Could Airbnb's 2019 acquisition of HotelTonight be crucial to its post-pandemic strategy?

• HotelTonight, launched in January 2011, aimed to make last-minute and same-day bookings in the travel and leisure sector more popular by addressing a part of the industry that its founders believed had been neglected.
• The company's mobile-first experience resonated well with a younger, more cost-conscious demographic, leading to quick traction.
• In March 2019, Airbnb acquired HotelTonight in a deal worth over $400 million as part of its IPO preparation.

CNBC examines the progress of companies on the Disruptor 50 list, 10 years after their initial recognition.

HotelTonight, like many mobile-first, on-demand service-based companies that emerged in the early 2010s, shared similarities with two of the largest disruptors in that category.

According to HotelTonight CEO and co-founder Sam Shank, who spoke on CNBC's "Squawk Box" in June 2013, the world is moving with services like Uber and GrubHub, where a single button press can provide a car or food delivery.

"We provide on-demand shelter with just a button press," he stated.

HotelTonight, launched in January 2011, aimed to make last-minute and same-day bookings in the travel and leisure sector more popular by addressing a part of the industry that its founders believed had been neglected.

Jared Simon, the former COO and co-founder of HotelTonight, stated in a recent interview that the goal from the beginning was to make spontaneous travel more popular and enjoyable. At the start, this idea was not widely accepted and faced significant opposition.

HotelTonight's mobile-first experience quickly gained traction among a younger, more cost-conscious demographic.

Simon stated that booking travel at the time was similar to purchasing a house or obtaining a loan. The extensive amount of information and time required to complete the process eliminated any spontaneity in traveling and made it feel more like a transaction rather than an experience.

Simon stated that hoteliers often complained about being mistreated by online travel agencies for years. In response, HotelTonight aimed to establish a genuine partnership with them. As a result, they emphasized simplifying the information required and providing high-quality images and detailed descriptions of the rooms, which are now widely used.

Booking.com introduced its Booking Now app in 2015, but shut it down two years later, while other clones emerged worldwide with similar business models.

In 2013, Shank stated that the company wouldn't target the entire travel market, but HotelTonight eventually shifted to become a more traditional hotel booking platform. They expanded their booking window, introduced a desktop browser version, and focused on luxury hotel deal offerings for their cost-conscious customer base.

In 2017, it raised $37 million in a Series E round, reaching a $463 million valuation and bringing its total funding to $126.9 million from Accel Partners, Battery Ventures, and First Round Capital. Additionally, the company formed partnerships with Madison Square Garden and the New York Yankees to offer geolocated deals to fans at sporting events and concerts.

Simon stated that being one of the earliest mobile-only commerce apps in a space where larger behemoths hadn't yet figured out how to colonize it gave them some room to work and allowed them to pioneer marketing concepts and reach consumers in new ways, which helped them establish a beachhead. This allowed them to take another step with the MSG partnership and other areas where they were innovating.

Its platform boasted over 25,000 hotels in approximately 1,700 cities worldwide.

In March 2019, Airbnb acquired HotelTonight in a deal worth over $400 million, as the companies were highly complementary in their product offerings, according to Simon.

Airbnb CEO and co-founder Brian Chesky stated that the acquisition of HotelTonight was a significant step in creating a comprehensive travel platform. The company emphasized the growing demand for boutique hotels to be listed on Airbnb. At the time of the acquisition, Airbnb assured that the HotelTonight app and website would continue to operate as usual, which remains true today.

The Covid-19 pandemic hit less than a year later, presenting new challenges for Airbnb to navigate while trying to build the end-to-end platform HotelTonight was expected to be a big part of.

Airbnb's HotelTonight has been operating under the radar as the managing director of equity research at Oppenheimer & Co., Jed Kelly, stated.

According to Kelly, the company hasn't emphasized this aspect in their shareholder letters over the past four years, and their commercials don't explicitly mention hotels.

A spokesperson for Airbnb declined to make an executive available for comment.

Andrew Boone, a managing director at JMP Securities, a Cititzen Financial Group company, stated that while HotelTonight may have aided Airbnb in strengthening its ties with hotels, it is challenging to determine the success or failure of this partnership solely based on external factors.

Boone stated that one of the challenges will be observing how travel trends change in the future. Airbnb has profited from the trend of travelers opting for longer stays at non-traditional accommodations, frequently in areas away from major cities. In contrast, HotelTonight primarily targets customers who may have traveled for work last minute or stayed late after a show or sporting event, sectors that have not recovered as quickly.

HotelTonight's initial guiding principle of spontaneous travel is expected to increase in demand following the pandemic, according to Simon's belief.

As he stated, it's likely that people will recognize the value of experiences and the importance of not making plans, and embracing living life spontaneously. Travel will resume, and hotels will play a significant role in this revival.