Five years ago, the Disrupt Story went that Airbnb was going to challenge hoteliers and maybe even make their business obsolete, as young people ditched Marriotts and Hiltons for the empty beds of strangers. Since then, Airbnb has enjoyed one of the more magical runs of any company founded in the 21st century. With a $31 billion private valuation, it’s the second-biggest “start-up” (if that label even still applies) in the country, after Uber. Its annual revenues are doubling by the year.

So, naturally, the hotel business is in a state of wretched suffering—yes? Quite the opposite. Last year was the best year ever for hotel occupancy in the United States. The stock prices for the major hoteliers Marriott and Hilton are both up more than 40 percent in the last 12 months.

Airbnb is a transformative travel business. But most people failed to predict the thing it would transform—for good and bad.

Let’s review what the market for accommodations looked like before Airbnb came along. Most vacation rentals were in empty second homes, often in beach, resort, and ski towns; renting them meant knowing an owner personally or working through a local agency. Meanwhile, most brand-name hotels in major U.S. cities were (and still are) near business centers, where locals might work, but rarely sleep, wake, and wander around.

Airbnb’s great contribution was to allow travelers to live as locals do—in the busy downtown residential areas, near the best restaurants, bars, and other local hangouts. Business travelers might prefer the amenities of a hotel. But what Airbnb offered was a superior simulacra of the local experience for leisure travelers—for an affordable price, which happened to support some local dwellers’ income.

Airbnb’s business took off among a particular demographic—young, urban, and relatively well off. Half of Airbnb’s bookings are made by Millennials, or those under 35 years old, and most of them are for leisure rather than business, according to the research firm MoffettNathanson. Airbnb has left an impressive mark on the way people travel to big cities: The share of American travelers using “private accommodations” like Airbnb quadrupled between 2010 and 2015, according to MoffettNathanson.

Percentage of U.S. Travelers Using Private Accommodations

MoffettNathanson

So how did all of this new business not hurt hotel bookings?

First, business travelers still prefer hotels; more than 90 percent of Airbnb’s business is in personal tourism. Second, if it weren’t for Airbnb, travelers might be suffering through a terrible squeeze in hotel space. The construction pipeline of new hotels plunged after the Great Recession. As the economy recovered and travel picked up, it seemed inevitable that the prices of scarce hotel rooms in major U.S. cities were set to soar. But they didn’t. Airbnb-listed rooms vastly expanded the supply of beds for travelers—tourists and business travelers alike—to lie in. With the explosion of the private accommodations market, rooms opened up and hotel prices stayed down.