Airbnb: Helping the World Belong Anywhere

Airbnb becomes the world's largest accommodation provider by connecting a global network of travelers and hosts

What is Airbnb?

Founded in 2008, Airbnb is a two-sided marketplace that connects a global network of travelers with hosts who are willing rent out their home to these travelers. In just 8 short years, Airbnb has grown from an air mattress in the living room of founders Brian Chesky and Joe Gebbia’s San Francisco apartment on Rausch Street to a global accommodations platform with over 2 million listings in over 34,000 cities in 191 countries. [1]

Airbnb’s Historical Growth

How Does Airbnb Create Value?

Airbnb allows owners to more highly utilize their spare real estate capacity own by allowing them to list their open spaces on Airbnb’s platform and connect with millions of guests looking for accommodations. Airbnb does not own any actual physical real estate, it is a merely a platform which connects guests with hosts by providing a seamless and easy platform for users to browse, communicate, and process their accommodation transactions. On a typical $100 transaction, the guests would usually pay $110 with a $10 fee going to Airbnb (fee varies based on total size of transaction) and hosts would receive $97, with Airbnb taking $3 from the hosts (again varies based on transaction size). [2]

treehouse

 

Why Airbnb is Here to Stay for the Long-Run?

The Global Network Effect

One of the unique aspects about travel is that it is inherently international in nature (especially considering much of Airbnb’s business is outside of the U.S.). Ride-sharing companies such as Uber are primarily used in the city of one’s residence and thus are competitive on a market-by-market basis; it makes sense to have an Uber of India (Ola) or Uber of China (Didi) because having strength in the U.S. market doesn’t strongly effect your strength in another market as the network effect is a local one. In contrast, Airbnb benefits from having a global network effect because travel is inherently global in nature. Having listing all around the world has a strong benefit to the reinforcement of the platform since having a lot of listings in France (Paris is Airbnb’s largest market) does strengthen your platform in the U.S. as many American travelers travel to France and vice versa. If you were to travel to France, India and Mexico in one year, it is a strong value to the consumer to be able to find listings for those countries all on one place. [3] On the host side, it is very efficient to be able to attract inbound customers from anywhere in the world all through listing on one platform. This global network effect provides a significant moat around the business from competitors as Airbnb has over 2 million listings in over 34,000 cities; a competitor may gain traction in one country, but to serve the global travel of customers, it would have to achieve Airbnb’s scale all around the world, which is a much more challenging task.

Image result for best airbnb from around the world

Highly Capital Efficient Business Model

Part of Airbnb’s success is that it is able to scale without significant capital investment. Unlike ridesharing companies, Airbnb does not need feet on the ground to recruit hosts or guests, all of Airbnb’s growth has been achieved without much physical presence from the Company itself. [4] If a hosts wants to be a part of the platform, he merely signs up on Airbnb’s website – no physical equipment, training, or capital is required, just a few background verifications. In addition since payment is collected at booking, but only paid out when the guest checks in, Airbnb benefits from a negative working capital position, which also helps with the cash drain on the business.

Image result for best airbnb from around the world

A New Way of Traveling

Perhaps most central to Airbnb’s value proposition is the company’s belief in the power of travel to drive real human connections around the world. Airbnb uses slogans like “Don’t just stay there, live there” and “Belong anywhere” to emphasize the belief that the interaction between host and guest is one which people truly do value. Being able to interact with the host, to live in a place that is more a home than a hotel room, to find unique properties from tree houses to castles is all part of the value add of Airbnb. At a price that is on average ~30-40% cheaper than a typical hotel room in urban markets makes this value even more compelling. This ethos dates all the way back to founding story where Brian and Joe didn’t just let their first guest (Amol) sleep on an air mattress in their living, they engaged him in their lives and showed them San Francisco the way that a local would experience it; Amol didn’t just visit San Francisco, he lived here.  [5].

 

[1] Airbnb

[2] Investopedia

[3]  Forbes

[4] Techcrunch

[5] First Airbnb Guest

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5 thoughts on “Airbnb: Helping the World Belong Anywhere

  1. Great article! Love indeed how the operating model is perfectly attuned to the business model (few assets, lots of investments in a perfect digital platform).

    I was actually doing a thought experiment earlier as to how you could still disrupt Airbnb, and its incredibly difficult. The main way how I could see it is that Airbnb will create value for too many constituents at the same time – from business people, to students, to specific holiday destinations. As such, they open a window for specialized organizations that directly tailor to one group. For instance, only business people – very high end and fancy website, excellent customer service, etc. Very similar to how Snapchat disrupted Facebook (just offering a simple one-on-one communication with good friends / potential love interests).

    1. Daniel – so I actually worked at Airbnb this summer and this is definitely something the company is thinking of. The main problem on the platform today is curation – there are 90,000 Airbnbs in Paris, how can we show you the ones that are right for you? There are lots of engineers working on this exact problem.

      In terms of segmentation, business travel is one of the segments getting a lot attention. There is work being done to make things “business travel ready” such as allowing for 24-hour check-in, having high speed internet, iron, ironing board, and blow dryer. There is another initiative to develop “Lux” which is for high-end properties (and there are some very nice ones on Airbnb!) and building the associated services around this offering such as concierge, private chef services, etc.

      But I agree, this is probably the threat – a notable company is onefinestay which was purchased by Accor (owners of Sofitel, etc.) which tries to provide premium hand-selected properties. Homeaway, perhaps Airbnb’s largest competitor, is focused around the vacation rental market.

  2. The AirBnb business model leverages the network effect very astutely. The mutual review system by users and hosts provides high integrity and credibility in property reviews and ratings, and prevents the system from being gamed. There is also a social network at play, since many users come as guests and leave as friends. AirBnb has expanded into the business travel space, and even some regular hotels find that listing on the AirBnb platform provides better revenue realisation than selling rooms through OTAs. One of the biggest challenges that AirBnb faces is that the disruption it is causing to the traditional hospitality industry around the world is leading to regulatory and political issues. However, given that it is generally the average home-owner (AirBnb host) who is benefitting from selling his/her excess home capacity, politicians will likely find it difficult to antagonise their vote bank, which places AirBnb in a relatively strong position.

    1. Regulatory and political is certainly a big, and perhaps the biggest, challenge to Airbnb’s business. The biggest issue is the effect of Airbnb on the rental market of a city. Let’s use San Francisco as an example (and this is actually going on), many owners can make more money from renting an apartment on Airbnb than to an actual long-term lease, given the lack of inventory and expensive hotels in SF. This reduces inventory from the available stock of apartments in SF, which then increases the price of rents in SF as the demand is the same but supply is reduced. In an already expensive market, Airbnb is making it so more and more people are priced out of living in SF (to give you context, a 1bd in good area probably is $3500 in SF). So what will the government do? – how can it balance the rights of people to offer short-term rentals with the desire to allow rents to be reasonable so more people can live in SF? This is the exact policy happening in SF right now.

  3. Excellent Post! Very lucidly explained as to how AirBnB creates value both for the consumer and the owner and captures some of that value for it’s own growth. It is indeed a novel concept and has opened up a new option for the traveler, that traditionally would have no option but to book expensive hotels. There are many people who have traditional homes and would not like to sell them but need the property to be in use for it’s maintenance and up keep.

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