Airbnb was founded by 2 peers who had no clue what kind of empire they were going to fall into. It was the first of its kind in the real estate market, or more specifically, in the peer to peer platform for housing accommodations. Being the first in this world of housing accommodations has given Airbnb significant competitive advantage. In just 8 years, Airbnb has been able to grow rapidly and organically, while expanding into over 190 countries across the globe. All of this has been concurrent with millions of investment dollars funneling in from investors who believe in the brand, the strategy, the product and their overall success. Airbnb is the definition of communal use of a resource to satisfy a market full of demand for the same product.
Airbnb’s core business can service two types of people: the person looking for a short term, temporary or seasonal housing accommodation; the person who is looking for the extremely peculiar, one-of-a-kind stay. “Airbnb is an online marketplace pairing travelers with local hosts” (Juggernaut). The two sides of the business are brought together on an updated buy-sell business model. For Airbnb, the seller, or the host, is able to list their property, include details and descriptions and photos, as well as set their own timespan for availability. The buy side of their business model, or the travelers, gives people the ability to find a listing and book accommodations all in one place. As the traveler, you have the flexibility to search based on filters that cater to your needs, but also the accessibility to search virtually anywhere in the world. For the traveler, the cost of renting is simple: the host’s fee for the property + a small fee for Airbnb’s services of booking. And the same goes for the host, they collect the funds for their listing and Airbnb takes a nominal fee for the listing of their space. To differentiate itself, based on experience, Airbnb has simplified the payment process and all financial transactions are through Airbnb for convenience and security. Despite all of their success and growth, there have been and still are a few strategic struggles.
One of the strategic challenges that Airbnb faced when initially launching their business was the intimidating concept of the rentable spaces being a stranger’s home. Allowing a stranger to come into your home is not necessarily, or was not back then, a decision that one made off the cuff. This sort of decision requires a lot of trust and confidence in the people that you are going to be letting in. Airbnb had to focus its efforts on customer relations and the degree to which they were able to gain peoples trust in the safety of their model. With positive word of mouth affirmation from continuous customers and interaction from the employees and founder themselves, they would be able to secure this comfort in people. This then led to increased usage and overall positive customer satisfaction. To gain trust, they invested in robust customer verification software and damage and theft insurance (HBS). This would help protect someone from renting out their home or a room in their home and being left with a damaged space or stolen property, unprotected. The rating system that Airbnb integrated was a game changer for their success. Giving hosts and guests the ability to rate one another based off of a variety of criteria ranging from the communication to the cleanliness to the experience was tremendous in growing their user database. Without such a system, they would have struggled even more with gaining trust on both sides of their platform.
Airbnb in the recent year has faced an issue with expansion of the platform. The accessibility of the site/platform has made convenient and affordable travel accessible to anyone with just a few clicks. This has made some cities extreme tourist destinations, or “a theme park for tourists” (Slee). Airbnb may have positioned itself as a low-impact business, but it is gradually incurring issues where locals are being pushed out of their own homes because of the influx of travelers and tourists and the attraction of renting out their homes. People are buying homes and using them as investment opportunities to in some places illegally rent them out on Airbnb. Many markets are finding ways to work around the Airbnb issue and they are turning to legal action. New York and San Francisco, for example, have already imposed rules that require Airbnb hosts to register their properties with the city. Fines can reach up to $1,000 per day for violating the exact laws. Airbnb defends themselves by saying they are not responsible for the content provided by its users on its site. They are just the middle man or the database that allows you to post, so they do not think that they should be liable for any sort of violation.
Another strategic challenge that Airbnb faced is with their expansion into international markets, most specifically into China. There have been tons of imitators coming up with similar platforms, but they were unsuccessful in most markets, except China (Yimin). There are 2 big players in the Chinese market that are causing problems for Airbnb. Just because they were in China before Airbnb entered, they have the competitive advantage, like Airbnb has in the US. There also are more regulatory limitations on the short-term rental industry in other countries, like what New York has enforced. The combination of the risk of interring such a market where they are not the key player and having to capture the market to make people feel comfortable with putting their listings on Airbnb, are both barriers to growth into China and other international markets where Airbnb is not already the leader in the field.
Airbnb’s sharing economy model establishes a direct contact between travelers or guests and the hosts by bringing the availability of the supply (homes) to the digital market through a free platform. The ease of access to their website and the opportunities to rent out your space within just a few clicks are the top benefits of this business model.
The site itself is very inviting and encourages people to make money off their empty spaces or vacant rooms/homes. “Many Airbnb hosts find this new income source empowering to maintain their independent lifestyle” (HBS). On the other side, travelers now have the opportunity to save money when looking for accommodations for vacation or any travel. Most Airbnb options are cheaper than a traditional hotel. Their platform has made “access more important than ownership,” (HBS) so someone who may not be able to afford a 4-star hotel or a luxury villa at hotel pricing, can now stay in a nice private home at a reasonable price.
The business model of Airbnb is also advantageous in that you become one of the neighborhoods in which you are renting when you are a traveler. As a guest, you are inevitably immersed in the culture and lifestyle that the owner would have living in the city or neighborhood that their home is in. A hotel on the other hand may be secluded or incentivize people to not leave the property but staying at an Airbnb is a more authentic experience of travel. Guests who use Airbnb are more likely to interact with others, residents and local merchants, living in “locations off the tourist trail” (HBS). This means that you are not going to be on a strip in an area with 7 other hotels, but you can be in the real city and live next door to someone who has been a resident for years. They can even show you around and make you feel at home with the culture – something that is unique to staying in a real home, rather than hotel. The mission of Airbnb has been to make customers feel at home wherever they are, so this aligns perfectly.
There are definitely disadvantages to their business model. One of their biggest issues is that people are worried about the liability that comes with renting out their space. People are worried that their property will get damaged or something can be stolen, and on the guest side, people are risking renting something online and it not being what they were expecting. Since their platform is entirely digital and all communication takes place online, this is just a risk that you have to take as a host and as a guest – it’s a cost of the convenience and lower price that Airbnb brings to the table. Another disadvantage is that they are putting themselves into more and more potential for legal issues as they expand. Whether it has to do with regulations set by the state or city around rental rules, like discussed earlier in NY and San Francisco, or just customer relations, Airbnb is at high risk. Just recently, they had to step up and apologize for the lack of safety when a host broke into his home through the window while his guests were sleeping (People). Lastly, Airbnb is really hurting the traditional hospitality and lodging industry. Airbnb hosts were initially exempt from any sort of state occupancy taxes but with the increase in legislation tied to the ride of Airbnb and short-term rentals, this is changing. So now on top of the listing price and the cleaning fees and Airbnb fee, you may have to pay a sales tax. The responsibility of being compliant with your local legislative laws lies with the host and they must be on top of this to avoid fines and illegal activity.
I think that a strategic extension of Airbnb’s existing model would be the incorporation of other components of the travel business, like nightlife, health and wellness, shopping and dining. It could be called AirbnbLife. One side of the platform would attract restaurants, club promoters, lounges, merchants, local mom and pop stores, and fitness facilities. The other end would be guests who were looking for a holistic and authentic experience when they travel, outside of the traditional Airbnb lodging. The target market for this extended business opportunity would be families who were looking to plan their meals in advance and have activities set for vacation, or students and young adults who were interested in partying while traveling. Once you book your stay, guests will have the opportunity to browse through a list of restaurants to visit each night and even reserve a table through a strategic partnership with OpenTable, or to set plans for personal shopping experiences, or museum visits, or fitness classes. The main attraction to this upscale platform would be the already established network of people that Airbnb has from their years of business. The value of having millions of users already using the platform would attract users from both ends and allow Airbnb to take a cut from all plans and reservations made through the service. Despite its advantages, such an expansion of the business may potentially dilute the brand that Airbnb has worked so hard to establish up until this point. The risk of entering into an entirely new market and expanding the model can really hurt the company. Not only can it potentially complicate the site for consumers, but it can cause a lot of issues on the back end for Airbnb in term of logistics and operations since it increases their involvement with the parties beyond being a booking platform.
...(download the rest of the essay above)