoting sustainable consumption practices, and expectations to mitigate problems such as hyper consumption and pollution. This, along with the potential for economic growth tied to a reduction of costs for economic coordination within society, and lack of the requirement of extensive physical assets (Martin, 2016; Codagnone & Martens 2016;

Hamari & Ukkonen, 2016). There has been an increase in references to the sharing economy in newspapers between 2011 and 2014, seen in Figure 2, which stands as further proof of its emergence and rise in popularity.

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Figure 2. A bar chart showing the number of articles mentioning the sharing economy through the years. Source: Martin (2016).

With companies tied to the sharing economy being praised for being innovative and sustainable, with for instance, Airbnb being hailed as a contributor to increased tourism, the companies have faced a lot of critique as well (Martin, 2016). The most common being the resistance against Uber by traditional taxi companies, and recent fears of the threat Airbnb’s rapid growth will pose on the hotel industry and prices on the housing market (Codagnone & Martens 2016; Verhage, 2016b; Benner, 2017;

Oskam & Boswijk, 2016). The economic impact of the sharing economy has been unclear as these conflicting arguments are presented. Nevertheless, PwC (2014) released an estimation of the sharing economy’s growth, saying that it will potentially grow to a global annual revenue of 335 billion US dollars by 2025.

Defining the “sharing economy”

So what is the sharing economy? Defining the sharing economy in a way that reflects a common usage of the concept has proven to be very difficult as it stretches over a large and diverse spectrum of activities (Schor, 2014; Martin, 2016). The focal point of what makes the term hard to define is the word “sharing” and what it actually entails, as it differs depending on the context of its usage. For example, a common way to interpret an occurrence of sharing is an exchange between two parties, and not a case of borrowing where the object or some equivalent is expected to be returned. In that sense P2P-asset rentals, such as the service provided by Airbnb, should be excluded from the sharing economy (Oskam & Boswijk, 2016). However, if attention is on the sharing of access to an asset, as opposed to the asset itself, then a P2P-network is only a channel for sharing and therefore this form of asset rental can be included in the sharing economy (Belk, 2014; Martin, 2016).

Schor (2014) describes the sharing economy by defining four broad categories in which the activities fall into, effectively covering the whole spectrum in what can be considered as common practice of the concept. Two of which cover the recirculation and increased utilization of physical assets, including both common goods and more durable assets such as accommodations or vehicles. The other two categories focus on the exchange of services and sharing of productive assets, such as skills and knowledge.

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Sharing in general has a long history and remains a common and frequent practice all over the world today. This, in the form of everything from a craftsman sharing the fruit of his labor, to a supply of water being shared in a community. In other words, it is a concept as old as mankind. The sharing economy as it is discussed today, on the other hand, emerged in the internet age, introducing new ways of collaborative consumption, as well as having older traditional ways facilitated on a digital plane.

Online platforms have emerged, enabling individuals to exchange assets and goods through P2P-networks on a previously unprecedented scale (Belk, 2014). Meanwhile, the sharing of knowledge through channels such as Wikipedia, and open-source development of products like Mozilla Firefox and Google Chromium, are being explained by scholars using the term “sharing economy” as well (Martin, 2016). All of it built on what is termed “Web 2.0”. This is, in short, referring to online technologies which support an interconnected and social foundation, where any user is able to meddle and alter the information space, adding or editing content for example.

Terms often affiliated with Web 2.0 include user-generated content, social media platforms, and also the sharing economy. These are all highly dependent on the social nature of Web 2.0, as opposed to the Web 1.0 generation which limited users to simply the viewing of content (Berube, 2011; Anderson, 2007).

Impact and criticism

The sharing economy’s impact on the world is often split into three segments. These include the environmental, the social and the economic impact (Codagnone &

Martens, 2016). In its initial years, the positive attitudes towards the sharing economy were for the most part driven by the expected ecological impact, that is related to the notion of the Circular Economy (Korhonen et al, 2018). The perception was that the recirculation of goods would increase, effectively decreasing the production of new goods, as well as facilities in the case of hotels and shared lodging.

This while also decreasing the consumers’ dependency on ownership (Frenken &

Schor, 2017; Belk, 2014). However, the environmental impact is not as obvious as the hypothesized effects entail. Many participants claim to be eco-friendly and advertise their platforms as such, but despite the common belief of reduced demand for new products, empirical evidence to these claims have yet to be presented (Frenken &

Schor, 2017). This is excluding the realizations of reduced individual CO2-emissions from the car sharing phenomenon (Chen & Kockelman, 2016; Nijland & Van Meerkerk, 2017).

The social impact of the sharing economy is also commonly advertised by the platform providers. Attention is put on the benefit of meeting new people and getting to know your neighbor (Frenken & Schor, 2017). Airbnb is a site that is considered to have succeeded very well in this regard. Hosts are known to socialize, eat and in some cases even become friends with their guests (Frenken & Schor, 2017). This ties to the findings by Böcker and Meelen (2016) stating that social motivations were for a time parallel to economical ones. While heartwarming cases of these happenings exist, many platforms fail in delivering durable social connections. For example,

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Schor (2014) describes how a study on car-sharing services have shown that two parties in a transaction never met because of the remote access technology available.

Further, a study by Parigi and State (2014) shows that even the housing platform’s ability to form these social ties have declined since the services’ inception. The study also raises the question of whether the social aspect of these platforms will be of importance in the future, as is seems the motivation of using the service for social interactions will decline as more people participate for economic reasons.

The economic impact of the sharing economy has been expressed to be undeniably positive. Putting this in context, people who take part in a typical transaction within the sharing economy only do so if it is to both parties’ benefit (Frenken & Schor, 2017). In the case of lending a certain product, it is of little cost to the lender as the person most likely does not need the product during the specified period, whereas the consumer in this case gains access to it as opposed to purchasing one for himself.

Frenken and Schor (2017) go on to explain that the economic impact can be seen in the rise of consumer capital as a direct effect of decreased transaction costs.

Moreover, the authors state how millions of transactions occur today that were too expensive in the past through stranger sharing.

The economic effects, much like the environmental impact, have a complexity of their own. For starters, the sharing economy and P2P-platforms are known to indirectly affect other market segments. For example, Crittenden et al. (2017) argues that an increase in short-term rentals could increase the monthly fees on the housing market. In another study, on the impact of Airbnb on the hotel industry in Texas, Zervas et al. (2013) found that low- to mid-price hotels in areas where Airbnb have risen, are experiencing a significant decline in earnings. Further, the analysis shows how the impact hits hardest on less established and lower-priced hotels, along with those that are not targeting corporate travelers, acting somewhat as a substitute for hotel nights. Additional concerns with the rise of home sharing services, described by Frenken and Schor (2017), are the problems with neighbors experiencing nuisance and feelings of unease as the neighboring apartments are rented by strangers.

Another aspect tied to the economic impact of the sharing economy is the highly lucrative environment for third-parties participating in the transactions. Online sharing platforms are characterized by strong third-party actors, such as Airbnb and Uber, that give rise to a tendency for monopoly, along with the possibility to charge high rates for platform usage (Frenken, 2017). The revenues obtained through accommodation bookings are by charging hosts a 3 percent fee and guest’s 5-15 percent (Airbnb, 2017). This fee is however lower than what Online Travel Agencies (OTAs), third-party websites such as hotels.com and booking.com, are asking of hotels in order to post their rooms and offers on their websites (Morgan Stanley Research, 2017). OTAs were initially considered a compliment to the hotel industry, as a way to reach new customers (Lentz & Obermann, 2015). However, eventually OTAs had grown so big it made hotels too dependent on the business generated by it,

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making it hard to unsubscribe by the time they realized how disruptive the phenomenon actually was (Lentz & Obermann, 2015).

To summarize, the environmental, social and economic impacts of the sharing economy are complex and affect each market differently. This, with the hotel industry pretty much solely being affected on an economic level, as the user base turn to the service for economic reasons. The motivations for participation in each sector can be seen in Figure 3, showing that both users and providers of accommodation sharing services motivate their participation with mostly from an economic standpoint (Böcker & Meelen, 2016).

Figure 3. Mappings of the user’s and provider’s motivations for participating in different sectors of the sharing economy. Source: Böcker & Meelen (2016).

Considering a service such as the one provided by Airbnb; even though financial motivations have been acknowledged to be the most important for the users of accommodation sharing, it does not imply that the social or environmental motivations are contraindicated in any way. Those aspects, and groups of consumers, still exist and need to be considered as these might shift down the line (Oskam &

Boswijk, 2016). Participants’ driving motivations and what they might seek in the sharing phenomenon in the future still remains to be seen. Furthermore, while the sharing economy is providing the consumer with an increased welfare due to a larger variety of available goods and lower prices, it is also affecting certain traditional providers negatively. This encompasses the increasing percentage of Airbnb participants replacing traditional hotels for the sharing platform, as illustrated in Figure 4 (Morgan Stanley Research, 2017).

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Figure 4. A diagram showing the accommodation alternatives being replaced with Airbnb by leisure and business travelers. Mainly, and increasingly, hotels. Source:

Morgan Stanley Research (2017).

Additionally, it is argued that people would still have taken the specific trip without the service of Airbnb, see Figure 4. A shift in behavior is steering actors, in this case within the traditional hotel industry, towards a need for transformation (Muzyka et al., 1995).

2.2 The hotel industry in a transformation

The concept of business transformation generally entails that a firm changes the way they do business. Since the term encompasses a broad spectrum, it is difficult to agree on a single unanimous academic definition of business transformation (Mckeown & Philip, 2003; Adler, 2018). Nonetheless, the definition presented by Muzyka et al. (1995) is the one commonly used:

“A fundamental change in organisational logic which resulted in or was caused by a fundamental shift in behaviours”

To capture the essence of business transformation, a holistic model of the concept was identified by Spector (1995) consisting of three dimensions that ought to be considered for our purpose of exploring how hotel actors are reacting to the sharing economy’s manifestation on the market. The first one is ‘Customer alignment’ which refers to the need to consider the requirements of the customer, since this is usually what initiates a transformation, much like the occurring behavioral shift among travelers. The second one is ‘Sequencing’ which is the process of pinpointing what is to be prioritized, and the sequence of which the implementation is to occur. Lastly is

‘Learning’ which emphasizes a party’s need to maximize the experiential intake throughout the process of transformation. This means learning as much as possible from customers, market developments and other participating parties involved.

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Before the process of transformation can even begin, the need for a transformation has to be realized (Spector, 1995). This is where hotel actors are seemingly situated as the success story and spread of Airbnb’s accommodation sharing service have raised different understandings and opinions around the impact on traditional temporary housing alternatives. From accommodation sharing being neglected by the hotel community for having a faint impact on the industry, to having the potential problems realized and to some extent acted upon (Guttentag, 2013; Oskam

& Boswijk, 2016; Morgan Stanley Research, 2017).

Accommodation sharing as a disruptive concept

Guttentag (2013) studied the development of the emerging trend of accommodation sharing, and more specifically the company Airbnb seen through the lens of a disruptive innovation theory as pioneered by Christensen and Overdorf (2000). The Airbnb business model, enabled by the internet, and rising in a period of recession (Goree, 2016), initially targeted adventurous customers looking for cheaper residences during special events, and succeeded in building a base for a prosperous future in lodging services (Guttentag, 2013). Observing the non-users’ liking of the accommodation sharing phenomenon, Varma et al. (2016) states that although non- users appear to be unfamiliar with such services’ existence, they still express a positive attitude towards participating in the future. The concerns they do have are mostly based on security question (Varma et al., 2016). Today, over 100 million room nights are booked annually (Anthony et al., 2018) and both the supply and demand is forecasted to continuously grow (STR, 2017). In a report by PwC (2017) it is concluded that Airbnb is attracting new visitors to cities due to more affordable residencies. Managers of hotels have also seen accommodation sharing as a complement to the hospitality business, especially in times of big events as the demand usually becomes greater than the supply (Guttentag, 2013).

Either way, Guttentag (2013) notes that accommodation sharing is indeed a disruptive concept for traditional hotels and continues to propose what future research could be interesting on the subject. This includes questions on how hotels would respond to Airbnb as they grow stronger. In his work, Guttentag (2013) presents some arguments from several experts within the hotel industry. These split arguments have remained through the years. On the one hand, it is argued that Airbnb will pose a limited, to no threat towards traditional hotels and instead of taking a piece of the market Airbnb will only make the market bigger and co-exist with the hotels (Shankland, 2013; Mayock, 2013; PwC, 2017). In fact, Airbnb themselves have claimed that they are targeting a different customer segment than that of hotels, and is therefore complementing the market (Lawler, 2012), with an average of 4.5 nights long stays (Morgan Stanley Research, 2017). On the other hand, Airbnb’s accelerating growth is also considered a potential threat as the service operates on the same market as traditional lodging services (Guttentag, 2013; Zervas et al. 2013; Oskam & Boswijk, 2016; Morgan Stanley Research, 2017).

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Further, Guttentag’s (2013) research asserts that only a limited number of corporate traveler would use the sharing network. Nonetheless, in recent years Airbnb has increased its focus on engaging corporate travelers in the sharing network of accommodations (Lawler, 2014; Vidalon & Denis, 2017; Haywood, 2017) and in 2015, 250 businesses used the service, which has grown to 250,000 in 2017 (Jet, 2017). Even though Airbnb only possess a single digit percentage of the market shares for temporary lodging across regions (Overfelt, 2017; Haywood, 2017; Invest Stockholm, 2017), Bjorn Hanson, a clinical professor at NYU and expert on the hospitality and tourism sector, states that a company like Airbnb, who is accounting such numbers, can and shall not be ignored (King, 2017). Radcliffe (2017) emphasizes the importance of understanding and managing the impact of new disruptive trends and how, in ignoring them, a company risks losing market shares to competition that finds a way to use these new advancements first (Radcliffe, 2017). A common occurrence in this regard comes in the form of established companies disregarding change as they find the risk of it violating the organizational identity too great (Jacobs et al, 2013). Nevertheless, one needs to evaluate whether or not change is necessary, and what opportunities it brings with it, along with understanding the degree of business model change.

Transformational pressure; Necessity or Opportunity

Johnson et al. (2008) presented five strategic cases that can push for an adaptation or transformation of a business model;

1. “Opportunities from so far unserved customer segments, e.g. in emerging markets.”

2. “Opportunities to introduce new technology into an existing market or vice versa.”

3. “Opportunities from unmet customer need neglected by established players.”

4. “The need to fend off low-end disruptors.”

5. “The need to respond to a shifting basis of competition.”

The nature of change needs to be understood in order to decide upon which direction to take. Sommer (2011) describes different change models for managing business model transformations. One of which is an adaptation of Linder and Cantrell’s (2000) different approaches to change, illustrated in Figure 5, which shows whether or not incumbents need to make a business model change.

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Figure 5. Different approaches of change. Source: Sommer (2011).

These different approaches can be described accordingly in Table 1;

Table 1. Different approaches further elaborated. Source: Sommer’s (2011).

Realization Model

• No change in core logic or business model

• Maximize profit by optimization like geographical expansion, additional sales/service

distribution channels, increase share of wallet or product line extension and more.

Renewal Model

• Usually no change in core logic or business model

• New service offerings, enter new markets as well as disruptive products or services platforms.

Extension Model

• Usually significant change of core logic.

• Adding new business operations rather than replacing old ones.

• Can be realized through value chain integration, or by

outsourcing an internal capability.

Journey Model

• The most radical change model

• Includes commoditization (going from a focus on product to price) or the avoidance of it,

globalization, moving upmarket in products or service.

Whichever approach is used depends largely of the contexts of change, along understanding the general business environment and the coming change. One way to evaluate the reason for why a transformation is needed is by looking at the pressure being put on an industry or a business. Eric Dahmén (1988) describes, in conjunction with his development block theory, the theory of transformational pressure. This is referring to the occurrence of structural tensions during industrial and technical changes in a cognitive space, caused by imbalances in the development, leading to

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pressures for change (Dahmén, 1988). These are further divided into positive and negative pressures. Positive pressure is often distinguished by, for example, the emergence of new methods, products and services or the rise of a new market space, whereas negative pressure ties to the moving on from outdated functions and products, or the fall of a previous market space (Dahmén, 1988). Depending on which of these pressures are affecting a business or an industry for instance, they give rise to either opportunities or necessities. Opportunities to exploit new possibilities, such as the introduction of a new technology, comes from positive pressure, while negative pressure leads to threats or necessities of change for an entity to survive (Dahmén, 1988). In this thesis, the theory of transformational pressure has been applied to the industrial perspective of hotels, and whether the sharing economy and accommodation sharing phenomenon puts a negative or positive pressure on the industry to change.

2.3 Reactions to the changes in the business environment

Actions taken in response to the emergence of accommodation sharing platforms vary around the world. In the U.S. for instance, various companies in the American Hotel and Lodging Association have turned to the government in attempts to take legal actions, with the aim to establish regulations that hinder the sharing of accommodations (Benner, 2017), such as regulating the acceptable number of short- term rentals per host or acceptable amount of letting days (SOU 2017:26). The legislations mainly regulate the activities and not the user relationship within the sharing network (SOU 2017:26). In France for example, a host is allowed to offer short-term rentals until earnings reach 23 000 euros annually, but in Great Britain focus has been promoting the service through tax deductions to foster a good environment for transactions within the sharing economy (SOU 2017:26). In parts of Spain the government have regulated the allowed short-term subletting period, as well as banned the lending of individual rooms and introduced minimum lodging requirements in terms of housing standards for lenders (Hellekant, 2015a). Thus, regulations, fines and such, apply mainly to the hosts, not the guests in the transaction. In Sweden however, there are no laws or regulations hindering the sharing of accommodations as long as landlords, or housing associations (“bostadsrättsföreningen”) approves of the letting (Fastighetsägarna, 2015; Axelsson et al., 2017; Ödman, 2017). Instead parties tend to turn to existing legislations, such as market, consumer or property law, in the operating area, before pushing for any new legislations (SOU 2017:26).

In the U.S. and Europe, legislative changes have generally led to an increased use of the sharing economy and accommodation sharing in particular. Shown in a study done by Morgan Stanley Research (2017), the regulations have made it easier for hosts to lend their housing. Figure 6 shows statistics from the study conducted in this regard.

Is the Sharing Economy an Opportunity or a Threat?: A Case Study on the Swedish Hotel Industry

Is the Sharing Economy an Opportunity or a Threat?

A Case Study on the Swedish Hotel Industry

SALIM CHAHINE HENRIK DANIN

Is the Sharing Economy an Opportunity or a Threat?

A Case Study on the Swedish Hotel Industry

by

Salim Chahine Henrik Danin

Är Delningsekonomin en Möjlighet eller ett Hot?

En Fallstudie på den Svenska Hotellindustrin

av

Salim Chahine Henrik Danin

Abstract

Sammanfattning

Table of Contents

List of Figures

List of Tables

Foreword and Acknowledgements

1 Introduction

1.1 Background

1.2 Problem formulation

1.3 Purpose and research questions

1.4 Delimitations

1.5 Expected contribution

1.6 Layout of the thesis

Chapter summary

2 The sharing economy and understanding the transformation of the hotel industry

2.1 Sharing economy

2.2 The hotel industry in a transformation

2.3 Reactions to the changes in the business environment