Are Maine’s hoteliers feeling the disruption?
On Monday, lawmakers rejected a bill supported by Maine’s hospitality industry that would have extended hotel licensing requirements to every entity that rents rooms overnight to guests for less than seven days. The prime target for the hotel industry, of course, were homeowners throughout Maine who rent out rooms in their houses through websites such as Airbnb.
“Our concerns with unlicensed nightly rentals are for the safety of the guest, the sanctity of zoning laws in communities and the unlevel playing field of making someone adhere to strict and cost-prohibitive rules, while the person across the street is just renting rooms without the appropriate insurances and adherence to the laws of the state,” Greg Dugal, executive director of the Maine Innkeepers Association, told lawmakers on the Health and Human Services Committee earlier this month.
For its part, the industry group representing the likes of Airbnb argues that there’s effectively no difference between a vacation rental that spans a long weekend or a full week.
Individual cities across the U.S. — including the Maine tourist destination Rockland — and a number of states are weighing whether and how to regulate short-term vacation rentals that travelers book through Airbnb, VRBO and other websites where property owners can market a spare room-turned-rental to vacationers. Gov. Paul LePage has thrown a wrench in the debate in Maine, floating the idea of eliminating lodging licenses altogether — whether for short-term rentals of a bedroom or inns with dozens of rooms.
The fine points of the debate aside, a 20-year-old concept developed by a Harvard Business School professor explains exactly what’s going on — and hints at what could happen.
Disruptive innovation. In 1997, Clayton Christensen coined the term “disruptive innovation” to explain how upstart innovators establish a foothold in a market dominated by longtime players, then start eating away at the incumbent players’ customer base until they change the nature of — or disrupt — their industry, often forcing out the incumbent players.
“It happened with Japanese automakers: They started with cheap subcompacts that were widely considered a joke. Now they make Lexuses that challenge the best of what Europe can offer,” write Christensen, David Skok and James Allworth in a 2012 Nieman Foundation paper about — conveniently enough — disruption in the news industry. “It happened in the steel industry, where minimills began as a cheap, lower-quality alternative to established integrated mills, then moved their way up, pushing aside the industry’s giants.”
Airbnb as disruptor. Airbnb, to most, is a place to find cheap room rentals. To established hotels, Airbnb is a disruptor playing by different rules, taking their bookings and eating into their revenues. One study by the Boston University School of Management that evaluated the Texas hotel market found that hotels lost 0.05 percent of their revenue for every 1 percent increase in area Airbnb listings. In Maine, those in the lodging business have a $1.4 billion market at stake that served 16.6 million overnight visitors in 2013, according to the Maine Office of Tourism.
In essence, Airbnb has allowed anyone — whether a hotelier or not — the same ability to market a room rental and compete in the hospitality market.
Rules for the incumbents or the disruptors? Since Airbnb and other sites have leveled the playing field when it comes to marketing, the hotel industry is seeking a level playing field when it comes to regulation.
That’s the debate bubbling in Maine — and it’s a recognition that innovators often find ways around rules established to regulate incumbent industries. Investor Chris Dixon describes them in his blog as “regulatory hacks.”
“Regulatory restrictions can impede these kinds of solutions for a while, or even cause one or two to fail, but the tide of which they are a part continues to advance,” writes Mathew Ingram of Bloomberg Business.
Maine lawmakers rejected the legislation that would apply the same, incumbent rules to all. LePage’s deregulation is another option — essentially an acknowledgment Maine’s lodging industry will transform. But it’s not obvious yet what rules will be in place to govern Airbnb and its network of rental property owners if — or when — they become the incumbents.