People use AirBnB not just for the price. I've used it before to get a more authentic experience when traveling. The places generally vary a lot more in capacity (IE not just 2-4 per room). For a family with smaller children, renting out a small apartment for a weekend is much nicer than a tiny hotel room on the nth floor of some homogeneous building. I think many hotels can't compete because they cannot provide the variety of options that AirBnB provides.