Airbnb Business Model: How Airbnb Makes Money

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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 become a global brand used by millions worldwide. 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.

Noteworthy: In the first quarter of 2019, Airbnb actually beat Expedia in terms of booked room nights.

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, Airbnb’s business model was based on homeowners renting space to travellers. However, since its humble beginnings in 2008, Airbnb has progressively entered the hotel market.

Hotels, 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 activities that create shared memories. As a result, in 2016, Airbnb launched experiences. Now, Airbnb actively recruits 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 Legality

Despite strong growth, Airbnb still faces challenges. Some cities and countries are cracking down on Airbnb usage. This is because the service Airbnb provides can be considered short-term renting, which raises 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 unknowingly letting out their properties without realizing it’s illegal in their city.

The Airbnb business model and its IPO will increase the pressure on Airbnb to expand geographically. Therefore, Airbnb will require considerable legal expertise in each Country.

Quick Facts On Airbnb

Useful Links for Airbnb

A Brief History of Airbnb

However, the Airbnb story started in 2008, when the two founders, Joe Gebbia and Brian Chesky (Nathan Biecharczyk was invited to join later), couldn’t pay the rent.

They set up a simple website with a map, rented out three mattresses, and promised home-made breakfast. Three people came, and they decided to build on it.

They refined the website with money from selling cereal boxes during the 2008 presidential campaign, and they took high-quality pictures of the rented space to boost click rates.

In a relatively short time, Airbnb’s business model went viral, and in the winter of 2012, Airbnb overtook Hilton Hotels in nights booked.

Airbnb went public on December 10, 2020, through an Initial Public Offering (IPO) on the Nasdaq under the ticker symbol ABNB.

Airbnb was initially priced at $68 per share, valued at around $47 billion. However, on its first day of trading, Airbnb’s stock surged and opened at $146 per share, which led to a market valuation of approximately $86.5 billion by the end of the first trading day.

A Timeline of Airbnb

• 2008: Airbnb was founded by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk in San Francisco;
  2009: Airbnb raised $600,000 in seed funding from Sequoia Capital;
  2011: Airbnb expanded internationally and opened its first office in London;
  2012: The company surpassed 10 million nights booked on the platform;
  2014: Airbnb raised $475 million in a funding round, valuing the company at $10 billion;
  2016: Airbnb launched Trips, expanding beyond accommodations into activities and experiences;
  2017: Airbnb achieved profitability for the first time;
  2020: Airbnb went public on December 10 with a valuation of $86.5 billion by the end of its first trading day;
  2021: Airbnb announced it had 4 million hosts and over 1 billion guest arrivals since launch.

What is the sharing economy?

The Airbnb business model is a good example of the sharing economy, an industry based on using digital platforms to unlock the value of underutilized assets.

In Airbnb’s case, its business is connecting travellers with hosts who rent space in their homes, generally on a short-term basis.

People have been renting assets to other people for thousands of years.

However, the rise of digital platforms has enabled millions of people to connect easily. In other words, two-sided platforms connect owners and seekers at scale. This is also referred to as a peer-to-peer (P2P) business model.

The sharing economy means “What is mine is yours, for a fee” (The Economist) and has become a driving force behind a range of new business models. In 2011, sharing was nominated as one of the “10 ideas that will change the world.”

A platform business’s most common revenue model is to charge a service fee.

Airbnb Mission & Core Values:

Airbnb is more than an affordable travel accommodation option.

The Airbnb mission statement is:

“To create a world where anyone can belong anywhere.”

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?

1. Hosts list their property details on Airbnb along with other factors like pricing, amenities provided etc.
2. Airbnb provides the option to use a professional photographer(if available) to the property location in order to take high-quality photographs.
3. Travellers search for a property where they wish to stay and browse available options according to price, amenities etc.
4. Bookings are made through Airbnb, and the traveller pays the amount listed by the host plus a three-percent additional transaction fee.
5. The host approves the booking. Travellers stay there, and finally, Airbnb pays the amount to the host after deducting their commission.
6. Reviews from hosts and travellers are provided to the broader community.

What Is Airbnb Plus?

Airbnb Plus program provides travellers with access to homes that recognises listings with exceptional quality, comfort and style. Airbnb has selection criteria of over 300 points for a host to be approved as a Plus listing.

The Airbnb Plus program is more about recognizing homes with a high bar for quality and design. The Airbnb business model is evolving.

What Is Airbnb Luxe?

Airbnb Luxe offers pristine, expertly designed homes with luxury amenities, services, and a dedicated trip designer.

Airbnb is expanding its rental options to include some of the priciest and most luxurious accommodations on the planet. The new tier, called Airbnb Luxe, is designed for customers interested in spending more than $1,000 a night on thoughtfully designed, luxury private homes with scenic views and top-of-the-line amenities.

Airbnb Luxe is built on the deep expertise in luxury travel Airbnb gained from its acquisition of Luxury Retreats in 2017. This new tier has more than 2,000 handpicked homes worldwide, each passing strict evaluation across 300-plus criteria to meet standards in both design and function.

Airbnb business model canvas

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.

Channels: How Airbnb Acquires Customers

The Airbnb business model relies upon a steady stream of regular guests making bookings.

Airbnb runs campaigns across various paid channels, including Google AdWords and Facebook Ads.

In the first quarter of 2024, Airbnb’s sales and marketing spending rose significantly, aligning with its strategic push for growth.

The company’s marketing expenses reached $523 million, representing a big increase from previous years.

This expenditure reflects Airbnb’s focus on expanding its global presence. The total marketing spend for 2024 is expected to surpass $2 billion, a substantial jump from earlier estimates, as Airbnb positions itself for further growth in a competitive travel market​

The main channels used by Airbnb are:

• Google Search Marketing Ads (over 54% of all bookings)
• Facebook Ads
• Social media ads (not Facebook)
• Promotional offers
• Affiliate Model / Refer and earn offers

Some ways that Airbnb could improve on their advertising include experimenting more with Facebook/Instagram ads e.g. creative, audiences, and remarketing. Some experimentation ideas that are uniquely suited to Facebook/Instagram: video advertising, influencer marketing, and profile-based advertising.

Customer Relationships

A key factor in customer relationships has been the ability to ensure high levels of trust for transactions to take place. Conversely, if there are any issues, it is important that these are dealt with quickly so customers do not damage the brand and its reputation.

Relevant for both sides:

• Deal with customer issues promptly.
• Manage bad behaviours and risks.
• Transparency around privacy, personal data, etc
• Portray the desired company image through social and other media

Especially for the hosts

Customer relationships with the supply side (the hosts) will be mainly defined by what the platform does for them regarding income while protecting their property from bad guests.

• The platform’s ability to generate income.
• Provide a vetting system to check quality of guests.
• Manage issues.
• Support in the on-boarding process.
• Help hosts to succeed in general and
• Help super hosts to stand out and be rewarded.

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?

Category	Revenue (Billions)
Accommodation	5.0
Experiences	0.5
Service Fees	1.2
Other	0.3

The table shows Airbnb’s revenue breakdown by category for 2024.

The majority of revenue comes from accommodation bookings, which generated $5 billion, making it the primary source of income.

Experiences, such as tours and activities offered through the platform, contributed $0.5 billion.

Service fees, charged to both hosts and guests for transactions, provided $1.2 billion in revenue.

The other category, which includes various ancillary services, accounted for $0.3 billion.

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 and accommodation.

Artificial Intelligence (AI) has become critical to managing pricing and customers and providing insights into operations and customer behaviour. Companies like Amazon have made heavy investments and several acquisitions that strengthen their AI capabilities.

Airbnb Key Metrics

Bookings are the team’s North Star metric, meaning 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 with the frequency and use of the app. In other words, how many bookings per app user per month.

Airbnb Acquisitions

In April 2019, invested $100M in the fast-growing Indian hotel chain Oyo, and in March bought the booking site Hotelnight.

In 2016, it also launched an “Experiences” arm that offers guests the opportunity to try cooking, tours or other activities in the destinations they visit.

• Accoleo (June 2011): Accoleo, based in Hamburg, offered an Airbnb-like platform for rental properties across Germany.
• Crashpadder (March 2012): a London-based version of Airbnb, to 7,000 hosts across 100 countries by the time Airbnb bought it.
• DailyBooth (July 2012): DailyBooth was a social media app built by Jon Wheatley and Ryan Amos that allowed users to photo-blog their “life in pictures.”
• Fondu (October 2012): Fondu, started by Gauri Manglik, Orion Burt, and Mike Lewis, was a Yelp-like website and mobile app.
• Localmind (December 2012): Localmind, founded by Lenny Rachitsky and Beau Haugh, was a question-and-answer tool that allowed people to ask about events happening in their neighbourhood.
• Pencil Labs (December 2014): Pencil Labs, founded in Cambridge, Massachusetts, by Carla Pellicano and Han Shu, created a scheduling app called Wyth that helped users coordinate meet-ups by syncing up their texts, emails, and calendars.
• Vamo (September 2015): Vamo, founded by former Facebook executive Ari Steinberg, was a travel website that helped people plan complex or multi-city vacations.
• Trip4real (September 2015): founded by Gloria Molins, Barcelona-based Trip4real was an online platform that connected travellers with local activities and experiences they could book ahead of time.
• Lapka (September 2015): Lapka was an obscure, boutique Russian design agency founded by Vadik Marmeladov that sought to redesign medical and other sensor-based devices “as affordable, accessible and innovative accessories.”
• ChangeCoin (April 2016): ChangeCoin, founded by Nick Sullivan, enabled users to tip people with a blockchain-based digital currency on social networks like Twitter and Reddit through a service called ChangeTip.
• Minbox (May 2016): Airbnb was quiet about the acquisition, which was first reported by Business Insider in January 2020. It’s not clear how Airbnb ultimately incorporated Minbox’s technology, if at all, either internally or into its product.
• Proprly (May 2016): Proprly, founded in 2013 by Randy Engler, was a property management service that helped short-term rental owners with cleaning, guest check-in, and other aspects of the rental process.
• Bold Financial Technologies (November 2016): Bold, started in 2014 by Sean Safahi and Noah Spirakus, aimed to make international payments safer and more convenient for large platforms with lots of recipients around the world.
• Luxury Retreats (February 2017): Montreal-based Luxury Retreats, founded by Joe Poulin, allows travelers to book extravagant vacation rentals in exotic destinations.
• Tilt (February 2017): Tilt, founded by James Beshara, Karolyn Baxter, and Khaled Hussein, was an online payments and crowdfunding platform that Beshara once told Business Insider was “the digital version of putting money in a hat.”
• fewoVista (April 2017): In 1998, a decade before Airbnb’s founders rented out an air mattress in their Los Angeles apartment, Lutz Ahrens and Martin Tischer launched fewoVista, one of Germany’s first online marketplaces for vacation rentals and apartments.
• Vacaleo (April 2017): in 2014, as more platforms like Airbnb were taking off, fewoVista founders Lutz Ahren and Martin Ticher started another, related company called Vacaleo. A “meta” search engine, Vacaleo let users hunt for vacation rentals across multiple sites, which its website claimed included more than six million listings.
• Deco Software (May 2017): With Deco, founders Devin Abbott, David Chen, Spencer Liolios, and Gavin Owens created a tool to speed up mobile app development and “bridge the gap between designers and engineers.”
• Trooly (June 2017): Trooly, the product of Savi Baveja, Nilesh Dalvi, and Anish Das Sarma, aimed to make background checks faster and more accurate by using machine learning to analyze information on individuals sourced anywhere from the dark web to public records.
• AdBasis (November 2017): With AdBasis, Jason Puckett and Joe DiVita built an ad testing and optimization platform that aimed to “bring a scientific process and approach to digital advertising creative.”
• Accomable (November 2017): Srin Madipalli and Martyn Sibley, two friends with spinal muscular atrophy, founded Accomable to make it easier for travelers with disabilities to find accessible places to stay.
• Koko (November 2018): Koko, founded by Fraser Kelton, Kareem Kouddous, and Robert Morris as an MIT project, was a tool that aimed to keep online communities safe “by using AI to identify bad actors and damaging content” in real time, according to its website.
• Eliot (November 2018): Eliot, founded by Edouard Tabet in 2017, was a real-time pricing calculator that, according to its website, predicted “short-term rental revenue, trends and price surge events.” 
• Luckey (December 2018): Luckey is a property management software for short-term rentals based in Paris and started by Aurélien Malfait, David Barbe, and Félix Malfait.
• Gaest (January 2019): Gaest was a Danish startup that let people rent out meeting spaces for short periods of time, founded by Anders Boelskifte Mogensen, Chris Kjær Sørensen, Christian Schwarz Lausten, and Jonas Grau Sigtenbjerggaard.
• HotelTonight (March 2019): HotelTonight, founded by Christopher Bailey, Jared Simon, Samuel Shank, lets users find same-day hotel deals near them.
• Urbandoor (August 2019): Urbandoor, founded by Erik Eccles, Benjamin Renaud, and Zack Chandler, was a marketplace that connected business travellers with furnished apartments for extended stays and relocations. Airbnb said the number of work trips taken on its platform tripled in 2016, climbing to 15% of total bookings. By acquiring Urbandoor, Airbnb added to its supply of business-friendly listings.

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.