Airbnb: A sharing business so you can #BelongAnywhere

An analysis of a successful business that catalyzed the jumpstart of the sharing economy

Airbnb is one of the global unicorns that has catalyzed the start of the sharing economy phenomena. By successfully leveraging technology, recognizing the global need for human interaction and identifying slack in the rentals ecosystem, it has revolutionized the way we rent spaces. Launched in Summer 2008, ‘Airbed & Breakfast’ (1) has experienced radical growth with a current estimated valuation of over $25B and presence in over 190 countries. (2)

Business Model:

Airbnb is essentially an online platform that facilitates individuals (‘hosts’) to rent out their primary or secondary residences as lodging for travelers (‘guests’). The uniqueness of its business model is rooted in its disruption of the rental industry. Instead of the traditional B2B model, it transformed this process into a C2C model, dramatically increasing its scalability and global impact. Strongly leveraging the technology wave and addressing the consumer need for convenience, Airbnb has provided an easy service, acting both as an information provider (ability to search, browse) and service provider (ability to book). (3)

Airbnb does not own any physical assets and the entire value creation is based on increasing transaction value.  The money making scheme is simple – it gets 3% cut of each booking from the hosts, with a 6% to 12% service fee from guests. (4) Its unique business model makes it part of a group of companies that can be termed as Network Orchestrators – “These companies create a network of peers in which the participants interact and share in the value creation. They may sell products or services, build relationships, share advice, give reviews, collaborate, co-create and more”. (5)

Operating model:

The operating model is completely in sync with the business goal of increasing transaction value by increasing number of guests/hosts and capturing more value from existing guests.

Grow the network (Increase supply, demand to increase # transactions): The company has invested in growing both the demand and supply networks to further bolster its strongest competitive advantage – the network effect.

  • Focus on hosts: Airbnb has leveraged the underlying emotional appeal of sharing one’s home with someone else to build a strong host community. It has not only provided hosts with financial returns, but also satiated their desire for human connection. Airbnb continues to fuel this supplier community by providing additional benefits such as $1,000,000 insurance, complementary professional photography services, multiple secure payment options etc. Most recently, it has launched the option of Smart Pricing, instituting a similar concept to Uber’s surge pricing, that maximizes value both for the host and for Airbnb.



  • Foster trust with guests: The primary target audience is the traveler, who is seeking authentic experiences. Finding the right place to stay virtually can be very painful, but Airbnb has successfully leveraged the human connection to convert this scary, unreliable process into a pleasant, predictable experience. It has bridged the gap between the host and the guest by providing detailed descriptions, clear images and facilitating open communication channels to make the experience ‘real’. Additionally, Airbnb has implemented user reviews and a strong feedback loop to ensure self monitoring for the hosts. With its growing brand credibility and strategic use of social media, Airbnb is well-poised to serve many more than the 60 million guests it has served to date.


  • Target sub-segments: Airbnb is evolving its operating model and trying to extract more value by further segmenting its customer base. It has recently launched a service that appeals specifically to business travelers. ‘Business-ready’ listings are rental spaces that guarantee reliable amenities while providing business travelers the opportunity to still experience non-conventional rentals. (6) The objective is to increase customer loyalty and expand usage occasions to both work and pleasure. The company is also forming partnerships to facilitate these incremental usage occasions – in 2014, Airbnb partnered with Concur to further its appeal to the business traveler by facilitating easier expense management. (7)


Constantly innovate (Increase $ value per customer): Innovation is a key focus area for the company. Apart from focusing on geographic expansion and increasing transaction volume, Airbnb is committed to extracting more value from each interaction. It is offering/experimenting with several value-added services that enable a better experience and hereby increase customer lifetime value. Partnering with key collaborators, it has experimented with offering dining experiences, guided tours, and home-cooked meals. (8) One of its latest innovations is the Airbnb Experience Card. This prepaid card would provide ready credit to travelers and reward users with Airbnb credit. (9) Via such initiatives, the company can not only build stronger brand loyalty, but also gain access to detailed consumer data that it can further use to enhance its business model.


In summary, Airbnb’s complementary business model strategy and operating model execution serve as a perfect case study for aligning an organization for success. Considering it is still under its hyper-growth phase, it will be interesting to see how the company evolves and if there is any divergence between these two models going forward.
















Solazyme: Poised to revolutionize oil markets?


Patagonia: Corporate social responsibility as a behavior-binding asset driving demand

Student comments on Airbnb: A sharing business so you can #BelongAnywhere

  1. Loved learning more about Airbnb through this post, thanks for sharing! C2C models and serving as a facilitating platform businesses seem to be doing really well in the digital age. Airbnb has done a great job signing on and servicing hosts to provide great inventory selection to guests. The focus on experience innovation and diversifying customer base provides tremendous opportunities for the company. While these synergies have created a successful platform to date, will Airbnb be able to maintain the balance between privacy and trust as they grow and innovate? Business travelers for example may be particular about location which may conflict with the existing policy of withholding the location of the property until after a reservation is made.

  2. Nice article. My biggest question around businesses built around the ‘sharing economy’ (AirBnb and Uber being the most notable) is where to draw the line between unregulated peer-to-peer activities, and regulated and taxed commercial activities. Is it fare that a substantial amount of business done on AirBnB is by individuals who operate a hotel in everything but name, but don’t have to pay the taxes, obey zoning laws, or have the regulatory/industry oversight to which traditional hotels are subject? I think the power of the sharing economy is incredible, but only to the extent it’s truly used as a means through which to monetize someone’s temporary excess capacity (e.g. empty room), rather than an alternative way to run a business.

  3. Thank you for a great read, Gurmukh! Having never used Airbnb myself, I found your post to be a great summary of the business. While it sounds like the company has done a great job of investing in optimal pricing models to capture value in periods of high demand, I wonder whether they are equally as focused on capturing value in periods of low demand. Hotel Tonight seems to have done a great job of serving this market and I would think Airbnb would be concerned about this competitor. As such, have they implemented anything like Hotel Tonight whereby prices drop in the short-term to fill unsold units (i.e. the opposite of surge pricing)? Additionally, I understand that many properties have minimum night stays and one would think this term would be negotiable for many hosts if their property was vacant. While individual hosts of course have the option to amend they prices to spur demand, I would think it would be in Airbnb’s best interest to invest in some sort of technical infrastructure to help boost utilization of its host properties.

Leave a comment