Is Airbnb Making a Mistake by Cutting Performance Marketing Dollars Now?

March 16, 2021

This article originally appeared in Adweek.

Airbnb’s recent decision to cut performance marketing dollars in favor of spending on more general brand strategy programs comes as the travel industry is poised to rebound, thanks to the increasing availability of multiple Covid-19 vaccines. 

The online rental marketplace’s spending shift has got industry observers asking whether now is the right time to pull back on performance.

The answer is a definitive “yes,” said Adam Morton, managing partner, client services at UM London. He pointed to sports brand Adidas, which made a similar move in mid-2019 after realizing it was too invested in the efficiency of targeting instead of overall marketing effectiveness. 

“The unique conditions of the pandemic influenced Airbnb’s traffic,” Morton said. “Using consumer behavior during this time as the basis of all future marketing strategies on the surface feels bold. But it means they are now adopting a strategy that has been proven to heighten marketing effectiveness. The need to invest in brands to drive long-term sustainable growth and the dangers of over-focusing on short-term response metrics have been well documented.” 

A permanent shift?

Airbnb paused marketing spend last spring to save a reported $800 million when the pandemic stopped most travel. But something unexpected happened: Site traffic rebounded to nearly prepandemic levels even before the campaigns resumed. That realization forced executives to reexamine their marketing strategies after heavily investing in performance in 2019.

“We don’t intend to ever again spend the amount of money as a percentage of revenue on marketing in the future as we did in 2019,” Brian Chesky, Airbnb’s CEO, said in its Q4 earnings call, its first since going public in December. “In Q4, more than 90% of traffic was direct or unpaid. And we think that will continue in the future.”

Last spring, Jessica Davidoff, founder of growth and crisis management consultancy Sprezzatura, co-authored an article in Fast Company warning executives about this as a long-term strategy. She still believes it’s a mistake. 

“I think cutting their spend was good temporarily, but I’m convinced that their comments about the spend not returning to 2019 levels was really a play to drive up earnings,” she said. “I think we’ll actually see them changing their course when they see increasing competition.”

Short-term bright spot

Short-term vacation rentals such as Airbnb and Vrbo were a bright spot in the hard-hit travel and hospitality industries since they enabled people in lockdown to safely change scenery. With most of the world working and schooling on Zoom, travelers opted for short-term rentals to enjoy different climates, home sizes and communities. 

But the pandemic created advantages for short-term rentals that are situational. At the height of the pandemic, hotels were closed so there was relatively little competition. And when they did reopen, they couldn’t offer the single-family experience similar to short-term rentals. 

As the vaccine becomes increasingly available, those advantages are shrinking.

“Budgets were tested last year, particularly in the travel and hospitality vertical, and so we see a lot of brands reassessing their investments this year relevant to their customers’ behavior,” said Valerie Davis, managing director North America at performance agency ForwardPMX.

“But what we’re actually seeing as a trend across the board is a resurgence of performance marketing budgets. Performance captures the demand that brand media drives, and brands are getting smarter at seeing brand and performance as part of a holistic strategy.”

Airbnb’s CFO Dave Stephenson described its focus during the investor call: “We’ll continue performance marketing where it makes economic sense to do so. It’s going to have a higher rate of return expectation on that spend and won’t return to the levels we saw in 2019.”

Unexpected challenges

To that, Davis argued,

“A strategy that doesn’t invest in both brand and performance will leave them at risk to other competitors that are actively advertising and positioning themselves to take more of the market share.”

She points to newcomer Golightly, an invite-only short-term rental and home sharing site exclusively for women, as an example of a niche company that markets itself as a safe option for women.

Ted Curtin, CMO at global brand licensing agency LMCA, sees this as an inflection point for Airbnb. But a need to balance the twin poles of performance and brand marketing is paramount, as others have discovered. 

“Skype is a great cautionary tale,” Curtin said. “Now we Zoom. Airbnb needs to throttle up on the brand marketing. If they don’t take advantage of the opportunity and promote the brand’s relevance—meaning, what’s their differentiator?—they risk becoming another Skype.”

Chesky and his team believe travel will be forever changed by the pandemic, since it’s been proven that employees can work from anywhere. He believes short-term rentals are key for the coming “nomadic” society.

“They need to be looking at what trends may intersect with their business five years down the road or even more,” Curtin said. “Nobody can predict the future, but look at trends and where potential intersections are to help create scenarios. That gives us the framework so we can understand the possible forces pushing on our business. This is an opportunity for companies to reinvent themselves.”

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