How Airbnb Works | Insights into Business & Revenue Model

What is Airbnb?

Airbnb is an online marketplace connecting travelers with local hosts. On one side the platform enables people to list their available space and earn extra income in the form of rent. On the other, Airbnb enables travelers to book unique home stays from local hosts, saving them money and giving them a chance to interact with locals. Catering to the on-demand travel industry, Airbnb is present in over 190 countries across the world.

Founders, Funding received, Salient features & Facts:

Airbnb was founded on 1 August, 2008 and in a short span of time it grew as a technology masterpiece. Having received a massive funding of $2.3 Billion from 31 different investors, Airbnb is a part of the Billion dollar club. Here are few interesting facts about Airbnb.

• Founders: Nathan Blecharczyk, Joe Gebbia and Brian Chesky.
• Funding received: $2.3 Billion (Till June 2015)
• Airbnb company valuation: $25.5 Billion (As of June 2015)
• Airbnb is present in 34,000+ cities across 190+ countries.
• Having 1.2 Million listings, the company has served over 35 Million guests.
• Headquarters: San Francisco, California, USA.
• 140,000+ people stay at an Airbnb listed place everyday.

The massive funding received by Airbnb has made it enter the million dollar club. Airbnb’s recent funding of $1.5 Billion in one go is one of the largest funding rounds ever conducted. Can Airbnb generate such huge amounts of revenue? Well, maybe yes. Before moving on to read about Airbnb’s customer segments, value propositions and understanding its business model canvas, lets go through Airbnb Timeline.

Airbnb Timeline

Value Propositions of Airbnb

• 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.

The 3 customer segments defining Airbnb’s Business Model

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 rent, check-in, check-out time etc.
• Hosts can accept or reject a booking after reading the reviews of the travellor or after going through his 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 Airbnb 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.
• The high quality photographs get more responses and the freelance photographers are paid by Airbnb directly.

Airbnb Business Model Canvas

The business model canvas of Airbnb explains the key partners, key activities, key resources, value propositions, customer relations, channels and customer segments of Airbnb. Along with this, the cost structure and revenue streams of Airbnb have also been listed. Check it out:

The 5 step model about how Airbnb works:

1. Hosts list out their property details on Airbnb along with other factors like pricing, amenities provided etc.
2. Airbnb sends a professional photographer (if available) to the property location in order to take high quality photographs.
3. Travellers search for a property in the city where they wish to stay and browse available options according to price, amenities etc.
4. Booking is made through Airbnb where traveller pays the amount mentioned by host and some additional money as transaction charges.
5. Host approves the booking. Traveller stays there and finally Airbnb pays the amount to the host after deducting their commission.

The host and the traveler can rate each other and can write reviews based on the experience.

Revenue model: How Airbnb makes money?

Airbnb offers free listings to property owners and let’s travellers browse the listed spaces and select the one which best suits their needs on the platform. The business model of Airbnb is such that the booking and monetary transactions are done on Airbnb’s platform. This is from where the company earns its share of revenue from 2 different sources which have been explained below:

• Commission from Property Owners (Hosts)

Airbnb charges flat 10% commission from hosts upon every booking done through the platform.

• Transaction fee from Travellers (Guests)

Airbnb charges 3% of the booking amount as transaction charges from travellers upon every confirmed booking.

How Airbnb finds customers?

A customer for Airbnb is the one who adds up to the company’s revenue. He can be a host who offers his space for rent and lists it on the platform or he can be a traveller who books a space. So, from where does Airbnb find hosts and travellers? Well, Airbnb was founded in year 208 and its first customers came through a simple website built by the owners. Since then Airbnb has grown into 1.2 Million listings on the platform. The major sources to accumulate hosts and travellers include:

1. Social Media
2. Word of Mouth
3. Digital Marketing including Internet ads.
4. Promotional offers
5. Affiliate Model / Refer and earn offers

Key problems and Solutions:

The biggest problem faced by travelers or hosts using Airbnb is the trust factor. After all giving your space to a stranger as a host and living with strangers at their place as a traveller might not be easy. But Airbnb has a verification process in place for every host and traveler on its platform. Apart from the verification badge, Airbnb also motivates people to sign up with their Facebook account or at least link it with their airbnb account for better transparency.

This is not all. In case something goes wrong, then Airbnb has an insurance policy.

Another problem being faced by Airbnb is the retention problem. In order to grow, the company needs to retain its travellers so that they do not choose a hotel on their next vacations. In order to retain them, Airbnb gives offers, promotional codes and credits to frequent travelers. As a solution to this problem, Airbnb also sends such promotions to hosts as to motivate them to take a vacation and stay in an Airbnb at their favourite destination.

The Future of Airbnb:

Airbnb is already a multi billion company and is sure to grow further. Having a presence in 190+ countries across the world, it is now concentrating to further increase the daily transactions on its platform. With a total funding of $2.3 billion till date, the unique business model of Airbnb has even become stronger as people prefer staying at an Airbnb inn rather than a hotel.

Originally published at nextjuggernaut.com on July 7, 2015.