Business Model: More than Just an Accommodation
Airbnb is an information technology platform that connects property owners (i.e., hosts) and travelers (i.e., gusts) for lodging in exchange for fees. It is a flagship in the rise of the sharing economy, where individuals rent/borrow goods instead of purchasing them. Airbnb’s main value proposition is its ability to provide hosts a way to optimize and capture value from underutilized space, and for guests to find alternatives, often cheaper, in accommodations.
Airbnb has disrupted the mature hospitality industry from the traditional B2C model to C2C, where essentially every property owner can become a host. It differentiates itself from its traditional competitors by creating a sense of community and an emphasis on exploration. For instance, many hosts often serve as tourist guides or provide personalized restaurant recommendation as they are likely locals of the host cities. The value in these deeper personal relationships is especially attractive to travelers seeking more than a typical hotel experience, but higher-quality accommodations as compared to hostels.
How Airbnb connected global NYC marathon runners to friendly local hosts.
Operating Model Alignment: Delivering an Engaged Community Experience
Building User Engagement
It is imperative for Airbnb to instill trust in this marketplace as an intermediary between hosts and guests. In this 2-sided platform, Airbnb has to carefully balance the needs of all users. This is a common dilemma for platforms with network effect, where critical mass on both ends need to be maintained and engaged to achieve success. Airbnb Social Connection was created to first build trust for new users. Built on the Facebook API, it allows new users to connect with existing contacts through social media. In addition to the government-issued ID requirement, Airbnb relies heavily on users sharing their experience to build reputation. Both hosts and guests are encouraged to provide star ratings and comment reviews, further fostering a communal environment. Another feature encouraging user engagement is Create Airbnb, where users customize the company’s logo to express their unique identities, and Stories, where users can share their personal traveling experiences.
Instituting Trust for Hosts
To continue building trust, Airbnb has instituted many security provisions, especially for hosts opening up their homes. It has established a $1M Host Guarantee insurance, 24/7 customer-service hotline, options on cancellation policies, and payment guarantees. Airbnb also provides free access to professional photography to increase the attractiveness of a listing. In addition, a host can achieve SuperHost status based on his/her response rates and reviews, rewarded by extra perks. Airbnb also released new analytics Dashboards that allow hosts to keep track of their earnings, number of guests, pending requests, as well upcoming reservations and tips on seasonal travel trends. By educating their hosts, Airbnb further captures value from them as partners.
Monetizing its Value
As an online platform, Airbnb has virtually no physical assets and is therefore a non-capital intensive business. It captures value from the 3% and 6-12% service fees per booking charged to hosts and guests respectively. In addition, Airbnb has introduced Smart Pricing, a dynamic pricing tool that allows hosts to set minimum and maximum prices to further optimize revenue. Lastly, Airbnb has responded to the threat of disintermediation by technical measures (e.g., monitoring initial message exchanges) that prevent its users from taking the transaction off its platform.
Reaching New Users
Airbnb advertises mainly through social media, which nicely complements its business strategy. Its referrals program, where both existing and new users receive a $25 credit, has been successful in gaining and retaining new market share. In addition, Airbnb recently expanded its core accommodation offering to include Business Travel Ready as it enters the business segment. Qualified listing are held to higher standards and guarantee amenities fit for business travel, and Airbnb embedded expense management features for its customers’ convenience.
Looking Ahead: a #Winner
Airbnb has continually explored strategic initiatives to sustain its competitive advantages. For instance, on the social impact front, Airbnb has created partnerships with cities such as San Francisco to respond to natural disasters and emergencies. With a current valuation of $25B, Airbnb is positioned to continue its growth. Its success has been predicated on its coordination of execution and strategy, and Airbnb has to keep appropriately adapting its operational model as its value proposition changes.