I came again across Clayton Christiansen’s pattern of industry disruption while reading this article. Christiansen summarizes this pattern via three simple steps (I advise writing them down or else remembering them).

1. New competitors with new business models arrive.

2. Incumbents choose to ignore the new players or to flee to higher-margin activities.

3. A disrupter whose product was once barely good enough achieves a level of quality acceptable to the broad middle of the market, undermining the position of longtime leaders and often causing the “flip” to a new basis of competition.

Applied to AirBnB as a distruptor and the hotels as the incumbents in the hospitality industry, these three steps look as follows.

1. New competitors with new business models arrive. AirBnB’s innovative business model revolves around creating a platform that connects supply of available accomodation and demand for this accomodation in a new way (by defining available accomodation in terms of people’s owned or rented properties), and collecting a fee in the process.

2. Incumbents choose to ignore the new players or to flee to higher-margin activities. Major industry players like dismissed AirBnB and sometimes even say things like this: “Quite honestly, I had to google what [Airbnb] actually means, which shows you how much we pay attention to it,” “It’s a gnat on the dog’s tuchus. “It might itch, but it’s not a game changer” and “I think it’s serving people who didn’t travel because they were scared, or couldn’t afford it, or use it because it’s an antidote to loneliness.”

3. A disrupter whose product was once barely good enough achieves a level of quality acceptable to the broad middle of the market, undermining the position of longtime leaders and often causing the “flip” to a new basis of competition.AirBnB has recently hired founder of the Joie de Vivre boutique hotel chain, Chip Conley, as its Global Head of Hospitality and Gowalla’s co-founder to joing their mobile team. AirBnB today has more than 10 milion nights booked and there is a rumor of a $2.5 bilion valuation. The start-up is expected to overake both Hilton Worldwide and InterContinental Hotels Group in 2014 as the world’s largest hotelier. Take that.

Originally published on November 25, 2013