[Technopreneurship] - Case Study: Airbnb Business Model
What Is Airbnb’s Business Model? How Airbnb Works? How Does Airbnb Make Money? What Is Airbnb’s Business Strategy? Why Is Airbnb so Successful?
The Airbnb business model immediately appealed to avid travellers who wanted not only better prices than hotels but unique experiences.
Founded in 2008 Airbnb has gone on to become a global brand that is used by millions around the world. At its heart, it is a platform business model that connects hosts with people seeking accommodation.
Brian Chesky and Joe Gebbia, are now the company’s CEO and chief product officer, respectively.
What Is The Airbnb Business Model?
The Airbnb business model is a two-sided marketplace that connects people travelling with hosts and experience providers.
Shifts in the Airbnb Business Model
Originally the Airbnb business model was based on homeowners renting space to people who were travelling. However, since there humble beginnings in 2008, Airbnb has progressively moved into the hotel market. Hotels and owners and commercial groups can now list their rooms on Airbnb. Airbnb is now competing directly with other hotel booking sites such as booking.com.
People are increasingly interested in taking part in activities that create shared memories. As a result, in 2016 Airbnb launched experiences. Now they actively recruit experts to provide a range of experiences for Airbnb guests. Activities range from cooking classes to graffiti tours to painting and much more. The range and depth of experiences available create a new ecosystem of partners and opportunities for Airbnb and its customers.
Problem With Airbnb’s Legality
Despite strong growth, Airbnb still has challenges to face. There are some cities and countries cracking down on Airbnb usage. This is because the service Airbnb provides can be considered as short-term renting, and as a result, hits a variety of legal issues. As such, it’s worth double-checking if the destination you’re going to is okay with Airbnb before renting. Some unfortunate homeowners have met legal trouble after they unknowingly let out their properties without realizing it’s illegal in their city to do so.
Quick Facts On Airbnb
Before we go into the detail of the Airbnb business model, let’s take a quick look at the scales of the business. In 2020, Airbnb is expected to go public with a valuation of $35Bn.
However, the Airbnb story started back in 2008, when the two founders, Joe Gebbia and Brian Chesky (Nathan Biecharczyk was invited to join later) couldn’t pay rent. They set up a simple website with a map and rented out three mattresses and promised homemade breakfast. Three people came and they decided to build on it.
They refined the website with money from selling cereal boxes during the presidential campaign in 2008 and took high-quality pictures of the rented space to boost click rates. Wit a relatively short time, the Airbnb business model went viral and in the winter of 2012, Airbnb overtakes Hilton Hotels in nights booked.
What is The Sharing Economy?
The Airbnb business model is a good example of the sharing economy, an industry that is based on using digital platforms to unlock the value of underutilized assets. In Airbnb’s case, its business is connecting travellers with hosts renting space in their homes, generally on a short-term basis.
Renting assets to other people is something people have been doing for thousands of years. However, the rise of digital platforms has enabled millions of people to easily connect. In other words, two-sided platforms connect owners and seekers at scale. This is also referred to as the peer-to-peer (P2P) business model.
Mission & Core Values
Airbnb is more than an affordable travelling accommodation option. Through facilitating access to distinctive spaces and local culture, Airbnb aims to enable travellers to “feel at home anywhere you go in the world” by building connections with local hosts, gaining access to distinctive spaces and cultures of their destinations.
Airbnb Business Model Canvas
The Airbnb business model canvas explains the key partners, key activities, key resources, value proposition, customer relations, channels and customer segments of Airbnb. Also, the cost structure and revenue streams of the Airbnb business model.
How Does Airbnb Work?
- Hosts list out their property details on Airbnb along with other factors like pricing, amenities provided etc.
- Airbnb provides the option to use a professional photographer(if available) to the property location in order to take high-quality photographs.
- Travellers search for a property in a location they wish to stay and browse available options according to price, amenities etc.
- Booking is made through Airbnb and the traveller pays the amount listed by the host and an additional transaction fee of three per cent.
- The host approves the booking. Traveller stays there and finally, Airbnb pays the amount to the host after deducting their commission.
- Reviews from host and traveller are provided so the broader community
Who are Airbnb’s Customers?
Hosts:
- Hosts are the people who own property and want to make some money by renting out their available space.
- They can create a listing for their property on Airbnb, add property details and set their own prices, check-in, check-out time etc.
- Hosts can accept or reject a booking after reading the reviews of the traveller or after going through their social profiles.
Travellers:
- Travellers are the people who book the listed available spaces from local hosts.
- Travellers have the option to search for a property by filtering them according to rent, amenities provided, location etc.
- Travellers can book a space by paying through the portal.
Freelance Photographers:
- Airbnb has a vast network of freelance photographers in all major cities of the world who go to a location and click high-definition photographs of the property.
- High-quality photographs result in higher booking levels for hosts and the freelance photographers are paid by Airbnb directly.
Experience Providers
- These are usually specialists within a local area that provide classes, tours or events.
- Experience providers are also rated by guests.
- They pay a 20% commission to Airbnb for all activities that are booked.
Hotels
- Hotel chains that want to list their rooms on Airbnb.
- Independent hotels.
What’s Airbnb’s Value Proposition
The Airbnb business model has four distinct customer segments: hosts, guests, photographers and experience providers.
For all of these, the platform needs to provide a frictionless and efficient user experience.
- Enables owners to list their space on the platform and earn rental money.
- Airbnb provides insurance to listed properties.
- Gives cheap options to travellers to stay with local hosts.
- Facilitates the process of booking living space for travellers.
- Rating and review system for hosts and guests.
- User-friendly app and web-based structure.
Key Partners for Airbnb
The most important aspect of the platform is to balance both sides and grow both sides. Part of the growth and further diversification of the Airbnb offer e.g. Airbnb Luxe has come through the acquisition of other companies and the subsequent expertise, database and relationships they have integrated into their platform.
- Technical partners e.g. Amazon AWS cloud hosting.
- Investors.
- Lobbyists.
- Business travel partners.
- Insurance.
- Hotel chains.
- Hosts
- Photographers
- Guests
How Does Airbnb Make Money?
Airbnb makes money by charging guests a commission between 0% and 20% for their stays and charging hosts a 3% to 5% fee. Like other online marketplace models, the Airbnb business model has proven highly scalable and profitable. The company makes money by charging guests a commission between 0% and 20% for their stays and charging hosts a 3% to 5% fee.
Airbnb doesn’t reveal its total gross bookings. Airbnb claims more than 2 million people stay with its hosts every night, while on average, Marriott filled about 1 million of its 1.3 million rooms each night last year.
Airbnb Business Model Analysis
The Airbnb Business Model is shifting as they harness the power of the platform towards a future where there is a more diverse range of experiences as well as accommodation.
Artificial Intelligence (AI) has become a critical part of managing pricing, customers and providing insights into operations and customer behaviour. Companies like Amazon have made heavy investments and made several acquisitions that strengthen their AI capabilities.
Surprisingly Airbnb has not made any acquisitions and this points to a possible weakness in its armoury for the future.
Airbnb Key Metrics
Bookings are the team’s North Star metric, which means that maximizing bookings within a given budget is the primary goal. The two most important input metrics that guide decision-making around how well the team is acquiring bookings are cost per acquisition (CPA) and return on ad spend (ROAS).
CPA or total costs / total bookings is the metric for how much it cost us to acquire a new booking. ROAS, or (revenue — costs) / costs indicates how much incremental revenue a campaign or channel generates compared to the cost of running the campaign. Other metrics will be the frequency and use of the app. In other words, how many bookings per app user per month.
Summary of Airbnb Business Model
The Airbnb business model is progressively moving into the business listings having previously focused on consumers. The IPO and future acquisitions will demonstrate the direction and strategy for how Airbnb plans to utilize its platform for future growth.
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