Home is a highly personal place. Even if a family member tries to change something, we become agitated. Who would have thought that a few years ago, homeowners would be willing to share their homes with strangers? Who would have guessed that a company could be developed in this niche? Airbnb’s business model has revolutionized the hotel industry in ways no one could have predicted.
With over 4 million Hosts and over 1 billion guest arrivals in over 100,000 cities and towns in practically every country, Airbnb has grown into a behemoth without owning a single property. That is the allure of technological disruptors. As a curious business enthusiast, knowing about the business strategy of Airbnb and how it makes money piqued my interest. Here we’ll go in-depth to see how Airbnb makes money and its acquisitions till date.<\/p>
The idea for Airbnb arose after its creators, Brian Chesky and Joe Gebbia, converted their San Francisco apartment’s living room into a makeshift bed and breakfast. To offset the exorbitant rent, the couple rented the room to travelers. In 2008, the two co-founded, along with Nathan Blecharczyk, a website for short-term rentals that would later become Airbnb. In 2018, the company’s leadership changed many times. After Laurence Tosi left the firm in 2018, Airbnb announced hiring of Dave Stephenson as its chief financial officer (CFO). Airbnb hired Belinda Johnson as its first chief operating officer (COO). <\/p>
In 2009, the company began raising funds. It then moved into the international market, with operations in the United Kingdom, Germany, France, Spain, Russia, and Brazil. Other services provided by the company include:<\/p>
As a middleman between hosts and visitors, Airbnb provides a well-established marketplace platform where hosts and travelers can safely exchange products and services. <\/p>
An in-depth evaluation system gives value to prospective hosts and guests wanting to satisfy their housing needs in a peer-to-peer model like Airbnb. Participants in internet markets trust reviews, allowing individuals to buy quality products rather than purchasing lemons safely.
Hosts submit their property data on Airbnb and other aspects such as pricing, offered facilities, etc.
Airbnb offers the option of bringing a professional photographer (if one is available) to the property location to capture high-quality images.
Travelers looking for a hotel in the area where they want to stay and compare available options based on pricing, facilities, and other factors.
The booking is made through Airbnb, and the traveler pays the amount specified by the host plus a 3% transaction charge.
The host approves the booking. The traveler stays there, and Airbnb pays the host after deducting their commission.
They publish reviews from hosts and traveler to benefit the larger community.<\/p>
The Airbnb Plus program gives travelers access to homes recognized for their extraordinary quality, comfort, and decor. A host must meet over 300 points to be approved as a Plus listing on Airbnb.
The Airbnb Plus program focuses on recognizing homes that achieve a high standard of quality and design. Airbnb’s business model is changing.
The Uber business model has become increasingly differentiated to accommodate various consumer budgets and tastes, such as premium automobiles, limousines, etc. Similarly, Airbnb follows the same strategy and has produced many offerings to appeal to clients with varying budgets and lifestyle preferences.<\/p>
Airbnb Luxe provides immaculately built apartments with luxury facilities, services, and a dedicated trip designer.
Airbnb is expanding its rental options to include some of the world’s most expensive and luxury properties. The new Airbnb Luxe category is intended for guests willing to pay more than $1,000 per night for thoughtfully built, luxury private houses with stunning views and top-of-the-line amenities.
Airbnb Luxe is based on Airbnb’s extensive knowledge of premium travel garnered through the 2017 acquisition of Luxury Retreats. This new category includes almost 2,000 handpicked homes from around the world, each of which has undergone rigorous examination across 300-plus criteria to fulfill requirements in both design and function.<\/p>
Airbnb makes money by charging visitors service fees, value-added taxes, and exchange rates for each night they stay. Let’s see how Airbnb makes money from its different business segments.<\/p>
Airbnb charges service fees that hosts and guests must pay when posting a listing and booking a stay on their platform. The hosts are responsible for the majority of service fees because they are the people who provide housing for the guests.
Every time a booking is finalized through a guest, hosts must pay an additional 3% fee. This 3% fee covers processing costs for guests who pay to stay at a host’s accommodation facility through the Airbnb website.<\/p>
In addition to the service costs, Airbnb levies a value-added tax on guests from Iceland, South Africa, Norway, the European Union, and Switzerland. These value-added taxes will be applied to hosts’ income when a booking is completed as an additional cost for hosts who use the platform to offer lodging services.<\/p>
If guests pay for their booking in a currency other than the currency of the country they are visiting, they will be charged exchange rates specified by Airbnb. These exchange rates benefit the organization by keeping currencies stable.<\/p>
Travel is one of the largest industries in the world, and its approach has been commoditized. The travel business has grown by providing uniform lodgings in congested hotel districts and famous sites and activities. This one-size-fits-all attitude has limited a person’s access to the globe, and as a result, visitors are frequently left feeling like outsiders in the locations they visit.<\/p>
Airbnb has enabled global home-sharing and created a new travel category. Rather than visiting as tourists and feeling like strangers, Airbnb visitors may stay in communities where people live, have authentic experiences, live like locals, and spend time with locals.
Hosts and guests can contact them before booking, pay securely, and provide evaluations after their stays or experiences. After a stay, guests and hosts can rate each other using the Airbnb review system. A mechanism that tries to promote accuracy and neutrality prevents hosts and guests from seeing evaluations until both have filed a review or the review window has closed.<\/p>
The Airbnb business model primarily benefits two stakeholders: hosts and guests. Let us attempt to comprehend the value proposition of Airbnb’s business model for each.
Airbnb hosts are the foundation of the company’s business model and community. Airbnb has built a community of hosts from all walks of life, with over 7 million listings on its site. Surprisingly, 90% of Airbnb hosts are regular people ready to share their homes and stories with strangers. But why are they hosting?
Hosts are primarily motivated by three factors.<\/p>
Airbnb’s value offer for hosts is based on its platform and tools, which allow hosts to be successful while still providing a high-quality experience.
Hosts can serve customers from all around the world. Within four days of becoming available, 50% of hosts obtain a booking, and 75% receive a booking within 16 days.
Hosts have access to more innovative pricing and scheduling tools: These tools assist hosts in determining pricing depending on a listing’s kind and location, the season, predicted demand, and other variables. Airbnb hosts may manage their calendars and accept, track, and manage upcoming reservations.<\/p>
On its platform, Airbnb handles all payments for hosts, including collecting payments from visitors and processing payments to hosts.<\/p>
Guests Airbnb serves guests from various cultures and locations looking for everything from low-cost to luxurious accommodations in metropolitan cities and remote towns. In 2019, 54 million active bookers globally booked 327 million nights and experiences on its platform, and over 825 million guests had arrived on Airbnb since its inception. As the site recovers from Covid, 2019 was the finest year for Airbnb.<\/p>
Airbnb’s value proposition for visitors is based on its ability to provide travelers with real experiences. Let’s take a closer look at this point:<\/p>
Initially, the Airbnb business model relied on homeowners renting out rooms to travelers. However, Airbnb has gradually expanded into the hotel business since its humble beginnings in 2008.<\/p>
Airbnb allows hotels, owners, and commercial groups to list their rooms. Airbnb is now directly competing with other hotel booking services like booking.com.<\/p>
People are becoming more interested in activities that produce shared memories. As a result, Airbnb debuted experiences in 2016. They are now aggressively seeking professionals to create various experiences for Airbnb guests.<\/p>
Cooking workshops, graffiti tours, painting, and other activities are available. The breadth and depth of accessible experiences foster a new ecosystem of partners and opportunities for Airbnb and its consumers.<\/p>
Despite its rapid expansion, Airbnb nevertheless faces significant obstacles. Some cities and countries are tightening down on Airbnb usage. This is because the service provided by Airbnb can be considered a short-term rental, which raises several legal concerns.<\/p>
As a result, double-check if the destination is acceptable to Airbnb before renting. Some unhappy homeowners have found themselves in legal problems after accidentally renting out their residences without realizing it was unlawful in their city.<\/p>
The Airbnb business model and its IPO will put additional pressure on Airbnb to grow regionally. As a result, Airbnb will require significant legal expertise specific to each country.<\/p>
Airbnb has challenged the traditional hotel sector and revolutionized how people live while on vacation. Airbnb has shifted homeowners’ mindsets from maintaining the unutilized piece of their property to systematically employing it to make money.<\/p>
Despite its size, Airbnb is not complacent. Airbnb appears to have a strong growth plan. The company continues to invest in growing the size and quality of its Host and Guest communities and engaging them through initiatives. <\/p>
Airbnb projects a $1.5 trillion serviceable addressable market (“SAM”) and a $3.4 trillion total addressable market (“TAM”). The company hasn’t even gotten the icing on the cake, with less than $50 billion in gross bookings on its platform. Let us see how Airbnb consumes the entire cake in the future years.<\/p>