Assets come in all types — things, people and qualities. For example, in the investment world assets are commonly thought of as shares of entities that generate capital returns. An asset for the CIA is an outside spy conducting field operations around the world for the benefit of the USA. Salesmanship can be an asset in a person which generates revenue for a company. While assets are advantageous to have, what one does with the them truly determines value.
Talk about amazing assets, the Edition Hotel on Miami Beach is one of the sleekest properties I’ve ever toured. It’s owned by Marriott International, a premier hotel chain with nearly 1,500,000 rooms globally worth about $24 billion. Not bad right?
Their model makes sense, after all it’s not broke so doesn’t need fixing. Develop more properties in joint venture and continue to license their flag, adding to their room count therefore revenue per.
On the contrary, Airbnb, is ‘asset light’, doesn’t own properties and just started turning a profit in 2016. Yet it carries a valuation of $31 billion at its last funding round.
So why didn’t Marriott create Airbnb?
Breaking Down their ABN
In performing an Asset Boundary Narrative analysis, we deconstruct Marriott to determine what internal components may be driving their decision making.
- Prominent global real estate (properties)
- Strong legacy brand and distinct sub brand portfolio
- Top notch hospitality customer service / loyal staff
- Worldwide training program
- Comprehensive reservation system
- Comprehensive back office system
- Equity / Cash
- Licensing agreements (Flag)
- Copyrights and Trademarks
- Properties in certain locations that fit legacy brand & portfolio market
- Properties where our competitors are
- Minimum standard of service across portfolio
- Specific property type — min and maximum room count, development, location and structural requirement
- Property must fit the brand identity
- Must create memorable experiences to create brand loyalty
- We cater to high end and business travelers
- We are premium
Marriott prides themselves on being at the forefront of the luxury market — premium, boutique, trendy or 5-star. In keeping up with this brand identity, Marriott (and its portfolio of brands) fly flags in attractive locales. Our level of service sets us apart from competitors and we must retain a high level of hospitality to keep our market share, especially in a declining hotel market. As new markets open up due to commerce and tourism, we will continue to invest heavily in acquiring new property assets to accommodate our guests. Our brand is our most prized asset.
What’s the value in an asset?
No question Marriott has a valuable brand and is rich in assets. They are a traditional, long standing hospitality company. However, their portfolio has a few ‘generic’ brands that don’t entirely fit the legacy Marriott brand identity. They simply saw a need in the market and strategically took advantage of it to serve a larger base of clientele — heads in beds = $$$.
Formula makes sense. But why ignore homes, the largest count of beds in the world??
Here is Marriott’s mission:
Our core values make us who we are. As we change and grow, the beliefs that are most important to us stay the same — putting people first, pursuing excellence, embracing change, acting with integrity and serving our world. Being part of Marriott International means being part of a proud history and a thriving culture.
Marriott missed a significant diversification opportunity.
Their worldview clearly should fit a dynamic landscape, however in action more so fits the legacy brand, not so much a changing world.
Marriott’s boundaries of concentrating on being a high-end luxury brand restricted their ability to leverage one of their most valuable assets. Property you say? Well yes and no. The property they do own has significant value, but they license their brand out to property owners more often which holds tremendous value. This leads to another boundary, Marriott’s story to themselves outside of luxury is that they are primarily a service and licensing company.
The value of their reservation and back office systems holds an incredible amount of untapped value. Having developed intricate systems, they were a technology company and didn’t recognize the true value of it. Essentially, this is the basis of Airbnb’s model mechanically, a simplified hotel reservation system ‘reimagined’ and ‘rebuilt’ for me and you.
In a market where hotel revenue is declining year over year, had Marriott embraced the boundary, building out their technology assets and developed a brand to serve the unmet demand of this market, they could be in control of Airbnb’s market share. Add to the fact that Airbnb now struggles with quality control and service, Marriott’s other valuable assets, makes you wonder if Marriott’s worldview was blurry.
A younger breed of customers, a connected, sharing generation, are becoming the dominant portion of the consumer market. Their ‘why’ is different than previous generations which shapes their worldview. Marriott failed to recognize the strength of this segment and connect their corporate mission to this new customer’s vision. Therefore, they failed to innovate.
Marriott continued to fail to recognize innovation as Airbnb adoption rates grew catapulting them across the chasm. Marriott chose not to compete while a startup surpassed them to become a $31BLN company in front of their eyes, eating into Marriott’s market share.
Should Marriott’s board be worried?
Probably not. Airbnb won’t bankrupt them. Marriott will be around for years to come and continue on as a successful hospitality brand servicing a large customer segment. Airbnb targets leisure travelers, while Marriott’s ‘lane’ is business, resort and high-end. Marriott is focused on the property and the service, all which must be in their control to maintain standards for their brand. Going into the sharing market presents uncertainty and risk that would be challenging to mitigate due to control of the property being relinquished and not having to abide by strict brand standards.
This is likely the story they tell themselves now to justify the missed opportunity.
This doesn’t make the CEO wrong. Although what does it say about his narrative? How can he not look at the success of Airbnb and think he missed an opportunity where he could’ve leveraged assets?
The boundaries in their thinking, being so property control focused and presuming the customer will fit into their offering, further shaped their narrative keeping them within the confides of their constraint as opposed to leveraging it to create an even larger asset — a completely new and massive brand.
Now as Airbnb endures growing pains at scale, their model is shifting to become more hotel like in an effort to standardize service and attract the ‘easier’ to handle business traveler. They also struggle with municipal regulations as towns are banning or highly regulating the allowance of Airbnb units, hitting owners with hefty fines in violation. This is damaging to their brand.
Which brings Marriott to an interesting turning point for the future of this market segment.
Purchasing Airbnb, while not an option anyhow, is too rich an acquisition for Marriott and not ideal for many reasons. The ship may have completely sailed on winning back this market segment.
Or maybe not. Instead, perhaps they should lean on the systems in place and high standard of service Marriott is known for.
Create a new portfolio brand that persuades property owners that qualify to switch from Airbnb to a “Marriott home sharing” platform, leveraging the credibility of the legacy brand and infrastructure. A brand that also scales their experiential travel lineup in unique destinations where a resort or large property is not ideal, an offering the fresher market segment so avidly seeks out. This affords Marriott the ability to continue to cater to business and high-end travelers, while adding the unique ‘live like a local’ component to their portfolio, ensuring continued brand loyalty while simultaneously thwarting Airbnb’s success in becoming ‘hotel-like’ and attracting more of Marriott’s clientele.