Airbnb

History
In 2007, two designers, Brian Chesky and Joe Gebbia, could no longer afford the rent
instalment on their apartment in San Francisco. So, they decided to turn their loft into a
lodging space, but, as Gebbia explains, “We didn’t want to post on Craigslist, because we
felt it was too impersonal.” Their entrepreneurial instinct suggested they build their own
site.
Hence, they set up a simple website with pictures of their loft-turned-lodging space and the
promise of a home-cooked breakfast in the morning. This site got them their first three
renters, each one paying $80, and after that first weekend they began receiving emails from
people around the world asking when the site would be available for destinations like Bue-
nos Aires, London, and Japan.
With an initial investment of $30,000 they founded Airbed & Breakfast. They soon joined
Y Combinator’s 2009 winter class, receiving another $20,000 in funding; they renamed the
business Airbnb and soon received another $600,000 from Sequoia Capital and Y Ven-
tures. Not everyone was as impressed with Airbnb’s business model, however, and the
young startup was also notoriously rejected by Fred Wilson and Union Square Ventures.
Although the startup worked hard to distinguish itself from the more impersonal, scam-
filled super platform, Craigslist had one thing that Airbnb did not: a massive user base.
Much of Airbnb’s growth can be attributed to the fact that, despite what venture capitalists
thought, people wanted the service Airbnb offered.
In the summer of 2010, the Airbnb photography program started. Hosts could automati-
cally schedule a professional photographer to come and photograph their space. Though
initially only 20 photographers were contracted by Airbnb, the service became an instant
hit. Even though this initiative was not cheap for the cash-strapped startup, the founders
felt that the long-term benefits were well worth the cost: enhanced listings resulting from
this program are two and half times more likely to be booked, and they earn their hosts an
average of $1025 per month. By 2012, the number of freelance photographers had grown
to more than 2000, who were employed by Airbnb to photograph 13,000 listings on six
continents (see Figure 1).
In May 2012, Airbnb partnered with Lloyds of London to expand their guarantee even
further, covering every booking with their one-million-dollar Host Guarantee. The com-
pany points out, however, that the guarantee is not a replacement for home or renter’s
insurance and it does not cover cash and securities, collectibles, rare artwork, jewelry, pets,
or personal liability.
With the acquisition of the German knockoff Accoleo, Airbnb opened its first European
office in Hamburg, Germany. The following spring, Airbnb acquired their largest UK-based
competitor Crashpadder just in time for the 2012 Summer Olympics in London. That
same year, Airbnb opened offices across Europe, not only in London but also in Paris,
Barcelona and Milan. Some of the company’s recent international growth strategies
emerged as a result of a fierce struggle. Indeed, Airbnb is a two-sided marketplace, which

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means that, in every new market they attempt to enter, they have to grow both the demand
side (travelers) and the supply side (hosts). As it turns out, the supply side is much harder
to grow, as it takes a more effort to get people comfortable with the idea of opening their
homes up to strangers.

Figure 1- The Airbnb growth

It is the concept of hospitality that drives much of Airbnb’s current and future growth
initiatives. Airbnb would no longer be about where you stay at the cheapest price but what
you do and who you do it with, while you’re there. Airbnb has created a set of hospitality
standards that made the guest experience more comfortable and reliable while preserving
the unique and local flavor that each host contributes to the experience.
Today, Airbnb is looking for new challenges and implementation. In 2017, they proposed
the new logo, the Bélo, which embodies their ambition to become a whole brand and even
more, combining visual elements of a person, a location pin, a heart, and the “A” in Airbnb.
Chesky has high hopes that the logo will grow to become a “universal symbol of sharing.”
In fact, he explains, “We get compared a lot with Uber, Lyft, Dropbox, and Instagram;
these are all really good brands. It is an honor to sit next to them, but it’s not enough. To
help ensure that the logo takes off, Airbnb debuted Create, which allows users to customize
their own Bélos, and, through a partnership with Zazzle, have them printed on cups, stick-
ers, postcards, and more.”
Airbnb describes itself as a trusted community marketplace for people to list, discover, and
book unique accommodation around the world, and it exemplifies a peer-to-peer market-
place in the network economy. Prospective hosts list their spare rooms or apartments on
the Airbnb platform; establish their own nightly, weekly or monthly price and offer accom-
modation to guests. Airbnb derives revenue from both guests and hosts for this service:
guests pay a 5%–15% service fee for each reservation they make, depending on the length
of their stay, and hosts pay a 3-5% service fee to cover the cost of processing payments.
Since its launch in 2008, the Airbnb online marketplace has experienced very rapid growth,
with more than two million properties worldwide and over 50 million guests who had used
the service by September 2015.

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The business model
Uber and Airbnb are two of the most significant examples of successful companies that
have adopted the business models based on the so-called ‘sharing economy’. And they
would not even exist if it were not for you: the user, the partner, the collaborator, the
“employee”, and/or the customer. A definition of this kind of phenomenon could be: the
sharing economy is a socio-economic ecosystem built around the sharing of human, physi-
cal and intellectual resources. It includes the shared creation, production, distribution,
trade and consumption of goods and services by different people and organizations.
Technologies and users of technology have served as a platform for transcending the shar-
ing economy and without technologically advanced platforms, sharing-economy business
models would not be what they are today. Parties like Airbnb and Uber are positioned as
part of the sharing or collaborative economy, where “sharing” is used as a widespread con-
cept that describes the contact and transactions between individual consumers. More spe-
cifically, the sharing economy is defined as “consumers granting each other temporary ac-
cess to underutilized physical assets (or idle capacity), possibly for money”.

Figure 2- Types of Value Networks

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Airbnb is as an exponential organization in the networked economy. Figure 2 (which is
adapted from Kostakis and Bauwens, 2014) shows a matrix that organizes information with
two axes: horizontally, the commons vs the private/commercial, and vertically, open sys-
tems vs controlled and closed systems.
To make this business strategy work, Airbnb continuously tries to maintain a dominant
position within the market, by strengthening its offer. In particular, the company wants to
firmly own the customer relationship and to keep it within its platform. To do this, they
manage bad behaviors and risks, by improving rules continuously and increasing transpar-
ency. Airbnb looks especially to the supply side, trying to protect their properties from bad
guests.
From an analysis of the three elements of the above definition, we see that the sharing
economy is different from other types of economy. Firstly, sharing is about consumer-to-
consumer platforms and not about renting or leasing an asset from a company (business-
to-consumer). In the latter case we would speak of a product service economy. Secondly,
sharing is about consumers providing each other with temporary access to an asset, and not
about the transfer of ownership of the asset. Thus, the sharing economy does not include
the second-hand economy, in which goods are sold or given away among consumers. Third,
sharing is about more efficient use of physical assets and not about private individuals de-
livering each other a service. After all, physical goods can go unused, but people cannot.
Internet platforms that bring consumers together to provide each other with services rep-
resent the on-demand economy.
Within the sharing economy environment, Airbnb offers free listings to asset owners and
let travelers search the listed spaces and select the one they prefer, considering their needs
and preferences. The business model of Airbnb allows booking and making monetary trans-
actions directly on the platform. This is more than just an affordable option for accommo-
dation. By facilitating access to distinctive spaces and destinations, Airbnb aims to enable
users to “feel at home anywhere you go in the world” by building connections with local
hosts and gaining access to exclusive places.
Since the main actors that enable this company to function are guests and hosts, the value
proposition is twofold. On the one hand, Airbnb allows enhancing income generation,
increasing visibility of the properties and facilitating transactions. On the other and, guests
are interested in the convenience of booking, the huge range of choices and the possibility
of finding lodgings at a lower price, which tends to rank first as a priority, for financial
reasons. However, the financial reasons do not contradict the social and environmental
benefits customers may seek in sharing.
Moreover, Airbnb uses different channels to increase awareness, also for customer acquisi-
tion and retention. They especially focus on digital advertising campaigns through
YouTube, Facebook, Twitter etc., and on content marketing (newsletter). They also rely on
word of mouth, via digital influencers and managers, who are responsible for spreading
and explaining the advantages of the business.
The key activities performed by Airbnb entail enhancing the positive network effect be-
tween the participants, by enticing more users to join and participate. However, they also
have to reduce negative impacts by making the individual host-guest transactions easier, by
managing complaints swiftly and learning from them. Another key activity of Airbnb is
data analysis, which allows understanding the needs of users, the preferences of guests and

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leads to better management of the value proposition in relation to the various parties in-
volved. To do this, they rely on key partners and key resources. The first of these are the
hosts who represent the supply side of the Airbnb platform, who bring their properties to
the table. Then, there are the investors and lobbyists, who are crucial at all levels. Airbnb
also hires freelance professional photographers in some cities, because they want to refine
their whole brand image. However, the main and essential resource is their digital platform.
Without it being as efficient as it is, it would have been impossible to bring owners and
renters together in an organized and reliable way. Their physical resources have also allowed
them to grow by having a presence in more than 190 countries all over the world.
Every year, Airbnb must cover operating costs with the funds coming from investors, but
also with revenues. The main expenses they face are related to customer acquisition and
digital advertising, the development of new features and new types of value propositions,
the expansion to new cities and business segments, the legal, regulatory and insurance cost
and, last but not least, customer support.
To summarize how the Airbnb platform works in general, here are the main features: hosts
showcase their lodging details on the Airbnb website, with prices, main features and a list
of amenities etc.; then, Airbnb sends a professional photographer to document the prop-
erty, with high quality photographs; travelers search for apartments in the city they want to
visit and go through all the available options to choose the one that suits them best; when
it is time to book, everything is done through the Airbnb platform; travelers pay for the
stay and transaction charges are added to the total. Finally, the hosts have the opportunity
to approve the booking and, after a while, they receive their payment after Airbnb has
deducted commissions.

Figure 3 – Airbnb business model

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Revenue stream and future growth
The economic aspect is crucial for the business model of Airbnb. It leverages on the value
of the community and on the promotional advantage related to the worldwide platform.
Also compared to the hotel industry, Airbnb hosts offer competitive prices because, in the
case of private lodgings, fixed costs, such as rent and electricity, are already covered, and
because of the minimal labor costs and time. Moreover, Airbnb revenue is usually consid-
ered as an additional income and, sometimes, stays are not taxed.
Airbnb earns its revenues from two main different sources, which are explained as follows.
On the one hand, commissions (3-5% on every booking made through the platform) are
withheld from property owners (hosts), by Airbnb. The omission of listing fees seems to be
quite unusual, although one could argue that, as a growing business, they want to encourage
the listing of properties on their system by removing any barriers. On the other hand, the
company charges travelers up to 20% of the booking amount as commission on every con-
firmed booking. These amounts are calculated using a number of factors, such as the sub-
total of the reservation, the length of stay and the characteristics of the advertisement. In
general, the costs of the service decrease as the booking cost increases. An additional source
of revenue for this innovative company is represented by customers who pay for their expe-
riences. Guest service fees are not charged, while a 20% service fee is charged to hosts.
These are calculated on the basis of the price of the experience and automatically deducted
from the host’s fee. Hosts who are partners who participate in non-profit experiences do
not have to pay these costs.
Thanks to these revenue streams, the company has, from the beginning, shown solid
growth to investors as they seek to raise funds. For example, between 2014 and 2015, the
number of nights booked grew by about 100%. Also, the revenues soared by 80% over the
same years, reaching $ 900 million. Despite these impressive figures, Airbnb is still a com-
pany that is focused on growth (rather than on profitability). Indeed, still looking at 2015,
it continued to manage operating expenses by hedging revenues, and closed the fiscal year
with an operating loss of approximately $ 150 million. However, the company has recently
been testing a 4-5 x increase in the fees charged to hosts for new bookings coming through
paid marketing, and this might help the company reach profitability sooner.
The projection of the company seems healthy, especially since there are still big opportuni-
ties ahead, like business trips, the Asian market, etc. However, Airbnb is not necessarily
pushing a strategy to maximize revenue streams; they would rather look at nights booked
as their main Key Performance Indicator (KPI) to focus on. As a consequence, Airbnb’s
future goals lie: (i) in the diversification toward related businesses, in order to develop new
markets and penetrate existing ones; (ii) in the achievement of a larger market share; (iii)
in the development of services and products that match with target market needs. To
achieve these goals, and at the same time keeping its strong position, the company must
conduct an aggressive strategy that combines concentric diversification, product develop-
ment, market penetration and market development together.
Airbnb is now embracing new technologies to gain a competitive advantage and to increase
profit using data science, machine learning packages, web applications and tools, which
means they are exploiting a data-driven supply chain. Airbnb can benefit from data science
and machine learning in various forms. For instance, by improving the mechanism of pric-
ing the listings, with the goal of increasing the likelihood of those listings being booked,
and thus increasing the company’s revenues. Also the search algorithm can be improved

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using machine learning technology, to better personalize the result for guests, finding the
perfect matches for their search, and strengthening loyalty, by making accurate predictions
about possible rebooking.
To cope with the competitiveness of other forms of accommodation services, like condo
hotels or simply traditional hotels, especially for business trips, Airbnb has also planned to
provide additional facility services. The management of facility services for Airbnb accom-
modation are provided by various companies and the facility services provided mainly relate
to: (i) maintenance, quickly resolving issues, so that guests always feel comfortable, (ii) 24/7
key exchange, which means in-person meet and greets, warm welcome to guests at home,
(iii) housekeeping, which means 5-star hotel service, crisp linen and fluffy towels, (iv) daily
pricing, that is, setting the best daily prices, using market expertise, (v) professional photog-
raphy, showing off homes in the very best light, (vi) guest relationship management, ensur-
ing that every guest is the right guest, and all communication is taken care of, (vii) inviting
profiles, listed on multiple channels, and (viii) interior design, which means homes expertly
styled, soft or full furnishing, in accordance with the agreed budget.

Guidelines for discussion

Describe and represent Airbnb’s business model and internal supply chain. Then, ex-
plain in detail (i) how Airbnb works and what the value proposition is, (ii) what
Airbnb’s revenue model and related cost structure are, and (iii) how the competitive
arena and Airbnb’s strategy are shaped.
Explain why Airbnb can be defined as one of the main examples of a network economy
and describe the main features and the impact on supply chain management.
Define and explain Airbnb’s supply chain strategy in light of the Fisher and Hau-Lee
models, by highlighting in particular how to represent service businesses.
Describe how the disruptive innovation of Airbnb is likely to affect the hospitality in-
dustry in the near future and how local authorities may react with regulations and laws
that try to protect their hotels.
Introduce Airbnb’s approach to new technologies, to gain competitive advantage and
increase profit, and outline the strengths and weaknesses of data-driven supply chains.
Consider the main risks Airbnb and its supply chain could run, and suggest some ways
the company might improve its resilience, by developing a risk mitigation plan.

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