Is Airbnb’s holiday from performance marketing a mistake?

Some experts applaud move but others warn of risks.

Clockwise from top left: Waters, Airbnb logo, Dimiziani, Adams, Calverley, Smith
Clockwise from top left: Waters, Airbnb logo, Dimiziani, Adams, Calverley, Smith

Airbnb has caused a huge stir after telling shareholders that it is making a permanent shift from performance marketing to brand marketing.

The online property rentals company slashed its marketing spend by 58% or $662m in 2020 because of the pandemic, yet it attracted 95% of the traffic that it did a year earlier when it spent $1.14bn.

Most of the $662m decline was in performance marketing, such as online bidding and search marketing, which dropped by $541m – more than four times the cut in brand marketing spend, such as TV and sponsorship of the Olympic Games, which fell by $121m.

“What this revealed is that our brand is inherently strong. It's a noun and a verb in pop culture,” Brian Chesky, the co-founder and chief executive, said.

“And so 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.”

Dave Stephenson, chief financial officer of Airbnb, added: “We’ll continue to use performance marketing where it makes economic sense to do so.”

Airbnb is one of a number of brands from Adidas to the Automobile Association that have rethought their investment in digital marketing and moved more money into brand-building in recent years.

“The success that Airbnb has had in defining a category has led to it being in a fairly unique position” in terms of the strength of its brand, as Luke Smith, chief executive of performance agency Croud says.

But the shift in spend does carry risks, as Airbnb acknowledged in its annual report, because online competition for customers will heat up again as lockdowns ease.

So is Airbnb’s permanent holiday from performance marketing a mistake?

Kate Waters

Director of client strategy and planning, ITV

No. Strong brands build businesses and protect them in times of economic uncertainty. It’s therefore not surprising that Airbnb could cut their performance marketing spend without seeing much fall-off in traffic. It’s exactly what we’d expect to see and what Les Binet, Peter Field, Byron Sharp and others have been telling us for years.

So Airbnb can probably afford to reduce total brand and performance spend for a while longer, but to retain healthy site traffic once the market returns to normal and once competitors start spending again, they will need to stick to their plan of sustained brand investment in channels like PR and TV to maintain their share of voice, and couple that with sophisticated SEO. But done well, this could be the perfect opportunity to wean themselves off the performance marketing drug for the long term.

Alexandra Dimiziani

Independent brand and marketing consultant; former global marketing director, Airbnb

Performance marketing is most valuable to brands that are more functional or transactional in nature, pushing those brands into consumers’ consideration set near or at the point of decision or purchase. But Airbnb has brand pull, reducing its reliance on expensive growth marketing, as evidenced in its direct and unpaid traffic in the final months of 2020.

This brand pull has been cultivated in myriad ways beyond bought advertising that have earned it out-sized voice and influence. For example, a purposeful promise, an almost mythical founding story, efforts with and investment into its community, buzz-generating experiences and share-worthy content, all kept the brand on the tip of our tongues and top of our minds.

Divesting from pre-pandemic performance marketing spend levels is smart, and is a recognition of, and return to, that which drove Airbnb’s phenomenal growth in the first place – its brand and the community it serves.

Cheryl Calverley

Chief executive, Eve Sleep

Airbnb’s move away from performance marketing doesn’t come as a huge surprise, and is more than anything a reflection of their business “growing up”. Performance marketing works hard where customers are making a final choice between “this or that” within a category, with all other things being broadly equal.

As a business matures, it seeks through long-term investment in its brand, its product and its customer experience to tip the odds, so the choice between “this or that” is no longer equal. When that happens, performance marketing is ever less marginally effective.

What this move from Airbnb shows is the power of a unique product, meeting a material and meaningful customer need, supported with a strong brand and top-of-mind awareness. Building to this position isn’t free. It takes an original idea, huge bravery in execution, consistent and material investment and the blood sweat and tears that goes into building the tech and logistics that deliver a seamless customer experience, supported with increasing control over the means of supply (in this case hosts).

But once you get all that right, performance marketing investment should decline materially as a percentage of revenue, as should marketing investment overall. Just ask Apple. Or Marmite. Of course, should one of the travel behemoths pivot into this space, or an adjacent business with similar “gig economy eco-system” skills (Uber?) turn their eyes to the opportunity, all bets are off, and Airbnb will be back slugging it out to the glee of Google.

Luke Smith

Co-founder and chief executive, Croud

I have a lot of time for Airbnb CEO Brian Chesky but there needs to be some caveats about this shift in strategy. First, it is hard to quantify the actual performance of his marketing spend in the last year. Comparing spend/ROI/investment to revenue year-on-year is impossible. The data is just too noisy.

However, the pandemic has allowed advertisers to reset and reconsider their business models, which in many ways is a good thing. Airbnb’s CFO’s point that they will only do things that make economic sense is prudent. Additionally, many businesses have become over-reliant on performance marketing, at ever decreasing margins, and at Croud we will often advise clients to invest more in upper funnel activities.

Performance vs brand aside, there should always be a fluidity of budgets based on testing and incrementality. Right now, it’s probably a good time for Airbnb to over-index in upper funnel activity to build awareness and awaken new customers. However, that situation is likely to change over time and all marketers should be constantly considering the mix in relation to all advertising and marketing channels.

The success that Airbnb has had in defining a category has led to it being in a fairly unique position. Very few businesses have seen their brand term become a “noun/verb” in this way. To put this into context, Airbnb has a massive 2.25 million monthly searches on Google in the UK alone for its exact brand term. If I had that dominant a position in my sector I’m not sure I’d be spending much on paid advertising against my brand term.

However, if competitors suddenly start to erode its market share it will be important to change its approach. Any category can be disrupted and the past year has proved to businesses at every level that you cannot predict what is around the corner.

Simeon Adams

Creative partner, Goodstuff Communications

For me, news of Airbnb’s permanent holiday from performance marketing is an encouraging and welcome break from so many brands still doing the opposite. Granted, I haven’t delved deep into their data, but I suspect they have, and wouldn’t have taken the decision lightly. Volumes holding up during the pandemic will be testament to a strong brand and brand spend facilitating a (temporary) shift in type of traffic from qualified bookers to dreamers or online experience seekers.

Airbnb have realised they don’t need to pay twice for the same customer through both brand and performance ads, and are reaping the rewards of becoming the category generic term. Good luck to them. I think they’ve rightly earned their Place in the Sun.