From Housing Marketplace To Lifestyle Platform. How Airbnb’s Democratized Innovation System Influences Its Product Strategy
Airbnb’s democratized innovation marketplace and external communities of hosts and guests has helped it to direct its product strategy over its 10-year history. In this piece, the author explores how the tech unicorn has utilized its distributed knowledge to develop a platform designed to withstand competitive pressures and sustainably grow its business.
Cash flow positive and valued between $31-38B, in just 10 short years, Airbnb’s business model to “create a world where people can belong through healthy travel” strategically shifted under the guidance of its co-founders [1] [2]. Such evolution has been powered by Airbnb’s strong community of hosts and guests who tap its global people-to-people platform across 191 countries and 81K cities [1]. As Airbnb charters its growth strategy and anticipates new scrutiny as it goes public in 2019 [3], what role would these stakeholders play in its future? Would open innovation continue to be a key lever transforming Airbnb from a disparate group of travel-related products to a powerful lifestyle platform?
Open systems of innovation translate into better product experiences and should be core to Airbnb’s product strategy. Leading corporations are incorporating open innovation into their businesses, and are recognizing that collaboration’s value exceeds the threats of sharing information, birthing a culture of “co-innovation, open ideation, and sharing of technologies and information externally” [4]. The efficiency of a system in which innovations are developed by individual users is increased if users carefully diffuse what they have developed to others [6]. Google leads by example with “Google I/O” that brings developers together to explore the next generation of tech [5]. Similarly, Airbnb’s communities surface innovative knowledge through “Airbnb Open in LA” which the company describes as a “community-powered festival of travel and hospitality that celebrates a city and its neighborhoods” [2]. To be successful, proper channels must be available that structure these interactions appropriately [6]. Skeptics argue that financial incentive is paramount for this behavior to surface, but this is not truly the case as end users benefit from better products/features. At Airbnb, signs of distributed innovation also exist through the company’s intentional outreach to external networks for feedback collected on its website and open forums. This contributed to the development of Airbnb’s “Trips” and “Plus” products in 2016 shifting focus to “making the entire trip easy and magical” and “opens up the concept of hosting, empowering people to share their interests, hobbies and passions” [8]. Airbnb’s future sustainability depends on its ability to not simply build new features to its strong structure, but to build entirely new communities in a thriving neighborhood – represented by a well-integrated platform.
A technology platform provides several benefits for the sustainability of Airbnb’s business model and involvement from external parties will be critical in its continued growth. User-centered innovation focuses on exactly what is needed or requested by the consumer and increases overall social welfare [6]. We have seen several best-in-class companies pushed by customers’ actions to make such a pivot at different stages in their growth: Amazon from retailer to marketplace or Apple from iPhone to App store. Successful platforms start with great products that already built a critical mass of frequent customers and provides enough defensible value from competitors [9]. For Airbnb, this manifested itself in the release of the “Experiences” product – a direct response to guest feedback on desired product features. The firm has built two active communities that have no hesitation in providing suggestions that will improve their traveling experiences. The best approach to consistently delight the consumer is to understand her pain points and solve it with an intuitive solution, and this is exactly what Airbnb thrives to accomplish. Companies can accelerate conversion to the new platform by carefully adding new products that are consistent with their brands, and the best ideas are derived from those communities that engage with their product most [9].
Industries that center around platform products increase in value when there are more users in the system [10]. Naturally, the question of Airbnb’s sustainability arises: can the disruptor potentially be disrupted? To thrive, Airbnb must view itself as part of a business ecosystem defined by cooperatively and competitively supporting new products, satisfying customer needs, and incorporating subsequent rounds of innovations [11]. Firm-hosted communities are an important source to generate external ideas into an organization. Airbnb needs to build a social identity that makes community members feel like they are part of the firm’s success. It has slowly pushed in this direction through the “Super Host” designation and “Open” forums for the sharing of ideas [12]. Despite its multi-billion-dollar valuation, doubters cite “divergence cost” – when a system is opened to outsiders, choices that could have been made by the original designer are now undertaken by independent parties that pursue their own interests – as a concern [13]. As the intermediary, Airbnb has the fortune of sourcing its innovation pipeline and sharing practices and ideas by allowing its external communities to be viewed as partners, arguably reducing divergence cost levels. The sharing economy for the broader hospitality industry is exiting its infancy, and while Airbnb is a clear leader today, it needs to build strong competitive defenses and cement itself deeper into the minds of its base if it wishes to survive another 10 years.
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[1] Trefis Team, “As a rare profitable unicorn, Airbnb appears to be worth at least $38 billion.” Forbes, May 2018, “https://www.forbes.com/sites/greatspeculations/2018/05/11/as-a-rare-profitable-unicorn-airbnb-appears-to-be-worth-at-least-38-billion”, accessed November 2018
[2] AirBnB, “About Us,” https://press.airbnb.com/about-us/, accessed November 2018
[3] Ingrid Lunden and Romain Dillet, “Airbnb aims to be ‘ready’ to go public from June 30, 2019, creates cash bonus program for staff,” TechCrunch, June 2018, https://techcrunch.com/2018/06/29/airbnb-ipo/, accessed November 2018
[4] Jitendra Kavathekar, “Making Open Innovation a Success,” Techworld from IDG, May 2015, “https://www.techworld.com/apps-wearables/making-open-innovation-success-3613290/,” accessed November 2018
[5] Google, “Events,”https://events.google.com/io/,” accessed November 2018
[6] von Hippel, E. 2005. Democratizing Innovation. Cambridge, Mass.: MIT Press.
[7] Langner, B. & Seidel, V. P. 2015. Sustaining the flow of external ideas: The role of dual social identity across communities and organizations. Journal of Product Innovation Management, 32(4): 522-538.
[8] “Airbnb expands beyond the home with the launch of trips,” press release, November 2016, on Airbnb website, https://press.airbnb.com/airbnb-expands-beyond-the-home-with-the-launch-of-trips/, accessed November 2018.
[9] Zhu, F. & Furr, N. 2016. Products to platforms: Making the leap, Harvard Business Review, Vol. 94: 73-78. Boston: Harvard Business Review.
[10] Gawer, A. & Cusumano, M. A. 2002. Platform Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation. Boston: Harvard Business School Press.
[11] Moore, J. F. 1993. Predators and prey: A new ecology of competition. Harvard Business Review, 71(3): 75-86.
[12] Langner, B. & Seidel, V. P. 2015. Sustaining the flow of external ideas: The role of dual social identity across communities and organizations. Journal of Product Innovation Management, 32(4): 522-538.
[13] Antorini, Y. M., Muñiz, J., Albert M., & Askildsen, T. 2012. Collaborating with customer communities: lessons from the lego group. MIT Sloan Management Review, 53(3): 73-79.
I agree that by prompting users to contribute to the evolution of the product through these forums, Airbnb makes it that much more important to consider how the identity of the company is changing over time, too. I think one challenge is that travel is not an everyday activity for most people. How can Airbnb engage users on a more frequent basis, and in doing so cement that brand strength?
Great article & fascinating to learn more about the details of how Airbnb fosts open innovation, as a company & among it’s customers (both guests & hosts). From my own research on Airbnb’s use of machine learning, I was struck by how forthcoming the company is about it’s own developments. They have an entire website/blog, hosted through Medium.com (https://medium.com/airbnb-engineering) through which they share articles on recent developments & the many ways in which they are using data & machine learning to improve their platform, including detailed papers on their most recent search algorithms. The company clearly exemplifies open innovation — truly impressive!
This is an interesting take on the opportunities and risks underlying Airbnb’s open innovation strategy. Despite the warnings in the last paragraph, Airbnb does not – to my knowledge – have any truly formidable foes in the short-term housing marketplace for the time being, even in the absence of any further innovations coming out of Airbnb. It will be interesting to see if Airbnb will be able to sustain that lead, or if something as yet unthought of will disrupt both Airbnb and the industry that Airbnb disrupted into existence.
It seems that Airbnb uses its customer feedback platform(s) as a forum for open innovation, with ideas that are sourced from hosts and users. I’m curious as to the “intrinsic” motivations that these hosts and users have to contribute their recommendations outside of “extrinsic” motivations like financial reward, as Airbnb does not seem to compensate contributors for the innovations they incorporate into their business model. Does Airbnb provide any form of recognition to the hosts and users whose ideas they incorporate into product changes?
Furthermore, while customer feedback is always important for a company that wants to continually refine its products and services to maximize customer value, I might worry that relying too heavily on these forums would give the company an unrepresentative view of their customers’ pain points. To overcome this, most companies (perhaps Airbnb as well) typically perform market research surveys that gather feedback from a representative sample of customers — that way, a company’s view of what customers care about is moderated by the proportion of the customer base they represent and not distorted by a disproportionate response rate from “super hosts” and “super end users”.
As you mentioned, it’s a user volume game for platforms like Airbnb. And the more ears you have to the ground listening in on users’ preferences and asks, the better you’ll be at building for them. However, I agree that it’s integral to build an incentive structure around this. In addition to financial incentives, creating a culture that encourages developers to build for Airbnb is vital. Developers are naturally drawn to interesting technical challenges and Airbnb has plenty – highlighting the impact of the developers on the product and attributing this impact back to them, for example in the form of earned badges, you’d be able to incentivize contributions.
It’s fascinating to see the use of crowdsourced innovation helping fuel Airbnb’s growth from the B&B for conference goers to the collective platform for “experiences” today. For such a consumer platform integrating the very fragmented offline and online worlds, creating such a feedback & ideation system is extremely important. As we are seeing the Matthew Effect taking place in the whole tech industry (big fish eating small fish and big fish getting bigger), Airbnb is well positioned to become a big fish on a global scale, if they can keep up with the rounds of innovation.
I like your suggestion on building social identity for the community to foster further collaboration, and there are much more the company can do on that, i.e. coin a term for Airbnb’s power guests, creating more communication channels as well as incentives for user ideas, etc. The key here is to create the right infrastructure for filtering the noises and surfacing the gold.
Thank you for this insightful reflection on an everyday application of open innovation! Airbnb is certainly a pioneer in this space and is an interesting study in open innovation considering the almost complete dependence of its business model on this. Your concern with the sustainability of this model is not misplaced. Exposing a company to open innovation and sharing such innovation with the world invites competition and poses a threat to sustainability. Despite this, it also creates competitive advantage, especially since Airbnb has first mover advantage.
I would argue that the most important thing for Airbnb to do now is to cement its position in customers’ minds. As mentioned by NYC Writer, many people only use Airbnb occasionally due to the infrequent nature of travel for majority of the population. Therefore, Airbnb should increase its presence in advertising, at events and on social media platforms. It should consider extensive marketing campaigns, for example by partnering with local celebrities and filming their Airbnb experiences. Finally, Airbnb could further branch out in terms of offerings for small businesses, conferences and events.
The shift from their core product to the experiences platform is a great example of the “what business are you really in?” conundrum and a great example of this company moving with consumer tastes. I’m concerned however with the company’s ability to actually monetize the best ideas from this platform. How is airbnb monitoring and augmenting the ideas that enter it’s pipeline through this product? I wonder if airbnb could take the youtube model and assign staff to some of the best experience ideas to help their creators develop businesses around these ideas that further leverage the airbnb platform and create more data for the company.
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Regarding your post, it has been an eye opener on how Airbnb operates. I did not know multiple of their new features (e.g., trips, plus, experiences) had come through their own network. I appreciated your detailed explanation of how Airbnb has approached open innovation. Setting up super hosts and open forums seems like a simple thing, but their impact has been incredible. About the open forums, it has sparked the interest in me on how Airbnb nurtures the forum and avoids it on diverging into meaningless communication. Monitoring and guiding the conversation in a natural way must be a skill on itself.
I also found interesting your statement that Open Innovation does not forcefully need financial incentives for it to occur. Though generally this may be true, I find that in Airbnb’s case there is a financial incentive. For example, “Experiences” provide a new way for hosts, and/or new people to make money. This I find is the edge that Airbnb has, and must have to avoid being disrupted as you warned. If Airbnb continues to enable other people to use its platform in different ways for their livelihood, Airbnb will have a prosperous future. But, if it starts protecting areas of its business and inhibiting innovation, there might lie the chance for a new entrant to disrupt their business.