The hostel industry has rapidly grown since the first one opened in Altena, Germany in 1912. The market now serves millions of international travelers and is worth $5.5 billion. Dozens of sites and services enable customers to book stays online in their local currencies, making them particularly appealing for millennials seeking cheap accommodations.
Hostels can also be lucrative for other business owners. Some studies show that those who stay in hostels when vacationing tend to spend more. Tourists who stayed in hostels spent an average of $4,500 per trip last year, while those who stayed in other accommodations spent just $3,155.
Homesharing platforms are also competing for young consumers’ attentions – millennials make up approximately 60 percent of Airbnb’s guests, for instance. According to some studies, however, hostels have a greater hold on these consumers, which comprise 70 percent of their guests.
Millennials are seeking alternatives to the larger hotel industry, and one of the main ways Airbnb differentiated itself was its approach to payments. Airbnb’s quick and mobile payment experience is all but invisible to the consumer, but its instant payments don’t come without frictions. The same can be said for hostel booking sites, where increased security, compliance and verification requirements are instilling pain points.
These are some of the reasons that hostel booking site Hostelz.com stopped accepting direct payments and bookings on its site four years ago. Instead, the site built upon its existing partnerships with Booking.com and other platforms to facilitate payments. According to Founder David Orr, this enabled Hostelz.com to remain an established intermediary in the industry while avoiding the heavy lifting that comes with accepting payments and providing extensive customer service. Dropping payments has allowed Hostelz.com to serve as a price comparison tool for different platforms, such as Hostelworld.
Online Booking Platforms Fight for Customers
Removing payments from Hostelz.com’s platform was mainly motivated by its industry partnership, Orr said, noting that the decrease in customer service requests and smoother site experiences are just added perks. Hostel platforms are seeking to compete against homesharing services, which are expanding in the industry. Airbnb has acquired booking site HotelTonight, for instance, and recently announced it will acquire the Indian hotel startup OYO. Hostelz.com’s partnerships will remain important as homesharing platforms continue to grow. Booking.com can reach a wider base of consumers through the partnership, while also directly accepting bookings and payments.
Removing payments from Hostelz.com didn’t impact revenue, Orr explained, adding that the company now takes a portion of the total booking fee for any reservations directed from its site. As the market continues to grow and change, however, Hostelz.com is considering other ways it can participate in the broader hospitality industry.
“We may actually be looking at the hostels themselves as a source of revenue, which we haven’t done in the past,” Orr said. “We could offer services to the hostels directly … like the ability to have a feature listing, special features in their listing or other advertising options.”
Orr did not entirely rule out adding payments back onto the platform, either. This likely wouldn’t happen any time soon, however, as the site continues to see success through its partnerships.
Hostels and the Sharing Economy
Some estimates predict the hostel market will be valued at $6.4 billion by the end of 2020 and, according to Orr, homesharing platforms haven’t had much of an impact – there hasn’t been a decline in the number of hostels, bookings or consumer spending. He doesn’t believe, either, that the two industries will intersect.
“Some hostels have put beds on Airbnb … but I think that there’s a distinction. They’re different kinds of properties,” he noted. “I think the people who stay in [hostels] are looking for different things, so I don’t see [hostels and homesharing] as something [that’s] going to merge together.”
The security and customer service issues that come with accepting payments won’t cause a headache for Hostelz.com for now, but payments will remain crucial to both industries, whether or not they end up working together.