Airbnb : Finding a Home Anywhere

Launched in 2008 to capitalize on the hotel room shortage around the Democratic National Convention, Airbnb has emerged as a market leader with its successful alignment of operations and sharing economy model.

Business Model: More than Just an Accommodation

Airbnb is an information technology platform that connects property owners (i.e., hosts) and travelers (i.e., gusts) for lodging in exchange for fees. It is a flagship in the rise of the sharing economy, where individuals rent/borrow goods instead of purchasing them. Airbnb’s main value proposition is its ability to provide hosts a way to optimize and capture value from underutilized space, and for guests to find alternatives, often cheaper, in accommodations.

Airbnb has disrupted the mature hospitality industry from the traditional B2C model to C2C, where essentially every property owner can become a host. It differentiates itself from its traditional competitors by creating a sense of community and an emphasis on exploration. For instance, many hosts often serve as tourist guides or provide personalized restaurant recommendation as they are likely locals of the host cities. The value in these deeper personal relationships is especially attractive to travelers seeking more than a typical hotel experience, but higher-quality accommodations as compared to hostels.

How Airbnb connected global NYC marathon runners to friendly local hosts.


Operating Model Alignment: Delivering an Engaged Community Experience

Building User Engagement

It is imperative for Airbnb to instill trust in this marketplace as an intermediary between hosts and guests. In this 2-sided platform, Airbnb has to carefully balance the needs of all users. This is a common dilemma for platforms with network effect, where critical mass on both ends need to be maintained and engaged to achieve success. Airbnb Social Connection was created to first build trust for new users. Built on the Facebook API, it allows new users to connect with existing contacts through social media. In addition to the government-issued ID requirement, Airbnb relies heavily on users sharing their experience to build reputation. Both hosts and guests are encouraged to provide star ratings and comment reviews, further fostering a communal environment. Another feature encouraging user engagement is Create Airbnb, where users customize the company’s logo to express their unique identities, and Stories, where users can share their personal traveling experiences.

Examples of Create Airbnb logos.

Instituting Trust for Hosts

To continue building trust, Airbnb has instituted many security provisions, especially for hosts opening up their homes. It has established a $1M Host Guarantee insurance, 24/7 customer-service hotline, options on cancellation policies, and payment guarantees. Airbnb also provides free access to professional photography to increase the attractiveness of a listing. In addition, a host can achieve SuperHost status based on his/her response rates and reviews, rewarded by extra perks. Airbnb also released new analytics Dashboards that allow hosts to keep track of their earnings, number of guests, pending requests, as well upcoming reservations and tips on seasonal travel trends. By educating their hosts, Airbnb further captures value from them as partners.

Example of Dashboard

Monetizing its Value

As an online platform, Airbnb has virtually no physical assets and is therefore a non-capital intensive business. It captures value from the 3% and 6-12% service fees per booking charged to hosts and guests respectively. In addition, Airbnb has introduced Smart Pricing, a dynamic pricing tool that allows hosts to set minimum and maximum prices to further optimize revenue. Lastly, Airbnb has responded to the threat of disintermediation by technical measures (e.g., monitoring initial message exchanges) that prevent its users from taking the transaction off its platform.

Reaching New Users

Airbnb advertises mainly through social media, which nicely complements its business strategy. Its referrals program, where both existing and new users receive a $25 credit, has been successful in gaining and retaining new market share. In addition, Airbnb recently expanded its core accommodation offering to include Business Travel Ready as it enters the business segment. Qualified listing are held to higher standards and guarantee amenities fit for business travel, and Airbnb embedded expense management features for its customers’ convenience.


Looking Ahead: a #Winner

Airbnb has continually explored strategic initiatives to sustain its competitive advantages. For instance, on the social impact front, Airbnb has created partnerships with cities such as San Francisco to respond to natural disasters and emergencies. With a current valuation of $25B, Airbnb is positioned to continue its growth. Its success has been predicated on its coordination of execution and strategy, and Airbnb has to keep appropriately adapting its operational model as its value proposition changes.




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Student comments on Airbnb : Finding a Home Anywhere

  1. Great post, thank you Yvonne. Regarding your point on Airbnb branching out into the business segment, I found an article in which the Hilton executive team ecently rstated that Airbnb cannot replicate what incumbent hotel chains offer business travelers (

    Airbnb doesn’t provide several of the main conveniences that formal hotels do for the business customer (and the secretaries who often make the bookings on their behalf):
    (1) predictable room availability – listings come and go, and since home owners/suppliers often only have limited space, Airbnb is a less reliable source of accommodation
    (2) capacity for larger teams – I’ve had experience travelling with management in the past, where Airbnb was considered but subsequently dropped as a result of our inability to find listings with sufficient space to house the entire team in one location
    (3) loyalty rewards and discounts – Airbnb doesn’t have partnerships with companies that make it a consistent and obvious choice for business travelers, and doesn’t offer cost savings

    Based on the above, do you believe Airbnb is making the right choice to go into a space where it has a relative comparative disadvantage? Also, seeing that spare occupancy is a problem for many hotels, particularly in periods between major conferences, what are your thoughts on Airbnb partnering with hotels to give additional visibility/advertising?

  2. Nice post, Yvonne.

    One thing I wonder about is that some of Airbnb’s price advantage comes from avoiding taxes that other hotels and resorts have to pay. Is this something you think will erode over time? There are also many city concerns, like the ones we saw in San Francisco, about the impact Airbnb can have on a local economy.

    Similar to Carol, I also wonder how Airbnb will deal with loyalty, a very hot topic in hotels. Given they do no in-home management to ensure a consistent experience, how can they make sure they are catering to their frequent guests? This may ultimately be too hard a nut to crack and Airbnb may be best suited focusing on leisure travelers who don’t travel frequently enough to gain status with any hotel program.

  3. Great job, Yvonne.

    I think Airbnb has had great first mover advantage and has a well developed business model. I think the biggest risks to Airbnb are as follows:
    – Increased scrutiny regarding privacy and security: There have been numerous instances of individuals being harassed or injured while staying in an Airbnb property. Airbnb’s internal restrictions did not allow for them to release private information despite an emergency. Moreover, Airbnb does not have the training or capability to handle these sorts of situations, whereas hotels have protocols and training to identify and respond to suspicious behavior.
    – Increased government regulations and fees: Hotels have been pushing back on Airbnb and what they view as inadequate taxes for what are essentially hotels. I wonder if we will see a new handling on Airbnb properties and how this will vary by state.
    – Eroding of social mission: Airbnb claims to provide social value by allowing people to make extra income from their properties. I think there is serious risk of corroding their image and this value proposition with the proliferation of people with multiple apartments or units that are essentially functioning as real estate agents via Airbnb. It seems that Airbnb should do more to crack down on these individuals or create standard operating procedures around qualified owners.

  4. Great post Yvonne!

    A while ago I saw a video of Bill Gross explaining the main reason why startups succeed. One of his main conclusions is that timing is the most important factor that differentiate successful startups from failures. He says that the main reasons Airbnb was so successful was the economic downturn that started in 2008 (the same year of Airbnb’s launch). Do you think there’s a potential risk of loosing property owners willing to host tourists when the economy improve?

    This is the link to the video:

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