Understanding the Airbnb business model can help you run a more profitable business. When you know how the platform operates, how the company approaches business today, and what it’s doing to secure opportunities for the future, you can plan accordingly and make the most of the opportunity as an Airbnb host or feel better about using the app for booking a vacation rental or other short term lodging.
What should you know about the Airbnb business model?
Airbnb has its sights set on exponential growth in the coming years. This company is known for making changes to how it runs to benefit the business in the future. The model was disruptive when it hit the market and created an ongoing ripple in the travel and hospitality industry.
The company’s efforts have been widely successful. To date, Airbnb operates globally and has more listings than the world’s top five major hotel brands combined.
The thing that is most shocking to people in the industry and all over is how Airbnb has achieved so much success with such a simple business model. They do not own any properties and have minimal overhead; instead, they took advantage of a growing sharing economy by offering a service that was missing. It makes its money via the booking fees charged by Airbnb hosts. This seems like a cut and dry way to build a profitable company but the business model Airbnb uses is exponential and has more built-in profit opportunities than most comparable businesses in the hospitality market.
At the moment, Airbnb has managed to scale hospitality in a way that the world’s most profitable hotels can only dream of accomplishing.
How does Airbnb do it?
For starters, Airbnb is a solution to a problem. The Airbnb business model is designed for a mass market that it connects in a one-of-a-kind way. Airbnb has created a community and within that community, people are working to make the company money. Hosts, travelers, renters, guests, property managers, and experience and adventure providers are all a part of the ever-growing Airbnb community and they have provided them a way to communicate, rate, and tailor experiences to meet their needs.
Airbnb also prizes efficiency and created a completely digital channel. In a hotel, you contact the front desk with problems or when checking in and out at reception. Not with Airbnb. The platform allows users to find and make reservations for short-term lodging while the host or landlord manages their listings all via the Airbnb app or website. It’s still personal but in a far different way than you’d find at a hotel.
Airbnb understands both of its customer segments and provides them with value. It is a multi-sided platform serving both guests and hosts and, as a multi-sided platform, it can only be of value to one group if the other group exists.
Airbnb’s Value Proposition
A value proposition is the bundle of products and/or services that create value for a specific customer segment. Businesses must ask themselves, “How will we create value for our customers and what makes us different?”
The answer to this question is the Value Proposition and it’s why customers turn to a specific business over its competitors.
Value Propositions must link to a benefit – something the customer segments care about. So in the case of Airbnb, benefits include:
- Booking rooms with locals as opposed to chain hotels
- Staying at unique places when traveling
- Customizing searches for accommodations in all different ways that meet distinct needs
- Monetizing space and/or properties
- Earning extra money
- Finding reliable and safe accommodations based on customers ratings
In a nutshell, Airbnb’s Value Proposition is being a trusted community marketplace for people to list, discover, and book unique accommodations globally.
It’s also important to note that Airbnb is a marketplace and its core value proposition is information-based. What does this mean? Airbnb does not own properties or have any interest in real estate. The entire business model is predicated on bringing people together and providing an online marketplace for the exchange of goods which, in this case, is short-term rental space, experiences, and adventures. There are several revenue streams for the company that are all connected to the exchanges occurring in its marketplace.
But what about operating? How does the company address operation in the Airbnb business model?
Airbnb included scalability in everything it did, right from the beginning. From working with regulators to the development of its app to its advertising and marketing, Airbnb made sure its processes made for easy and efficient entry into new markets. Traditional brick and mortar establishments like hotels don’t have this option.
The way Airbnb connects all of the opportunities it has created is to use algorithms to match value propositions with the right people. It has created a cycle that benefits its market and the company’s bottom line.
And when it comes to the Airbnb work environment?
Airbnb relies on millions of hosts and guests worldwide to keep it churning but there are also in-house employees. Far fewer than you’d find at a hotel but they do exist and are necessary to keep the company going. Airbnb employees work in open and collaborative environments and are empowered to make decisions when it comes to assisting customers. “Upper brass” gives employees the ability to work together and come up with solutions to problems when it can improve the customer experience.
The company doesn’t operate or have the same overhead expenses as hotels and other similar competitors in the hospitality industry. But this doesn’t mean it isn’t spending money and making investments back into the business.
Airbnb focuses its investments on:
- Technologies, including payment processing, platform maintenance, and development
- Human Capital, including employees and freelance support
- Marketing and sponsorships, in which it invested more than $23 million in the United States in 2015 alone
What does this and everything else about the Airbnb business model tell us and help us predict what could be in the future for the company?
Airbnb has embraced the idea of an exponential business model whole-heartedly. It’s focused on creating value. The company understands how all of the elements within the model work together. Airbnb is always focused on innovation to help it meets its goals of staying connected and growing even more.