One often seeks for a homey feel when one travels to different locations. What can be more relaxing than a host that offers home-like hospitality and hotel-like ambience at substantially lower prices? Airbnb is a model that deals with renting personal apartments to travellers at a cost-effective price. Airbnb works on a sharing economy model where both the parties share mutual benefit, the host lists his available space on the website and the guest books on it. Needless to mention, Airbnb has revolutionised the vacation rental industry.
A Brief History
The idea got its final shape in 2008, when its founders, Brian Chesky and Joe Gebbia, to offset the high cost of rent, gave their room to three travellers. The city that day had all hotels full because of a huge event, so they decided to rent their living room, to supplement their income. Later, the two, along with Nathan Blecharczyk, developed a website for short-term rentals. It eventually blossomed into a company called Airbnb in 2009.
After making a website for rental accommodation, they started receiving funding. In 2010, they received funding of $7.2 million. By 2011, they achieved a spectacular mark of 1 million bookings. Drawn towards their colossal success, more business groups started investing in their model, and they subsequently raised $112 million in July 20111. Thereafter, the business grew in leaps and bounds, and in June 2012, the number of bookings reached a figure of 10 million. Owing to this monumental success, it again received funding on $470 million in 2014. Also, in 2015, the amount of funding crossed $1 billion dollars mark. With its presence in 191 countries and millions of listings, the company has been flourishing since its inception.
Airbnb Business Model Canvas
A business model of an organisation represents the key features it works on. Let’s shed some light on the business model of Airbnb.
Value proposition refers to exceptional and exclusive features added by an organisation to give itself an edge in the competitive field. Let’s discuss the value proposition of Airbnb.
- Space listing – It gives the owner the chance to list their space, and thus they can earn rental money.
- Insurance provision – The company also provides insurance of about $1 million to listed rooms and property.
- Economical stay with hosts – It also gives the travellers a chance to stay with local hosts, and thus, it turns out to be cost-effective.
- Rating and review service – The hosts and the guests can review each other, hence, bringing more transparency and accountability.
- User-friendly app– The web structure and app is easy to use, thus, bookings and listings become hassle-free.
Here are the key partners of Airbnb
- Hosts who give rental accommodation
- Hosts who offer experiences
- Investors/venture capitalists like Y Combinator, Sequoia Capital, Google Capital, Tiger management, etc.
- Corporate Travel Partners & Managers
- Insurance companies
- Professional Photographer Services
Customer and Market Segmentation
It refers to the category of people a business caters to. Any business, essentially, divides its customers into wide and different categories. Likewise, Airbnb has segmentation based on hosts, travellers, and freelancer photographers.
- Own property – These people are the owners, and they make extra money by renting their private rooms and other available space.
- Create Listing – They create a listing for their property on Airbnb. Moreover, they can add check-in, check-out time, and rents according to their whims.
- Accept or reject – Airbnb gives full liberty to the hosts to accept or reject a guest. A host usually runs through the traveller’s social media profiles, and his review history before letting him into his private space.
These are the people who search for accommodation on the website of Airbnb and subsequently book it.
This segment works as a promotion agent of Airbnb. Freelance photographers visit the listed sites to take exquisite and high definition pictures of the location because such pictures captivate travellers more, inviting more bookings.
Cost Structure of Airbnb
The cost of Airbnb goes in:
- Salary to the permanent employees
- Technological set up and running cost
- Payment to freelance photographers
Competitive Strategy of Airbnb
Airbnb has a lot of competitors, like Tripping.com, HomeToGo, FlipKey, HomeAway, VRBO and so on. Many websites have completely imitated the Airbnb business plan and its cost structure. Nevertheless, Airbnb constantly works to differentiate itself from others. It provides user-friendly web experience, navigation bar, imagery, convenient booking, and hassle-free listings, which certainly gives it an edge over its competitors.
Marketing and Promotion Strategy
Airbnb markets its model by linking its website to social media handles like Facebook and Instagram. Moreover, it displays hoardings, which fascinate almost everyone. One hoarding says that Airbnb doesn’t discriminate on the basis of sex, religion, place, etc. Such appealing promotional strategies make it a gigantic market leader.
The Revenue model of Airbnb
The revenue model of Airbnb is an intermediary type and peer-to-peer economy model where it acts as a bridge or network between hosts and guests. It charges a fee from both the sides, and thus, it earns money in this manner. It runs the business by providing a platform to travellers and hosts where they can connect, discuss rent, and other services. The Airbnb revenue model runs on the listings and the stays. Primarily, it gathers revenue sources from:
- Commission from hosts: When a guest books a listing of the host, Airbnb earns a commission of 10% from the host.
- Transaction fee from travellers: Likewise, when a traveller comes to the website of Airbnb to find a host, he has to give 3% of the amount to the company as a transaction fee.
Recapitulating, Airbnb has seen tremendous growth ever since its inception, owing to its sound sharing economy business model and new innovations. What is more, Airbnb is likely to expand its business structure by adding verified hosts and guests. Furthermore, it will make provisions for different houses for unique occasions, which will add variety to its bucket. Thus, Airbnb has a definitive edge over its counterparts as it constantly aims to upgarde its business model.