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 gone on to become a global brand that is used by millions around the world. 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.
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The Airbnb business model is a two-sided marketplace that connects people travelling with hosts and experience providers.
Originally the Airbnb business model based on homeowners renting space to people who were travelling. However, since there humble beginnings in 2008, Airbnb has progressively moved into the hotel market.
Hotels and 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 taking part in activities that create shared memories. As a result, in 2016 Airbnb launched experiences. Now they actively recruit 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 creates a new ecosystem of partners and opportunities for Airbnb and its customers.
Despite strong growth, Airbnb still has challenges to face. There are some cities and countries cracking down on Airbnb usage. This is because the service Airbnb provides can be considered as short-term renting, and as a result, hits 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 they unknowingly let out their properties without realizing it’s illegal in their city to do so.
The Airbnb business model and its IPO will increase the pressure on Airbnb to expand geographically. Airbnb will, therefore, require considerable legal expertise that relates to each Country.
Before we go into the detail of the Airbnb business model, let’s take a quick look at the scales of the business. In 2020, Airbnb is expected to go public with a valuation of $35Bn.
However, the Airbnb story started in back in 2008, when the two founders, Joe Gebbia and Brian Chesky (Nathan Biecharczyk was invited to join later) couldn’t pay rent.
They set up a simple website with a map and 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 presidential campaign in 2008, and took high-quality pictures of the rented space to boost click-rates.
Wit a relatively short time, the Airbnb business model went viral and in the winter of 2012, Airbnb overtakes Hilton Hotels in nights booked.
The Airbnb business model is a good example of the sharing economy, an industry that is based on using digital platforms to unlock the value of underutilized assets. In Airbnb’s case, its business is connecting travellers with hosts renting space in their homes, generally on a short-term basis.
Renting assets to other people is something people have been doing for thousands of years. However, the rise of digital platforms has enabled millions of people to easily connect. In other words, two-sided platforms connect owners and seekers at scale. This is also referred to as peer-to-peer (P2P) business model.
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“. The most common revenue model of a platform business is to charge a service fee.
Airbnb is more than an affordable travelling accommodation option. Through facilitating access to distinctive spaces and local culture, Airbnb aims to enable travellers to “feel at home anywhere you go in the world” by building connections with local hosts, gaining access to distinctive spaces and culture of their destinations.
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.
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 much more about recognizing homes that meet a high bar for quality and design. The Airbnb business model is evolving.
The Uber business model has seen an increasingly differentiated offer to cater to different customer budgets and tastes e.g. luxury cars, limousines etc. Likewise, Airbnb is adopting the same strategy and has created different levels of offers to appeal to customers with different budgets and lifestyle choices.
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 around the world, each one passing strict evaluation across 300-plus criteria to meet standards in both design and function.
The Airbnb business model relies upon a steady stream of regular guests making bookings.
Airbnb run campaigns across a variety of paid channels including Google AdWords and Facebook Ads.
In the first quarter of 2019, the company’s sales and marketing spend rose 58 per cent to $367 million and was on track to be a record year with potential to hit over $1.5Bn in ad spend.
The main channels used by Airbnb are:
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.
A key factor for customer relationships has been the ability to ensure high-levels of trust between for any 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:
Especially for the hosts
Customer relationships to the supply side (the hosts) will be mainly defined by what the platform does for them in terms of income while protecting their property from bad guests.
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.
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.
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.
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 as well as accommodation.
Artificial Intelligence (AI) has become a critical part of managing pricing, customers and providing insights into operations and customer behaviour. Companies like Amazon have made heavy investments and made several acquisitions that strengthen their AI capabilities.
Surprisingly Airbnb has not made any acquisitions and this points to a possible weakness in its armoury for the future.
Bookings are the team’s North Star metric, which means that 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.
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.
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.