Airbnb Business Model: Find a Place to Stay… in the Business World

“Uber, the world’s largest taxi company, owns no vehicles.
Facebook, the most popular media owner, creates no content.
Alibaba, the most valuable retailer, has no inventory.
Airbnb, the largest accommodation provider, owns no real estate.”

Even though this isn’t entirely true (anymore) – as Facebook does create content, and Airbnb does own real estate – still, it shows a discernable pattern in the way businesses operate nowadays.

The observation quoted above was made by TechTarget’s Tom Goodwin in 2015 and is still being commonly circulated on social media.

What Goodwin goes on to assert in his article is that what matters most nowadays is the control over the digital customer interface. Everything else, including factories, stores, warehouses, networks, pipelines – even the goods and services they provide – is secondary.

Only those companies that successfully master the software interfaces and manage to connect the goods and services with large audiences will make significant money in the new economy of the digital age. In Goodwin’s words:

“The internet age means building things is nothing other than code.”

Airbnb is one of those companies that have recognized the importance of the digital customer interfaces, so we’re going to look into the Airbnb business model and try to teach you some valuable lessons that you could apply to your own business.

What is Airbnb?

A‌i‌r‌b‌n‌b‌, ‌I‌n‌c‌.‌, with headquarters in San Francisco, is a global company that operates as an online marketplace and hospitality service. Basically, it is a community-based online platform for renting accommodation that enables local hosts and travelers to connect via its website or mobile app.

airbnb business model

On one hand, it enables real estate owners to rent out their private houses, apartments or rooms or offer tourism experiences, thus becoming what Airbnb refers to as “hospitality entrepreneurs”.

On the other hand, it provides travelers with an alternative to the more expensive hotel accommodation and an opportunity for a more authentic local travel experience.

A Brief History of Airbnb

Airbnb was founded with a mission

to create a world where people can belong through healthy travel that is local, authentic, diverse, inclusive and sustainable.

Even though most people nowadays see it as a lower-cost hotel room alternative, the initial Airbnb business model idea was to establish a business around locals local experiences.

Airbnb was founded by Brian Chesky and Joe Gebbia (Nathan Blecharczyk joined the company later) in 2008. It all started with 2 founders, 1 apartment, and 3 air mattresses. t first used to host their guests on air mattresses in their apartment. Hence the original name – Air Bed and Breakfast. They did so when all the hotel rooms in San Francisco were booked due to a popular event. They would sell “spots” in their apartment, provide the guests with breakfast, and show them around.

As you know, the company has gone a long way from air mattresses. Today, Airbnb provides access to 5+ million unique places to stay in more than 81,000 cities and 191 countries.

Airbnb Business Model

How Airbnb works

The Airbnb business model is based on a 7-step process:

1. Register on Airbnb.com. You can either become a host (and host a home or an experience) or sign up as a regular user (looking to rent out a place to stay).

2. Hosts share property details to Airbnb, including pricing, availability, check-in times, amenities provided, house rules, how they interact with guests, and so on.

3. Airbnb sends a freelance photographer (if available) to take high-quality photos of the property.

4. Travelers search for properties (via the website or the app) in the city where they want to stay and browse the available options filtering by price, availability, etc.

5. Travelers book a place to stay through Airbnb by paying the amount determined by the host, plus some additional Airbnb transaction fees.

airbnb booking

6. Hosts approve the booking, traveler stays at the property, and Airbnb releases the amount to the host (after deducting their commission, of course).

7. Both hosts and travelers (can) leave ratings and reviews addressing their experience.

How Airbnb makes money

The Airbnb business model is such that all the monetary transactions are done on the platform. This enables Airbnb to generate revenue from two sources – hosts (property owners) and guests (travelers). Their entire revenue system is based on commissions and service fees.

Host service fees

Generally, the host service fee for renting homes is 3% (though it may be higher in some cases, for example, for hosts with a Super Strict cancellation policy). This service fee is calculated from the booking subtotal and will be automatically deducted from the host’s payout.

airbnb host

If you’re a host, you can easily review the service fee for a particular booking if you:

  • Go to Transaction history
  • Click the reservation code (next to the reservation you want to review)
  • Under Payout, see the Airbnb Service Fee

Guest service fees

The guest service fee varies significantly in the range between 0% and 20% of the booking subtotal. It’s calculated using multiple factors like the reservation subtotal, the length of the stay, and characteristics of the listing. This fee gets lower with the increase of the reservation cost.

If you’re a guest, you’ll be able to see the exact amount of this fee on the checkout page, right before you book your reservation.

Value propositions

Hosts:

  • Earn money by renting unused space or by offering experiences
  • Airbnb offers insurance

Guests:

  • Live like a local
  • Cheaper accommodation (than hotels, for example)

Greatest Airbnb Business Model Challenges

Trust

Even though Airbnb does its best to provide insurance to both hosts and guests, trust still remains one of the top challenges. As the community keeps growing each day, it becomes even more difficult to ensure there’s no fraudulent activity on the platform.

Regulations

Airbnb’s influence has become so significant that the authorities have started introducing laws to regulate it. The fact is that many hosts misuse Airbnb to rent out accommodation illegally, without paying taxes. That’s why many countries and cities have started introducing new regulations against short-term rentals.

Japan, for example, has recently introduced a law that requires Airbnb hosts to register their listing and show a license number on their property page. As a consequence, Airbnb had to cancel most of the existing bookings because they were not in compliance with the new law.

Local competition

Local competition is a big threat and since local players understand the culture better, they have a slight advantage. They also have the first-mover advantage if they respond quickly to Airbnb’s expansion.

3 Lessons to Learn from the Airbnb Business Model

1. “Build something 100 people love, not something 1 million people kind of like.”

Airbnb’s co-founder Brian Chesky says this was a piece of advice he appreciated the most. As he elaborates in an interview he gave to Inc.:

“The best piece of advice I ever got was from our first investor, Paul Graham. He said it’s better to have 100 people love you than a million people that sort of like you, so if you can find 100 people that love your product — as long as there are more people like them in the world — then you have an idea that I believe will spread around the world. But if you can’t get 100 people who absolutely love your product, then you do have a problem.”

Screen Shot 2018 11 05 at 1.36.40 PM

2. Work on customer retention

In order to grow, every company needs to retain its customers. Airbnb, for example, needs to make sure their travelers have a pleasant experience, so as not to choose hotel accommodation for their next travel.

How does Airbnb work on customer retention? They provide special offers, promo codes, and credits to regular travelers. They even take it a step further by sending such promotions to hosts as well, encouraging them to take a vacation and stay in somebody else’s Airbnb.

Customer retention is a vital part of the Airbnb business model and should definitely be on your to-do list as well.

3. Create a community, not just a series of commodities

Speaking at the Code Conference in Rancho Palos Verdes, Chesky said:

 “I think the key that makes Airbnb is the fact that we’re a community, not just a series of commodities.”

He further added:

“And so the people who misunderstand Airbnb, they tend to just see a bunch of real estate. But of course, if you look a little deeper, what you’re going to see are three million people — our hosts — and that’s in many ways, really, what you’re buying.”

How to Rock Real Estate Lead Generation (Airbnb Won’t Teach You This)

Since you were looking to learn more about the Airbnb business model, it’s highly likely that you’re in some way involved in the real estate business. And if you’re in any way involved in the real estate business, generating targetted leads is one of the most important things you need to be focusing on.

When it comes to lead generation, I have just two words for you – online quizzes. People find quizzes appealing because they want to learn more about their own selves in an entertaining and lighthearted way. When it comes to real estate lead generation, quizzes can help you and your customers pinpoint what their exact needs are and how to fulfill them.

Looking to learn more about real estate lead generation? Look no more! We have prepared a detailed guide on how to rock real estate lead generation with quizzes.

Still not convinced that quizzes could be the right thing for your real estate lead generation efforts? Maybe the story of Terri Hart will convince you. She created a simple “Where should you live?” style quiz titled “Which Western Mass Town Fits You Best?”

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The results? In two weeks, she managed to generate 1010 leads for free. Click on the image below and start generating your own leads now!

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