Airbnb slashes spend in permanent shift from performance marketing to brand

Airbnb has said it will make a permanent cut in the amount it invests in marketing after slashing its outlay by more than half during the Covid-19 downturn and still generating 95% of the same online traffic as a year earlier.

The online property rentals company is moving its spend away from performance marketing and into brand marketing. It will also focus more on public relations.

The overall amount that Airbnb invests in marketing as a percentage of revenue will “never” return to pre-pandemic levels, the company said.

Brian Chesky, co-founder and chief executive, described the shift in strategy away from performance marketing as “very important to the corporate story”, when he spoke at its annual results presentation – the first since the company floated on the stock market in December 2020.

The annual report showed Airbnb slashed its combined spend on brand and performance marketing by 58% or $662 million from $1.14 billion in 2019 to $482 million in 2020.

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

Marketing represented 14.2% of revenue in 2020, compared with 23.7% in 2019, as the company cut costs more steeply than the decline in its sales.

“We are never going to go back to spending the same amount of money on marketing as a percentage of revenue as we did in 2019,” Chesky told CNBC in an interview following the annual results.

“What the pandemic showed is we can take marketing down to zero and still have 95% of the same traffic as the year before. So we’re not going to forget that lesson.”

The annual report did not disclose the exact amounts that Airbnb spent on performance and brand marketing but it is likely that a significant majority of its $1.14 billion annual spend was invested in performance before the pandemic.

In 2019 Airbnb increased marketing spend by $474 million, including $314 million on performance marketing and $160 million on brand marketing.

Airbnb said the shift in marketing strategy is material, listing “the reduction in performance marketing spend to focus on brand marketing” in its annual report as one of a series of “forward-looking statements” that carry “substantial risks and uncertainties” for the company.

Airbnb’s agencies include Droga5 for creative and Essence for media.

Shifting spend into brand and PR

Other advertisers and agencies will be watching Airbnb’s move closely, because performance marketing has been a boom area in recent years as brands, especially online disruptors, have used data-driven targeting on platforms such as Google, Facebook and Amazon to drive rapid sales growth.

Chesky went into more detail on Airbnb’s earnings call about the move away from performance marketing and said he wanted to “take a step back” to explain how the company’s strategy had evolved over several years.

“In 2019, we had elevated spending of performance marketing [as part of a 71% increase in total marketing spend from $666 million to $1.14 billion],” he said.

“And then 2020 occurred, our business drops by 80% in eight weeks, and we pulled back all marketing, including performance marketing.

“But something remarkable happened. Even before we started resuming our marketing spend, our traffic levels came back to 95% of the traffic levels of 2019 without any marketing spend.

“And what this revealed is that our brand is inherently strong. It's a noun and a verb in pop culture.

“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.”

During the final three months of 2020, “more than 90% of our traffic was direct or unpaid, and we think that will continue in the future”, he added.

“Our marketing plan, therefore, our strategy is the following: a full-funnel marketing approach. The top of the funnel is actually PR.

“We got more than 0.5 million articles in the last year, in 2020, and we had as much share of voice as most of the other major travel companies combined

“And that's how we really built the brand of Airbnb – more than anything, probably, is PR. Second is brand marketing. We think of brand marketing as education and an investment.”

As part of its brand marketing push, Airbnb launched its biggest brand campaign in five years, “Made possible by hosts”, at the start of 2021.

It features Airbnb hosts and is designed to “inspire more people” to rent out their properties as the coronavirus lockdowns ease and consumers start travelling again.

“Even though the Airbnb brand is mainstream, the idea of hosting is not,” the company said.

Chesky added its previous decision to put 9.2 million Airbnb shares in an endowment fund to reward hosts and let them “share in our success” is also part of the company’s brand-building strategy.

“We did think of this as more like a brand investment,” Chesky told CNBC.

Performance marketing remains “an important lever”

Dave Stephenson, chief financial officer of Airbnb, said on the earnings call that performance marketing remains “absolutely an important lever”, explaining: “We'll continue to use performance marketing where it makes economic sense to do so.”

He went on: “We're just going to have a higher rate-of-return expectation on that performance marketing spend and won't return to the levels that we saw in 2019.

“Our sales and marketing expenses as a percentage of revenue in 2021 will be below that of 2019. The absolute dollars in 2021 will be below that of 2019.”

The brand campaign means sales and marketing as a percentage of revenue will be higher in the first half of this year than in the second half.

The annual report outlined how Airbnb sees the differences between brand and performance.

“Brand marketing increases awareness among potential hosts and guests, helping them understand the benefits of hosting and booking stays and experiences and what makes these stays and experiences distinctly Airbnb,” the report said. 

“While performance marketing drives additional traffic from high-intent prospective guests, the strength of the Airbnb brand and our communications strategy allows us to be less reliant on performance marketing.”

Brand marketing carries some risks because it is “expensive and may not be cost-effective or successful”, the annual report warned.

“For example, in November 2019, we announced a partnership with the International Olympic Committee for nine years to cover the next five Olympic Games. 

“The Covid-19 pandemic has delayed the 2020 Olympics, and the continued uncertainty around Covid-19 and other geopolitical factors could undermine our ability to realise the value of the partnership.”

But performance marketing also faces risks around data and privacy because they are “increasingly subject to regulation” in a number of countries around the world, the annual report said, repeating a warning from its stock market prospectus last year.

Airbnb added it relies on “unpaid” search engine optimisation. “We believe that our SEO results have been adversely affected by the launch of Google Travel and Google Vacation Rental Ads, which reduce the prominence of our platform in organic search results for travel-related terms and placement on Google,” it said.

Lessons for other brands 

Analysts have also been looking at how Airbnb’s rivals, such as Booking.com, have been adapting their marketing because of the pandemic.

Booking.com told investors it cut marketing expense by 61% last year but was reluctant to say whether it planned to alter the balance between performance and brand.

“I'm not going to give away the playbook,” Glenn Fogel, chief executive of Booking.com, said on its Q4 earnings call.

Brian Wieser, global president of business intelligence at Group M, the media-buying arm of WPP, said there was a rationale for Airbnb to switch from performance marketing to brand marketing and public relations.

“For a company looking to define or redefine a category at a massive scale, there is a lot of room for creative ways to drive a business through marketing,” he said. “That doesn’t necessarily involve paid media, and when it involves paid media, there can be many different ways to drive profitable growth.”

Wieser added: “I think there’s a bigger lesson for other brands, too: if the pandemic taught us anything, it’s that we shouldn’t take anything for granted, and we should be mindful that consumers can adapt to new ways of doing things.

“Marketers have a window of time to reassess how consumers will be willing to engage with brands, because, as we go through this period of time ahead of economies fully reopening, new habits can be formed if consumers can be persuaded to adopt those new habits.

“Towards those ends, conventional media or marketing mixes should not be taken as a given, but should also be reassessed to determine what can drive a business forward.”

An executive at a performance agency noted: “Competition for traffic fell as all ‘travel’ advertisers made a major cut in spend last year, so there was overperformance in organic listings. 

“They may want to show significant cuts in spend to Wall Street and this announcement, in tandem with their first set of results, is no coincidence. 

“I would expect to see a change in strategy when the market lights up again and their traffic levels will fall, which I believe they will.”