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)
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)
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.