Case 2: Airbnb, Inc.

in 2017

1. How would you illustrate and compare the business models for Airbnb, large hotels chains
such as Marriott and Hilton, and bed & breakfast operators? Use the example chart in the
textbook for business models as a guide (concepts & connections 1.1).

Airbnb Large Hotels Bed & breakfast

Value  The company  Well-known  Very small,
proposition doesn’t own any brand name usually where
rooms themselves  Invest heavily owner-operators
but instead offers a in additional offered a couple of
technological amenities such rooms within their
platform for listing as pools, gyms, own home to
and renting locals spas, etc. with a accommodate
homeowner who significant guest
have spare rooms to operating cost  Cozy, home-like
earn extra income to competed for ambience
by enable owners all segments of associate with
signed up through travelers more rural, slow
the platform and  Accommodatin pace, more
offer the service or g guest in single personalized,
resources towards or multiple quieter
the travelers rooms atmosphere
 Travelers can book  Offering  Offering bed &
room through a spectacular breakfast with
local host with a views great allure and
lower price, and  On-site parking ambience for the
Airbnb received a guests’
percentage of what experience,
the host received for possibly with
the room historical
 Provide a rating and background
review system for
hosts and guests
Profit Formula  Low operating costs  Can be  Price varies upon
compare to tradion expensive and a demanding for
brick-and-mortar costing towards rooms
because the customers
company doesn’t depending on
own properties the location and
 Local host doesn’t the season
subject to regulation  Expanding the
and taxation like business by
 tradition brick-and- purchasing
mortar preexisting
physical
locations, or
through mergers
and acquisitions

2. What are the general strengths and weaknesses of large, hotels chains such as Marriott and
Hilton, bed & breakfasts, and Airbnb? Explain how you would compare those businesses.
Large Hotel chains Bed & Breakfast Airbnb

Strengths  Strong property  Offered a more  Clear business

portfolio personalized, model base on
 Attractive quieter service fee by
amenities like atmosphere connecting hosts
pools, gyms, spas,  Established in and travelers
fine dining rural areas through the
 Spectacular views since big hotel process of renting
 On-site free investment with their
parking may have been technological
 Quicker access to cost platform without
highway prohibitive owning the
 Hosts can offer properties
insight into  Low, affordable
local life price compared to
 Medium large chains hotel
operating cost  Dual rating
 Tax advantage system for host
when running a and guest
self-business  Low operating
cost
Weaknesses  Fees are high  Breakfast  The idea is easily
 Tax and regulation options are copied
 Significant often fixed or  Violating zoning
operating cost: the limited laws and laws
industry’s total  Can lack require hosts to
cost in 2015 amenities and pay hotel taxes
account for 61% of privacy  Airbnb relies
wages, property,  Limited heavily on the
and utilities, as number of quality that the
well as purchases rooms host deliver.
such as food  Primary Therefore, it’s
domestic more difficult for
market them to manage
 the safety and
security of hosts
and guests

3. In what ways has the lodging consumer changed, and how does Airbnb’s customer value-
proposition meet this change?
Customers value are changing over time due to the rapid development of technology. Airbnb
provide an online platform where people can rent properties without having standard amenities
of a hotel. Airbnb not only leveraging technology but also the current change of how consumers
interacted with business and how the consumers had deemphasized ownership. Consumer seems
to refer sharing or renting instead of ownership interest. According to Rimer, there are three
main factors of attributes to the success of Airbnb: the accommodation, the economic benefits
and the idealistic motives. Airbnb offer flexible prices and peer-to-peer lodging services refers to
as the “sharing economy” concept. People can rent properties for short or long-term stay offering
by the local hosts. Airbnb also assist the growth of local economy by create income for local
hosts and the community. Airbnb charge the hosts 3% service commission fee to cover the
expenses and handling fee after each complete booking. Guest are required to pay about 11%
non-refundable service commission for every booking they make. Airbnb guests would like to
have authentic experiences that make them feel like travelers and not tourist bases on a value of
sharing unique experiences of meeting and staying in each other’s home, introduce guests into
the local community. Beside the authenticity, another two important factors for the guests are
location and price (Rimer, 2017).

4. What key factors may determine the success for failure of Airbnb?
Key factors that determine the success for Airbnb are their business model that based on trust,
authenticity and transparency towards guests and local hosts.
By the start, Airbnb has been functioning in a space commonly refer as the “sharing economy”.
Airbnb provide platform where services are offered, and demands are met through a peer-
reviewed digital marketplace. By leveraging the ubiquitous usage of smartphones and the
continental decrease in technology cost, Airbnb provided platform for individuals who instantly
share number of resources. The individual can simply sign up through the platform and offer the
service. The business is growing at an impressive rate including an 850 million cash infusion in
2016 that raised its estimated valuation to 30 billion. Airbnb earns its revenue through two
different sources by being the middle man between hosts and guests. Airbnb didn’t own any
estate properties; therefore, their asset is their technology platform and that is why they’re
generating high revenue with low operating cost. Airbnb charge 3% transaction fee from the
host, about 11% from guest per booking.
Next, Airbnb thrive itself on building trust and established personal connection with the others.
Airbnb made the change in the guest experience by focus on guests desires who seeking for an
authentic experience. If the host help the guest live like a local and introduce them to the
community, guests feel welcome and at home. In addition, Airbnb provide stories section in the
company website which enable prospective guests to get an insight through guests and hosts
stories experiences and those stories are meant to engage an emotional attachment with the
readers. Pricing is another effective strategy from Airbnb. Airbnb good pricing helping attract
the right kind of customer since more tourists chose to live with the locals and save their money
instead of hotels. This is Airbnb most unique competitive advantages which allow them to blow
away competitors, defined its name and success, outstanding from brick-and-mortar traditional
hotels.
Finally, to govern the community of hosts and guests, Airbnb provide a rating system so both
hosts and guests and rated each other in the website. According to Gamble, this approach
incentivized hosts to provide quality service, while encourage guests to leave a property as they
found it.
5. What recommendations would you make to Airbnb to improve its competitiveness in
accommodations market while mitigating any current and future risk?
I can see a bright future of Airbnb by being one of the leaders in the sharing economy. Hosts,
guests and Airbnb themselves all can benefit from Airbnb platform. But despise what goes along
with this opportunity, they’re still facing various current issues and future risks:
a. Customer Services: hosts and guests are having one issue: trust. Even though Airbnb has
provided a rating system for both hosts and guests, however, these reviews could be unreliable
because guests could review for themselves and rival also, therefore, it could affect the host’s
reputation. According to Professor Dolnicar at UQ Business School, “this system rewards good
host and good guest behavior and punishes bad host and bad guest behavior. Again, this is
radically different than anything else in the traditional accommodation market. This is not
helpful for improvement. In peer-to-peer networks guest feedback is more detailed. As such it
enables hosts to continuously improve.” Meanwhile, the real constructive reviews are being
ignore and underestimated by Airbnb. I think Airbnb staffs should pay more attention to the
review and contact the reviewers to clarify the issues and take an action if necessary.
b. Loyalty Program: Airbnb only charge a small transaction fee as the service between hosts and
guess for every booking, but Airbnb doesn’t offer a promotion for loyal hosts and guests. I think
Airbnb should follow the concept of hotels.com like offer 1 night free after 10 booking night or
offers hosts service discount after certain period, etc. I believe Airbnb would gain more loyalty
users in the future if they’re apply that concept into their current business.
c. The safety and security of hosts and guests-this is difficult issues and can’t be easily resolve
from both side. Guests might experience some issues like theft, destruction of property or even
kidnapping, and they’ll pick the hotels in the future for safety purpose. Hosts, on the other hand,
might expose themselves to legal and financial problem from accommodating guests, for
instance, rooms and home being damage by huge parties. Airbnb should offer more information
of its hosts within the city to the guests before their travelling so they’ll more options to choose
from. For the hosts, Airbnb should work with insurance company to form more comprehensive
plan that would shift the risk away from the hosts.

 Work Cites
“Airbnb-SWOT Analysis.” CayenneApps. August 04, 2017. Retrieve 6/27/18.
Https://blog.cayenneapps.com/2015/03/07/airbnb-swot-analysis/
Bigg, Margot. “Bed and Breakfast vs. Hotels: the pros and cons.” Feb 20, 2017. Retrieved
6/27/18. https://www.oyster.com/articles/57506-bed-and-breakfasts-vs-hotels-the-pros-and-
cons/
“How Airbnb created a new business model-and what you can learn from it.” UQ Business
School. Retrieve 6/28/18. https://future.business.uq.edu.au/how-airbnb-created-new-business-
model---and-what-you-can-learn-it
Rimer, Ramona. “Why do people choose to stay with Airbnb?” June 06, 2017. Retrieve 6/27/18.
https://www.modul.ac.at/index.php?
elD=dumpFile&t=f&f=9045&token=b1c2e98f9345d5fa7e27859086428f3874ee9dc8
Thompson, Arthur, Gamble, John E. “Strategy: Core Concepts and Analytical Approaches.” 5th
edition. Illinois: McGraw-Hill, 2018.