Airbnb halves performance marketing spend with $100m cut in Q1

Airbnb roughly halved its performance marketing spend in the first three months of 2021 as the impact of its permanent shift towards brand marketing took effect.

The online holiday and property rentals company said in a stock market filing that it cut its total marketing spend, which includes both brand and performance marketing, by $98.6 million (£70 million) – or 45% – to $119.2 million in Q1, while revenues rose 5% to $887 million.

The decline in spend was “driven by a reduction of performance marketing, partially offset by an increase in brand marketing”, as Airbnb launched “Made possible by hosts”, its biggest global ad campaign in five years.

That suggests the cut in performance marketing spend was in excess of $100 million in Q1.

Brian Chesky, chief executive and co-founder, and Dave Stephenson, chief financial officer, told investors on the earnings call that Airbnb was enjoying “great success with our marketing strategy” and is “very encouraged by the results” as it has been generating “similar traffic levels” to 2019 despite slashing spend.

“Our strategy is to increase brand marketing and use the strength of our brand to attract more guests via direct or unpaid channels,” Airbnb added in a letter to shareholders.

90% of Airbnb’s traffic was “unpaid or direct” in Q1 2021, according to Chesky.

“We think that if you have a product that is unique and different, that the role of marketing isn't to buy customers and the role of marketing is not sizzle. The role of marketing is education,” he said, explaining the importance of its new brand campaign to attract more guests and more hosts.

Prior to the pandemic, Airbnb spent heavily on performance marketing, such as paid search and affiliate marketing, to drive traffic but the company changed its strategy last year and slashed its annual marketing spend from $1.14 billion to $482 million.

Chesky told investors at its annual results in February how it would “never” spend as much on marketing as a percentage of revenue as it did in 2019, because it found that during the pandemic it generated 95% of online traffic, despite cutting its performance marketing to zero.

Stephenson revealed on the Q1 earnings call that the company “actually started modifying” its marketing strategy “prior to Covid” and “solidified” the shift during the pandemic.

Airbnb has been keen to tell investors that it is taking a “disciplined” approach to marketing investment, after floating on the US stock market at the end of 2020, and plans to “materially increase our marketing efficiency” during the rest of 2021.

Droga5 handles creative and Essence handles media for Airbnb, which launched “Made possible by hosts” on television and digital channels in five of its largest markets, the US, UK, France, Canada and Australia.

Airbnb said it has seen a surge in interest as consumers look forward to lockdowns easing and the return of travel.

Booking, a major rival, also said it reduced marketing costs relative to revenue by generating more direct traffic and improving return on investment from paid channels in Q1.

“There are many factors” that affect ROI, according to David Goulden, chief financial officer of Booking, citing cost per click and conversion rates as examples and there is still what he described as “high volatility” in the digital ad market, given the on-going uncertainty because of the pandemic.