Airbnb as a Disruptive Innovation

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 Abstract

The following paper describes Airbnb as a disruptive innovation and how it has had an impact on the
hotel industry. The paper found that despite problems and controversies, Airbnb has been able to carve
out a distinct competitive position through ease of use, convenience and cost effectiveness above all
else. As the potential for disruption by this technology is immense, therefore it is prudent to keep an eye
on the progress, growth and development of Airbnb in the future, especially as more and more people
begin to access social media for their needs.
Contents

Abstract ......................................................................................................................................................... 2

I. Introduction .......................................................................................................................................... 4

II. Historical Perspective............................................................................................................................ 4

III. Current Perspective .......................................................................................................................... 5

IV. Conclusion ......................................................................................................................................... 6

Bibliography .................................................................................................................................................. 7
 I. Introduction

The topic of this paper is to shed light on Airbnb as a disruptive innovation. To that end, the
paper focuses on the origin and history of the technology, its impact on the tourism accommodation
industry of developed nations and the future opportunities and challenges regarding it. The first section
discusses the rationale for selecting the topic as well as the literature review. The second section
discusses the origins and historical perspective which is followed by the current perspective and future
trends in section three. The last section provides closing remarks and conclusion for the topic.

This topic was selected because of two main reasons. Firstly, Airbnb is the greatest
transformation seen in the tourism accommodation industry since its inception (Guttentag, 2015). It has
been able to drastically transform how accommodation was perceived in the eyes of tourist and tourism
businesses alike by allowing people to advertise their residential space for shared use by tourists during
their stay in foreign parts (Salter, 2012).

Secondly, Airbnb is the perfect example of a ‘disruptive innovation’ (Christensen & Raynor,
2003) because of its technology based business model and potential of disrupting well established
businesses in a thriving industry. In order to understand the business model and success of Airbnb, it is
best to study it through multiple facets of disruptive innovation theory, such as those presented by
Bower and Christensen (1995) and Christensen, et al. (2015).

Indeed, Airbnb fits perfectly with the established definition of a disruptive innovation as
provided by established authors (Christensen, et al., 2004) which states that a product is regarded as a
disruptive innovation when it underperforms on a mainstream performance measure but has superior
performance on an alternative measure which allows it to take precedence on the primary measure,
thereby gaining the appeal of the very consumers who disregarded it to begin with. This is in line with
the findings of Law (2009) who pegged convenience and cheaper cost as the alternative measures of
performance upon which disruptive innovations take precedence.

Moreover, Zervas, et al., (2017) highlighted how the Airbnb technology has led to over ten
million worldwide bookings which add to the model of the shared economy. The success of Airbnb can
be attributed to the fact that it has been able to create value for users in a way like never before and
that is a major contributor to it becoming a 24 billion dollar company (Bashir & Verma, 2016) (Saleh &
Ryan, 1992). Though not exactly new anymore, yet Airbnb is part of the larger shared economy that has
been under the microscope for some time now and combined with the ever booming tourism
accommodation industry, it is unlikely that the discussion around Airbnb will fade in the coming years.

II. Historical Perspective

According to the literature review, it is evident that the interest over Airbnb as a business model
and as a disruptive innovation has not declined. However, it is essential to understand the origins of this
disruptive innovation in order to understand the impact it has had on the international tourism industry.
Though many such as Edelman and Luca (2014), McNamara (2015) and Sundararajan (2014) have tried
to understand the impact of Airbnb on the hotel industry in general, yet the analysis remains incomplete
without a look into its inception.
 Airbnb started in 2007 as a website where two university graduates advertised their apartment
as an ‘Air Bed and Breakfast’ for people who would be traveling to the city for a major event and it was
this business idea that culminated in the creation of the 24 billion dollar goliath Airbnb.com that we
know of today (Guttentag, 2015). The true differentiating factor of Airbnb over other traditional hotels
and accommodation options was that it offered cheap and easy living for tourists. As Row (2013) points
out, the reason for the change in preference from the user’s end, not just in hotel industry but several
other industries, is the increase in power the users have been afforded through this innovation. It is this
fact that was leveraged by Airbnb in 2007 when it was invented and which is still being leveraged today
(Kerr, et al., 2014).

After its initial success, Airbnb grew rapidly and reached the $1 million milestone on December
7, 2014 due to its popularity, convenience, cost effectiveness and ease of use (Varma, et al., 2016). Yet
as with the case of any drastically successful innovation, Airbnb was not without its share of
controversies and problems. It was found that 72% of transactions done by Airbnb users over a four year
period were outside the confines of law and more worryingly, Airbnb was contributing to the decrease
in revenue for local hotels in the U.S. such as in Texas (Zervas, et al., 2017) (Varma, et al., 2016).

It is important to note here that despite the somewhat troubled history of Airbnb, it has
continued to grow at a drastic rate which can only be explained by the theory of disruptive innovation
mentioned in the previous section. This unprecedented success by Airbnb has been explained by Lockyer
(2005) through the concepts of “Trigger Points” and “Must haves” which are simply the reasons an
individual opts for an accommodation. Airbnb offered the most Trigger points and Must haves to its
consumers than its competitors and that is why it remained on top.

III. Current Perspective

In recent years, Airbnb has been at the forefront of the networked hospitality industry
worldwide by extending its reach and molding its image beyond the conventional tourism
accommodation domain (Oskam & Boswijk, 2016). The interest in this disruptive innovation will only
increase in the coming future because of the third industrial revolution as described by Rifkin (2014)
which is the technological facet of Airbnb that is going to remain as relevant as ever.

Moreover, by taking a look at the work of Brand and Rocchi (2011, we can understand how
Airbnb will continue to be relevant in the 21st century through its unique creation of value. As such, as
Airbnb continues to redefine creation of value and develops its business model in the 21st century
amidst the internet of things, it is easy to understand how Airbnb truly encompasses the spirit of
disruptive innovation.

In terms of users, Airbnb creates its image through social media which allows consumers to
asses and analyze accommodation offerings by themselves, and this in turn communicates the
organization’s brand goals readily to the consumers without distorting the service offering (Sparks &
Browning, 2011). In contrast, brick and mortar competitors such as Marriott are getting increasingly
worried because of the prevalence of social media to disseminate and use information (Yannopoulou, et
al., 2013) which works against them, but in favor of Airbnb.
 IV. Conclusion

In conclusion, Airbnb is the most significant disruptive innovation that the tourism
accommodation industry has ever seen. The new approach towards allowing users to access
accommodation in tourist locations is not the only thing that sets Airbnb apart, but also the ease of use,
convenience, cost effectiveness and popularity. The distinct competitive advantage lies in the way
Airbnb has allowed consumers to access the industry and the power that is afforded to them. Though
there are others jumping onto the bandwagon now, however the unique value creation has set Airbnb
apart and made it one to follow for the future.

Word count: 1,316 (including abstract)

 Bibliography

Bashir, M. & Verma, R., 2016. Airbnb disruptive business model innovation: Assessing the impact on
hotel industry.. International Journal of Applied Business and Economic Research, IV(14), pp. 2595-2604.

Bower, J. & Christensen, C., 1995. Disruptive technologies: catching the wave.. Harvaed Business Review,
pp. 43-53.

Brand, R. & Rocchi, S., 2011. Rethinking value in a changing landscape. A model for strategic reflection
and business transformation. Eindhoven: Philips Design.

Christensen, C., Anthony, S. & Roth, E., 2004. Seeing what's next: Using the theories of innovation to
predict industry change. s.l.:Harvard Business Press..

Christensen, C. & Raynor, M., 2003. The innovator's solution: Creating and sustaining successful growth.
s.l.:Harvard Business Review Press.

Christensen, C., Raynor, M. & McDonald, R., 2015. What is disruptive innovation. Harvard Business
Review, XII(93), pp. 44-53.

Edelman, B. & Luca, M., 2014. Digital discrimination: The case of Airbnb. com. Harvard Business School
NOM Unit Working Paper, pp. 14-54.

Guttentag, D., 2015. Airbnb: disruptive innovation and the rise of an informal tourism accommodation
sector. Current issues in Tourism, XII(18), pp. 1192-1217.

Kerr, W., Nanda, R. & Rhodes-Kropf, M., 2014. Entrepreneurship as experimentation.. Journal of
Economic Perspectives, III(28), pp. 25-48.

Law, R., 2009. Disintermediation of hotel reservations: The perception of different groups of online
buyers in Hong Kong.. nternational Journal of Contemporary Hospitality Management, VI(21), pp. 766-
772.

Lockyer, T., 2005. Understanding the dynamics of the hotel accommodation purchase decision..
International Journal of contemporary hospitality management, VI(17), pp. 481-492.

McNamara, B., 2015. Airbnb: A not-so-safe resting place. Journal on Telecommunication & High
Technology Letters, Issue 13, pp. 149-170.

Oskam, J. & Boswijk, A., 2016. Airbnb: the future of networked hospitality businesses.. Journal of
Tourism Futures, I(2), pp. 22-42.

Rifkin, J., 2014. The zero marginal cost society: The internet of things, the collaborative commons, and
the eclipse of capitalism. s.l.:St Martin's Press.

Row, S., 2013. The Future of Transportation. Institute of Transportation Engineers, X(83), p. 24.

Saleh, F. & Ryan, C., 1992. Client perceptions of hotels: A multi-attribute approach. Tourism
Management, II(13), pp. 163-168.
Salter, J., 2012. The Telegraph. [Online]
Available at: http://www.telegraph.co.uk/technology/news/9525267/Airbnb-Thestory-behind-the-
1.3bn-room-letting-website.html
[Accessed 22 October 2019].

Sparks, B. & Browning, V., 2011. The impact of online reviews on hotel booking intentions and
perception of trust.. Tourism Management, VI(32), pp. 1310-1323.

Sundararajan, A., 2014. What Airbnb gets about culture that Uber doesn't. Harvard Business Review,
Issue 11.

Varma, A. et al., 2016. Airbnb: Exciting innovation or passing fad?. Tourism Management Perspectives,
Issue 20, pp. 228-237.

Yannopoulou, N., Moufahim, M. & Bian, X., 2013. User-generated brands and social media: Couchsurfing
and AirBnb. Contemporary Management Research, I(9).

Zervas, G., Proserpio, D. & Byers, J., 2017. The rise of the sharing economy: Estimating the impact of
Airbnb on the hotel industry.. Journal of marketing research, V(54), pp. 687-705.
 MSc Research Methods

Assignment 1 (Research Paper)

Self-Assessment sheet
Marks Marks
No Category Comments (justify the marks)
Allocated Obtained

1 Clarity 10 8 Airbnb technology was presented through the lens

of several different authors. The paper provided
(Idea) 5 clarity in discussing Airbnb as a disruptive
innovation and its impact on the tourism
accommodation industry.

2 Accuracy 10 8 Competitive edge of Airbnb was accurately

described as convenience and cost effectiveness.

3 Precision 10 9 A number of references provided precision from

the history of Airbnb (est. in 2007) to its current
state.

4 Relevance 5 5 Airbnb is still regarded as a prime example of

disruptive innovation because of how it disrupted
the entire tourism accommodation industry.

5 Depth 20 17 The aspect of how Airbnb was able to achieve its

competitive advantage and acted as a disruptive
innovation within the tourism industry has been
discussed in great depth.

6 Breadth 20 18 Problems and controversies with Airbnb have been

discussed which portray the other side of the story.

7 Logic 10 8 The use of Airbnb as a disruptive innovation flowed

logically to it creating a distinct competitive
advantage for itself in the tourism accommodation
industry.

8 Significance 5 5 Focusing on Airbnb as a disruptive innovation was

the most significant factor as it allowed us to
 understand how Airbnb established and maintained
its business model.

9 Fairness 5 3 Predominantly, Airbnb was discussed as a

successful and thriving business model however
problems and controversies were also mentioned,
albeit fleetingly.

MSc Research Methods

Assignment 1 (Research Paper)

Reflective Statement (approximately 400 words)

In order to present the true image of Airbnb as a disruptive innovation, it was necessary to
follow the principles of the Universal Intellectual Standards. These principles were followed by the paper
through each section, providing evidence, remaining relevant and connecting coherently to each next
argument. Speaking in terms of clarity, Airbnb as a disruptive innovation was a complex topic that
needed to be elaborated in alternative ways in order to present a clear picture. As such, the concept of
disruptive innovation was discussed through the lens of several renowned authors and Airbnb was
related to these concepts to provide clarity in the arguments that followed.

All arguments presented in the paper were accurate in terms of the information provided. This
can be proved through the extensive references provided with each statement that link to the academic
work of reliable authors. The accuracy of the paper can be estimated from statements such as

“The success of Airbnb can be attributed to the fact that it has been able to create value for users
in a way like never before and that is a major contributor to it becoming a 24 billion dollar company
(Bashir & Verma, 2016) (Saleh & Ryan, 1992)”

The paper was reasonably precise with the factual statements that allowed a particular set of
facts to be relayed to the reader. Moreover, the entire paper is centered on the concept of Airbnb as a
disruptive innovation which makes it relevant through and through. Each paragraph has tried to
emphasize the connection of Airbnb with the disruptive innovation concept and therefore, remains
relevant.
 The depth of the paper is reflected by the fact that several references discussed how Airbnb was
able to establish and maintain its unique business idea by diving into the linkage of modern day
consumers with disruptive innovations. Several explanations were provided in order to explain in depth
the complexity of the relation of Airbnb with consumers in the modern age and how it ended up as the
biggest disruptive innovation in the tourism accommodation industry.

In addition, problems and controversies with Airbnb were also discussed in order to maintain
fairness and provide breadth to the topic. Lastly, the significance of the topic was reiterated on several
instances in order to connect the following and preceding arguments. This also lent logic to the topic in
explaining how Airbnb achieved success as a disruptive innovation and established a unique competitive
edge.