In less than a decade the twenty-something founders of Airbnb have gone from selling politics-themed cereal, back in 2007, to raising $850 million on a $30 billion valuation.

In short: Airbnb is the poster child of millennial innovation.

NB: This is an analysis by Alonso Franco, CEO and founder of Arrivedo.

What is its secret? Staying one step ahead of trends and truly understanding the needs and wishes of the millennial consumer.

Airbnb has masterfully turned what could have been a simple timeshare or price comparison platform into an inclusive experience which allows travelers of all ages to “belong anywhere” and is constantly adding new features which benefit both users and renters.

At the same time, the traditional hotel industry is attempting to innovate and improve to compete with Airbnb, which is eating heavily into the industry’s revenue and margins.

In a recent report commissioned by the Hotel Association, it is estimated that hotels lose around $450 million in direct revenues per year to Airbnb.

Hotels have long tried to offer “experiences” to guests, but have traditionally focused on pushing in-house services such as concierges and VIP packages.

However, more than ever, hotels are under pressure to add more value to attract back guests from using Airbnb.

Here are three predictions for trends in the hospitality sector which are likely to take shape in 2017, in response to changes within the industry:

1. Experiences will become a selling factor for hotels

A recent Eventbrite survey reveals that millennials not only value experiences highly, but are more than happy to pay for them.

Seventy-eight percent of respondents said they would choose to spend money on a desirable event or experience than on buying a desirable item.

In response to this, back in November 2016, Airbnb launched its experiences function.

This offers the chance to discover hidden gems, or take part in unique experiences with their expert host.

A quick browse of the site offers experiences with burlesque dancers, pottery experts, artists, chefs and skateboarders, to name a few.

As part of this new experience-focused model, the location of the accommodation is key, as the users are looking to enjoy the entire “local” experience rather than just the house or apartment they are renting.

Traditionally, hotels have limited marketing about activities in their surrounding areas, instead focusing on promoting the best “in-house” experience possible for guests.

However recent trends show experience outside the building matters more to users than ever before.

According to the most recent Market Metrix global hotel study, location remains the most important factor in determining hotel choice, especially for leisure guests who want to spend their free time enjoying what the surrounding area has to offer.

“Location, location, location” has been a mantra in the hospitality sphere since its birth, but now thanks to hyper-localization maybe “neighborhood, neighborhood, neighborhood” would be more suitable.

Following in the footsteps of Airbnb, we are likely to see more hotels extend their experiences to a wider range of guests, making the experiences more accessible and affordable targeting millennial users.

New ways of presenting hotels will emerge with more marketing focused on the surrounding neighborhood and possible experiences which can be booked through the hotels concierge service.

2. New easy-to-adopt technology will emerge and hotels will embrace it quicker

One of the key hooks for Airbnb users is its simple yet effective technology.

Offering a smooth mobile experience and location-based technology, Airbnb is perfect when on the move, as well as when at home.

Hotels on the flipside have struggled to update complex legacy hotel booking software to integrate with day-to-day front desk interactions with guests.

In a 2016 survey by Zebra Technologies, nearly three-quarters of hotels said they plan to roll out location-based technologies in the next year – following in the footsteps of industry leaders Hilton and Marriott – which would allow them to log more interactions with guests and provide more personalized experiences.

According to the Zebra survey, 74% of hospitality providers said they plan to use geolocation to allow guest check in via smartphone, 72% said to push deals, coupons and discounts, 69% to track guests’ location, facilities used, and buying behavior, 69% to record when a guest leaves a site, 68% for mobile payments and 62% to enable electronic baggage tracking.

As hotels feel more pressure from Airbnb competition they are likely to start relying more on third-party technology advisors or software providers.

Some companies have already hopped on this trend, for example, Revinate and SiteMinder currently serve 30,000 and 23,000 hotels respectively.

As hotel technology advances and user experience becomes a key focus on new software, hotels globally will look to hospitality platforms which are designed to be integrated as quickly and painlessly as possible.

3. Hotels and Airbnb will begin to converge

Thanks to pressure from hoteliers, local authorities around the world have begun cracking down on illegal short term rentals from Airbnb renters who don’t have appropriate licenses.

Airbnb was fined $30,000 by Barcelona city council back in 2014. The company accepted terms with New York City after a long lawsuit in December 2016. San Francisco, New Orleans, Malibu and other US cities are also in the process of placing legislative restrictions too.

As Airbnb hotels become more regulated and forced to follow the same legal requirements as hotels, this will inevitably increase the prices that Airbnb hosts charge visitors.

This will shorten the gap between the prices of hotels and Airbnb apartments, and drive more custom towards hotels for certain types of travellers, who are less interested in a ‘home’ experience, and more in the price and convenience for short stays.

Airbnb homes and apartments may also begin advertising on different platforms, including price comparison platforms.

However, Airbnb are more likely to focus more on apartments rentals, consolidating its differentiating position of a home stay versus the hotel room.

Hotels too will begin to adopt more features which draw clients to Airbnb.

A recent Les Roches-commission study, shows the mantra “live like a local” has apparently gained widespread acceptance among travelers, and the research predicts hotels will begin “building customized local guides” for guests.

In the next year, we are likely to see hotels think more like ‘hosts, improving personalized customer service and enhancing the local experience around their location rather than focusing on the experience inside the hotel.

Hotels are also likely to begin partnering up with new platforms that will help them sell rooms with experiences, to compete with Airbnb and attract travelers looking for a more inclusive experience based trip.

Airbnb has raised the bar for hospitality users expectations and totally revolutionized the way that people of all ages book accommodation and travel.

However, slowly but surely hotels are fighting back, and adopting technology and changing tactics to lure more guests.

While in the past, traditional hotels viewed the startup as the enemy, as time goes on we are likely to see a more cooperative relationship between the two, where lessons are learned from both sides, to the overall benefit of service users.

NB: This is an analysis by Alonso Franco, CEO and founder of Arrivedo.