1. Explain Airbnb’s business operations based on the system approach.

 Airbnb's business operations based on a systems approach

In just four years, Airbnb had indeed over up being a premier online marketplace wherever
homeowners|homeowners|householders} and would-be bed-and-breakfast owners might flip vacant
rooms into nighttime rentals. Prospective guests might visit and look for out there areas, dynamical
any house into a potential edifice. By Gregorian calendar month 2011, Airbnb was valued at $1 billion
and had hired over a pair of billion rooms considering that operations started in 2007. Airbnb created
an internet reservation system to assist with deals that enclosed a naming system to make trust and
dependableness amongst market participants. Specifically, a comprehensive review system lets
renters investigate hosts before causing a meeting request.
Similarly, hosts might investigate tenants before acceptance. The bulk of the subsequent bookings
proceeded while not incident, and in 2011, Airbnb was searching for some $100 million in an
exceedingly 2d spherical of endeavor capital. However, in June 2011, an increase of criticism was
referred to as Airbnb's whole business style. A business events organizer passing the nom de guerre
"EJ" had hired her metropolis home to a guest reservation via Airbnb. They'd ne'er met but followed
the Airbnb procedure and had changed varied messages through the Airbnb system. The visitant
appeared fully friendly, and throughout his rental keep, he even sent out EJ messages thanking her
and enhancing the "little loft location" in her living accommodations. Once EJ returned, she
discovered her house raided and her personal belongings taken, injuring tens of in numerous bucks.
EJ started blogging regarding the prevalence. Associate in Nursing's early diary entry explained
several irreversible damages. They smashed a hole through a fast closet door and located the
passport, cash, MasterCard, and grandmother's jewelry I had hidden within. They took my camera,
iPod, Associate in Nursing, previous laptop computer, an external backup drive full of photos and
journals. My entire life. They found my credentials and Social Security card that I feel they
photocopied—using the printer/copier I kindly overlooked for my guests' use. They searched through
all my drawers, wore my shoes and garments, and left my vesture crumpled up in an exceeding pile of
wet, mildewing towels on the closet floor.2 EJ's story unfolds quickly, accelerated by the eye already
ensuing from Airbnb's speedy rise. The negative press was featured within the Wall Street Journal,
NY Times, metropolis Chronicle, USA Today, and bedrock News, among different media retailers.
The people made the case worse once Airbnb was slow to retort.
Professors Benjamin Edelman and Michael Luca ready this case. People developed this case from
revealed sources. HBS cases area unit set only because of the basis for sophistication discussion.
Issues aren't supposed to function endorsements, sources of prior knowledge, or illustrations of
effective or ineffective management. By Gregorian calendar month 2011, the uproar had subsided.
Airbnb proceeded with raising $112 million of venture funding from Andreessen piano player DST
Global. General Catalyst Partners.4, however, users were disconcerted by the experiences of EJ et
al., and a few critics questioned whether or not issues regarding trust might undermine Airbnb's
model. It was clear that Airbnb's online review system wasn't spare to safeguard users and preserve
confidence. Airbnb managers had to try to do a lot to regain the trust of market participants—
especially hosts. But how?

 Airbnb

Founded in 2007, Airbnb created a forum wherever hosts might post area listings, in conjunction with
descriptions and images. Interested guests might look for rooms in an exceedingly given space and
examine potential choices (including narrative, photograph, and reviews). Guests might filter results
by value vary, neighborhood, availability of an area versus whole living accommodations or house,
and different characteristics. Since reviews were the first mechanism for verificatory the attributes of a
site, Airbnb placed reviews conspicuously on every area listing. When selecting the most popular site,
a guest submitted a reservation request to the corresponding host. The host then had the chance to
accept or decline the guest's request. Before acceptive a reservation, a bunch might see the profile of
the guest. Some guests uploaded the footage to their profile, and guests World Health Organization
had used Airbnb antecedently were noted intrinsically (with an inventory of their previous
reservations). Officials of Airbnb asked a bunch to retort to missive of invitation inside twenty-four
hours. If a bunch failed to reply to a message of invitation inside that point, the request would expire.
Further, Airbnb enclosed the proportion of reservation requests the host had skillful inside twenty-four
hours on every host's area. A host's placement in search results was conjointly plagued by the ratio of
recommendations that the host had accepted. This motivated me to retort to requests in an
exceedingly timely manner. Before taking the invitation, the guest and host might exchange messages
through Airbnb however weren't allowable to exchange emails or phone calls outside of the system
until that system created a reservation. To ensure that each communication before a reservation
occurred inside the Airbnb system, Airbnb developed the Associate in Nursing rule to dam messages
containing phone numbers or email addresses. Airbnb charged a fee to each guest and host. Airbnb
licensed the payment and provided the host with the guest's signal and email address if a bunch
accepted the invitation. If a bunch declined, Airbnb notified the guest. Guests paid 6 June 1944 to
twelve-tone music of the reservation price, counting on the total cost.
Additionally, hosts paid a third fee for every booking. Guests paid Airbnb by MasterCard at the time of
the reservation. Airbnb commands the guest's payment till the reservation begins, and within twenty-
four hours of a guest's arrival, a bunch received payment from Airbnb by check, direct deposit, or
PayPal.

 Online name Systems

By sanctioning cheap communication and matching between patrons and sellers, the web expedited
the creation of numerous new markets. A revenant downside in several such markets was missing
information—market participants lacking the knowledge they required or felt they needed to decide on
applicable dealings counterparts. For instance, a client on eBay or Craigslist is typically troubled that
the seller's merchandise wasn't delineated. Even once previous patrons had reviewed a marketer,
patrons bothered that the reviews were uninformative (perhaps due to reviewers having completely
different preferences, due to the seller's practices being modified, or as a result of the studies being
fake). Meanwhile, sellers additionally had issues. For instance, the customer's World Health
Organization set to review an edifice or edifice may well be quite completely different from the same
old customers of these institutions. Online marketplaces handled these issues in numerous ways in
which. From its launch in 1995, eBay enclosed an internet review system wherever patrons and
sellers may review one another. Analysis showed that sellers with higher reviews were able to
command higher costs for a given product.5 At an equivalent time, there have been several issues
concerning eBay's system. for instance, sellers may open multiple accounts. As a result, unreliable
sellers may merely switch to a brand new version once receiving a bad review.
Further, the reciprocal feedback system (buyers and sellers rating every other) raised cooperation
issues among reviewers. Dedicated review websites like Yelp allowed for reviews of products
provided entirely offline. Yelp had the most significant usage in reviewing restaurants. However,
alternative services started from dentists to clothes shops, supermarkets, and spas. Yelp created a
social network of reviewers, permitting individuals to post profiles concerning themselves and become
online friends with one another. Yelp additionally rewarded reviewers. World Health Organization was
remarkably prolific, even providing periodic parties for "elite" reviewers. Reviewing hotels and
alternative travel-related amenities, TripAdvisor further structured the data to gather data concerning
reviewers: TripAdvisor asked reviewers to spot whether or not their trip was for business or leisure.
Airbnb counteracted reviews for leisure travel into the family- and couples-oriented reviews. Users
browsing reviews may specialize in reviews from others like them.

 Improving Airbnb's name System

After the two widely advertised summer 2011 incidents of fly-by-night Airbnb guests, it was clear that it
required Airbnb to try to facilitate safe transactions. To boost safety in its marketplace, Airbnb may
implement the subsequent choices in any combination.

 Present additional subtle shopper Reviews

While Airbnb invited shopper reviews and featured these reviews conspicuously, Airbnb's review
system lacked some options acquainted to customers from Yelp and TripAdvisor. for instance, Airbnb
enclosed no notion of "elite" reviewers, and Airbnb offered no reward to users World Health
Organization submitted reviews. In theory, adding options to the review system may facilitate
additional quickly determining problematic hosts or renters. Of course, there would be myriad
decisions—whether to make tiers (and if, therefore, what percentage and with what criteria), what
advantages to supply, and what alternative classifications to incorporate.

 Collect alternative data concerning Hosts and Renters

Before acceptive a reservation request, hosts were able to observe a customer's profile. However,
profiles were typically incomplete and contained very little data. Further, Airbnb didn't need guests to
supply full names upon submitting a reservation request. Airbnb may encourage or need additional
complete profiles—providing hosts with photos, characters, and alternative data concerning potential
guests. Hosts would then have extra data to think about once deciding whether or not to accept a call
for participation.

 Make It Easier to Reject Renters

Airbnb had a policy of penalizing hosts. World Health Organization turned down reservation requests
for an announced room: the additional ofttimes a bunch declined a guest's request, the lower the host
appeared within the search results. Airbnb had established this policy to encourage hosts solely to
post rooms that they were willing to rent and assist guests in noticing the rooms that were possible to
be out there. However, some hosts complained that they felt pressured to accept reservations even
once they were uncomfortable with a guest's profile.

 Vary costs supported Ratings

To date, Airbnb had needed hosts to post one worth for a given area on a given night. Airbnb may
enable additional subtle ratings to handle variations between guests' ratings. Then hosts may settle
for guests with minimal name or mixed reviews; however, charge those guests the next worth.

 Provide Insurance for Host

Airbnb may reimburse prices related to unreliable hosts or harm caused by guests. eBay had
enforced similar client protection to refund customers World Health Organization failed to receive
things they ordered on eBay.

 Add Discount

Guests World Health Organization had decent expertise would possibly become repeat customers.
Airbnb may build trust by paying for some of every customer's 1st rental. Customers World Health
Organization's foul expertise were in danger of abandoning Airbnb. However, according to a
problematic keep, Airbnb may pay a bonus or refund to customers World Health Organization.

 Prescreen Hosts and Guests

As of summer 2011, Airbnb failed to prescreen guests or hosts. Airbnb may add a screening method.
Existing background-check services may verify a person's name, address, signaling, and alternative
details by confirming with public sources and even cross-checking with credit records, arrest records,
and even results of Google searches. Or Airbnb may add workers to interview users and examine
properties in key cities, a recent method by many geological dating websites.

 The Decision at Hand

EJ's expertise had sparked complaints from alternative involved hosts. A Gawker story delineated
"Airbnb horrors," 6 and Airbnb's detractors—already raising queries from the excise tax to
unauthorized hotels—were fast to spotlight these issues. Airbnb is required to repair these issues and
assure user confidence.