Airbnb Case

Posted: January 4th, 2023

Student’s Name:

Tutor:

Course:

Date:

Airbnb Case

Description of Company

Airbnb was founded by Brian Chesky and Joe Gebbia in 2007, after they decided to rent out three air beds in their apartment in order to make extra money. A nearby event attracted people to accept their offer, as the location lacked short term rentals. Chesky and Gebbia decided to expand on this idea, and invited Nathan Blecharczyk to join them as another co-founder (Chatterjee 1).The company was initially modelled on websites such as Craigslist or eBay, where guests would pay cash upon their stay. Chesky tested this as a guest, and determined the payment method was inflexible and impractical, which led to the implementation of online transaction fees and accounts.

Currently, Airbnb is no longer merely event based, but has broad, general listings. Airbnb has essentially become a website with listings of short-term home/apartment rentals. Hosts include pictures of the rental, the number of bedrooms and bathrooms, and amenities such as parking, Wi-Fi, TV, washer/dryer, and kitchen appliances, among others. Home owners are also able to create their own rules regarding the number of guests allowed, whether pets are allowed, and what they can or cannot use in the rented spaces. These rules are included in the listing so guests can better determine if they would be comfortable staying in that particular space.  

External Analysis: Porter’s Five Forces

The importance of using the Porter’s five forces is to determine Airbnb competitive environment, and their strategies to target more travellers, analyzed as follows-:

Rivalry among Existing Competitors

Airbnb has a strong rivalry, which means customers can easily switch to a similar company for the same services.Airbnb has three types of competitors which include the copycats, vacation rentals, and one-stop vacation services (Chatterjee 6). Airbnb have identified over 500 companies that imitated their concept, as of 2016. Vacation rental companies like HomeAway, VRBO and Flipkey, compete with Airbnb and offer vacation home rentals, aimed at families looking for comfort and good deals. Hotels in general are Airbnb’s largest competitors, as many customers prefer hotels to Airbnbs. All the competitors offer comparative prices, and increased customer service satisfaction, with added quality and warranties, elevating the level of competition.

Threat of New Entrants

The threat of new entrants is high for Airbnb. With rental businesses being the preferred choice by most start-ups today however, there are entry barriers such as government or licensing regulations that prevent new businesses from entering the market and competing with existing businesses in the same niche.  

Bargaining Power of Supplies

Airbnb suppliers are the hosts who provide the houses or homes to be rented to travellers. Airbnb cannot function if these people do not provide them with spaces to rent meaning the hosts have a high bargaining power. 

Bargaining Power of Buyers

The industry buyers are sensitive to price and to security and safety issuesGiven there are alternatives in the market offering the same services, they can play them off against each other, thus affecting profitability.   

Threat of Substitutes

The threat of substitutes for Airbnb is medium-high. Customers can easily switch to a hotel, vacation home, hostel, or couch surfing. The price that customers are willing to pay for a product highly depends on the availability of substitute products.  Hotels pose a high threat to Airbnbs as they are readily available to consumers.

External Analysis: PESTEL

Airbnb is affected by many external issues including global, political, economic, sociocultural, technological, environmental, and legal, as discussed below-;

Political

As Airbnb continues to grow across countries, they face new legal challenges. The company operations are run in a non-licenced market, and this has caused a rise in political debates for and against it.

Economic  

Airbnb would be greatly affected in the event of a recession or global pandemic like Covid-19.  Currently, guests are less likely to travel to areas affected by this virus as they are worried about their safety. Massive losses will thus result. On the other hand, Airbnb would thrive during an economic boom.

Socio-cultural

Many travelers are choosing to stay at an Airbnb rather than a hotel as they feel they receive a better overall experience. Airbnb contributes to these small society based businesses, and has helped many people generate sufficient income for themselves and even enabled them to pay off house loans, which has prevented them from getting evicted. Airbnbs also offer a “homely” environment compared to hotels as guests connect with their hosts, who recommend sites and places of interest to customers.

Technological

Technology contributes greatly to a country’s economy. As posited by Biven, a new business model like the one adopted by Airbnb translates to a smart technology.  Incorporating technology has smoothened the operations. Other than its smart messaging system, Airbnb has adopted a technology that verifies check-ins, allows users to select currency, and makes both the process of checking in and out easy.

Environmental

The company has established a model that ensures resources are efficiently used. The model also checks if hosts manage their energy and water expenditure effectively. In addition, the company has put measures in place to ensure that waste management rules are adhered to.

Legal

It is not easy for any business to avoid clashing with the laws of the country in which it operates. Airbnb has clashed with various laws, particularly in the United States regarding issues like renting laws and taxes. However, the situation is often more favourable in many countries, and the business is able to run its operations smoothly.

SWOT Analysis

Strengths Airbnb is recognized globally, hence people have trust both in the company and the services it provides Lower prices compared to hotels, thus enables travellers to save. The Company’s customer services operates on a 24/7 basis hence is able to attend to client’s  needs at any given time Airbnb’s business model presents a strong growth potential making it easy for the company to expand in other nations.

Weaknesses The company’s business model is replicable, thus attracts high competition Inability to control the quality of services such as adventures, accommodation, or experiences due to its platform business model The Company’s brand image is highly exposed to scandals, which might stems from issues like poor hosting

Opportunities The Company’s business model presents many growth prospects to create and expand services based on the target consumers. Airbnb should use social media to run  marketing campaigns and increase brand awareness Airbnb should form new strategic alliances with different companies to help improve customer experience There is an opportunity to expand in untouched markets internationally

Threats Emergence of new competitors offering the same services Legal issues pose a threat to the growth of the business

Internal Analysis

Tangible Resources

Financial Resources 

The company was valued as a 1 billion-dollar business in 2011. Currently, Airbnb has a market value of 35 billion, although it still is a private company. It currently sits on a cash position of 3.5 billion dollars, and its last quarterly income statement presented a net income of 266M with 1.7B in revenue. Airbnb’s revenue increased by 70% between Q3 2018 and Q3 2019. As a result of its strong capital position, the company can easily secure additional funding, should it need to secure another private placement or eventually go public.

Physical Resources

The company operates as an online platform that mediates the exchange between renters and customers. As such, their balance sheet does not consist of many physical assets, other than their 31 office spaces, as the rental properties are not owned by the company.   

Technology Resources 

The company currently has approximately 150 million worldwide users who use the site throughout 65,000 cities. Airbnb’s loyal and repetitive client base makes it the largest online marketplace as an intermediary for homestays (Oskam, Jeroen, and Albert 26). Its impressive number of users makes the company extremely valuable. The company’s website offers clients with many choices, each priced differently, thereby allowing users to choose an affordable place and location. 

Organizational Resources 

Airbnb’s mission statement is “is to live in the world where one day you can feel like you’re home anywhere & not in a home, but truly home, where you belong.” As of 2014, Airbnb had 10 million guests and 550,000 properties listed worldwide. Currently the company has 150 million users worldwide, and are likely to record a higher client growth in the future.

Intangible Resources and Organizational Capabilities

Over 500 companies have tried to imitate Airbnb’s platform, however, the company successfully distinguishes itself as a unique platform using various intangible resources. New entrants or competitors would take a long time to reach the huge client base and company reputation enjoyed by Airbnb. Customers choose Airbnb because of the many home choices it offers, and the security associated with a reputable company.

VRIN Analysis

Valuable:

Airbnb offers value to customers. They can book a house or a room to stay in for a short vacation, at a cheaper price. Airbnb offers lower prices than hotels. Under tough economic conditions, resources are valuable, and Airbnb can neutralize threats and exploit opportunities, such as shortening the booking time and expanding the overseas market.

Rare:

Airbnb is not easy to imitate even though there are competing firms, such as Wimdu, HomeAway, and VRBO, among others. The company solicits with detective@Airbnb.com to expose imitator sites and maintain customer loyalty. 

Costly to imitate:

From 2007 to date, Airbnb has formed its dependency path and social complexity. This means the company is unique and understands its customers.

Non substitutable:

Chesky and Gebbia founded Airbnb, and harnessed the opportunity to operate online. They are excellent leaders focused on growing the company. Others companies lack equivalent strategic resources or capability to reach the level of this company.

Value Chain

Primary activities

Primary activities form the core operations that directly form Airbnb’s service delivery to the customers. Below is a detailed look at Airbnb’s primary activities.

Inbound logistics

People can access their services by visiting the Airbnb website or application. Hosts post pictures of the properties on the website, where users can access the one that suits their requirements, just by clicking on them.

Operations

Airbnb is in the service industry, so operations are important. Operations include cleaning, handling keys, and providing amenities, all of which are currently done by the host, and not the Company. New service ideas which would be facilitated by Airbnb, are being created to serve and fulfill the requirements of these operations. An example is FlyCleaners, which offers cleaning services for guests.  

Outbound logistics

Outbound logistics in the service industry are not as detailed as in the manufacturing industry. Since Airbnb is a platform for property owners, hosts offer accommodation and amenities, meaning that Airbnb is not involved in outbound logistics.

Marketing and sales 

The idea of Airbnb is to offer a comfortable experience for travellers, by providing them with access to lower priced accommodation. Their marketing channels are mainly through brand partnership and celebrity endorsements. 

Service

Airbnb offers excellent service. Hundreds of employees are ready to answer calls, emails, and chats. Hosts and guests are able to rate each other based on their own experience. This helps other guests know whether the host provided well for them or not. At the same time, hosts benefit from this by looking at the reviews, and deciding whether or not to rent to a particular guest. 

Secondary activities

Secondary activities consist of support operations aimed at facilitating the core business of Airbnb.

Firm infrastructure

Firm infrastructure is made up of an array of activities ranging from planning, strategy management, finance matters, legal support services, and quality management. By ensuring proper management of the infrastructure activities, the overall value is optimised, in turn giving Airbnb a competitive edge over other players.

Human resource management

Airbnb can benefit hugely from properly analyzing the HR management process. Understanding the factors in play at the personnel level would ensure Airbnb manages the motivational needs of the workforce, leading to committed employees. In addition, hiring and training costs are minimized.

Technology development

Adopting technology support such as automation software in the value chain operations would ensure effective delivery of services. Errors related to human influences are avoided in turn.

Procurement

Procurement process include all activities in the value chain that facilitate acquiring of all the input needs. For Airbnb, this incorporates purchasing equipment and raw materials that go into production of its core business product. Effective management of the procurement process is key for Airbnb as it ensures optimised inbound and outbound logistics, as well as at the operations level of the value chain.

The Advantages and Disadvantages of Airbnb In Comparison With Its Direct Competitors

The advantages and disadvantages relate to Airbnb’s value chain activities.

 Airbnb, compared to its direct competitors, offer clients a wide selection of properties. This ranges from apartments, singles rooms, shared houses, castles, and moored yachts, among others. The second advantage is that the company gives hosts the freedom to set their own prices daily, weekly, or monthly (Oskam, Jeroen, and Boswijk 30). Thirdly, Airbnb offers free listings, and hosts do not have to pay anything to have their properties listed on the website.  Fourthly, the company guarantees protection for hosts and guests. After guests have checked-in, the company holds their payment to the host for 24 hours. Airbnb offers its users with customizable search options where guests can look for price, host language, amenities, and property types, among other factors.

The disadvantages are that the business is not legal in all countries, and before hosts list their properties, they are required to check on the legal aspects, and obtain the required licences. The second disadvantage is that the business is subjected to taxes, especially in places like Norway, Switzerland, and the European Union, where both guests and hosts are required to pay taxes.  Lastly, sometimes what customers see advertised on the website is not what get. Airbnb, unlike hotels, does not offer a reasonable guarantee that the property will be as advertised, since property owners create the listings and not the company.

Key Strategic Issue: Bylaws/regulations and risks in different countries (Taylor)

One of Airbnb’s biggest challenges is the different laws and regulations regarding short term rental vacations. Some locations like Toronto, New York, and Berlin, among others, have laws that hinder one’s ability to host guests looking for short-term living spaces. Such laws may be formed in a city’s administrative or zoning code, and differ from one area to another. In several places, hosts must obtain a permit, licence, or register before renting out. Not adhering to the laws may attract large penalties. Legal assaults have also increased against the company. By the end of 2019, about 230 cases had been filed against the company, ranging from petty clashes like pest infestations, to refunds and hidden bedroom cameras.Airbnb does not take responsibility for ensuring hosts follow regional bylaws, however, they provide information on their website about certain regions, and strongly encourage hosts to do their own research regarding the laws. 

Addressing the Issue

Alternative 1:

Airbnb encourages potential hosts to research laws in their region that would affect their ability to become a host. When hosts were affected by new bylaws in New York, Airbnb fought against the law and invested in a non-profit group called Peers to assist. . Airbnb has made it clear to users that they are at no legal fault for the misuse of their service.

Alternative 2

Airbnb has many partners, such as KLM Airlines and Optus. KLM Airline is a Netherlands based Airline Company which Partners with Airbnb in its operations. Airbnb provides houses for customers who utilise their planes. Optus is a telecommunications company which works with Airbnb to encourage communication among travelers, who would otherwise suffer from roaming charges. However, Airbnb does not offer transport from the airport to residence service. If Airbnb collaborates with Uber or other taxi companies, then customer experience would be enhanced.

Alternative 3

Airbnb has built a team of legal professionals who fight for their interests in court. Such a team should always ensure that the company understands the renting laws available in each country to avoid conflicts. The team should work with the government to ensure that all laws are clarified and the company comprehends them. In addition, Airbnb should in several tax jurisdictions collect, remit, and then calculate the local occupancy tax for their clients.

Recommendation and Implementation

The preferred alternative is for Airbnb to partner with other companies. Partnering with another company can generate more resources, both tangible and intangible. In addition, partnering can increase brand value and give them a competitive edge. Partnering with a brand like Uber, which is well established and known, can be advantageous due to its credibility and services offered. Uber can help Airbnb grow and dominate the hospitality market. Uber can also combine the rideshare platform with Airbnb hospitality, and create a package to attract more clients and increase the customer base. Airbnb can also partner with other airlines to offer an ultimate deal that includes flights and accommodations through the Airbnb platform. Creating such partnerships would translate to excellent customer experiences, a growth in customer base, and profitability. 

Conclusion

Airbnb is more than an online business that focuses on providing accommodation to travellers. The company has readjusted the service industry’s demand and supply, and altered experiences and accommodation whilst travelling. The company represents a developing society that is changing how people feel about travelling, renting, and sharing spaces. Chesky and Gebbia are creating doors to a globalized world and altering traditional hospitality businesses like hotels. Users attest that Airbnb offers good customer experiences and provides its hosts with new income sources, by renting out or sharing their spaces. Despite difficulties like legal challenges, Airbnb continues to be creative in adapting and rethinking the market needs, and this is what sets them apart from competitors.

Works Cited

Biven, Josh. “The Economic Costs and Benefits of Airbnb.” Economic Policy Institute, 2019, https://www.epi.org/publication/the-economic-costs-and-benefits-of-airbnb-no-reason-for-local-policymakers-to-let-airbnb-bypass-tax-or-regulatory-obligations/. Accessed 14 April 2020

Chatterjee, Sayan. “AirBNB-Business Model Development and Future Challenges.” Ivey, 2016,

            https://hbsp.harvard.edu/product/W16782-PDF-ENG Accessed 14 April 2020

Oskam, Jeroen, and Albert Boswijk. “Airbnb: The Future of Networked Hospitality Businesses”. Journal of Tourism Futures, vol. 2, no. 1, 2016, pp. 22-42.