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Research Analysis report of Airbnb
Amine Berrada
Course: MBA 501
Section: N 72
Student number: 574 972 493
Submitted April 11th, 2014
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Executive Summary
The report is a research analysis of Airbnb, Inc, which purpose is to deliver insights to an internal
and external client to support strategic planning. Airbnb that was founded on august 2008 is an
online platform allowing property owners to freely post their listing on the site, and travelers to check
for places where to stay. The services are provided online via the website or the application
available for smartphones. The target market of the company is the users of the website that are
property owners (hosts) and travelers (guests). Airbnb competitors can be divided in two categories:
Websites promoting the hotels bookings like Expedia, or the websites operating in the same field
like CouchSurfing, 9flat, Homeaway, and so on. Accompanying its international expansion, it has
acquired number of its competitors such as Accoleo, CrashPadder, NabeWise and Localmind. The
business model of the company is unique since it makes all its revenues from online activities which
classify it in the Pure-Play business. As a result, the internet business models of Airbnb are
brokerage (because the website works as a broker meeting hosts and guests together, creating
instead a virtual marketplace and facilitating transactions) and community model (users are loyal
due to the network effect that builds reputation). The Internet also impacted the way firms formulate
the competitive strategies; The bargaining power of buyers become high because the users find
themselves with more choices for product and services; The switching cost reduces because the
users have more information about the offers; The threat of substitute products increases because
the existing products become obsolete, new digital services and products are created such as the
disruptive product and services; The barriers of entry are almost eliminated due to the fact that
internet does not require any big investments; and as a result, the rivalry among existing firms
increases because making differences between the products become difficult, beside the fact that
there is resemblance of offers. Overcoming the challenges posed by e-business activities for Airbnb
came by shaping an online platform that provides interaction leverage (reduces the costs and efforts
required for a diverse array of participants by coordinating their activities). The key value lies on the
set of protocols and practices designed to facilitate interaction between users. The paper also
analyzes Carr´s article (IT doesn´t matter) where he declared that internet is no longer considered
as a competitive advantage and it became a commodity accessible to everybody. The case does not
apply because Airbnb is a real example of an online company being evaluated at 10 billion in just 5
years´activity. The future competitive environment for Airbnb is to find other ways for guarantying
security for its users, but also to look on the legislative aspects that could impact negatively the
activity of the company.
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Table of Content
1. Description of the Company:........................................................................................................... 3
1.1. Services and Target Market: ................................................................................................... 3
1.2. Distribution Channels: ............................................................................................................. 4
1.3. Number of employees and length of time: .............................................................................. 4
1.4. Competitors and Acquisitions: ................................................................................................. 4
2. Engagement in E-business and Internet Business Models ............................................................ 5
2.1. Engagement in E-business : ................................................................................................... 5
2.2. Internet Business models : ...................................................................................................... 5
3. Impact on the competitive strategies and Challenges posed by E-business activities : ............... 6
3.1. Impact on the competitive strategies....................................................................................... 6
3.2. The challenges posed by the e-Business activities: ............................................................... 7
4. Carr´s writing : ................................................................................................................................. 8
5. Future competitive environment for Airbnb: .................................................................................... 9
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1. Description of the Company:
Airbnb.com is an online company allowing property owners to freely post their listing on the site,
surcharging fees only when a deal is made (Brennan, 2011). The website is a marketplace where
travelers demand to find an accurate place where to stay, meets the hosts offers that could be
private rooms, entire apartments, castles, boats, manors, tree houses, tipis, igloos, private islands,
or other properties (Brennan, 2011). The company that was founded in 2008 by Brian Chesky, Joe
Gebbia and Nathan Blecharczyk has recorded in 2013 more than 500.000 listings in 33,000 cities, in
192 countries, and served around 11 million guests (Mengel, 2013). Returning back to its origins,
Airbnb is brought from the previous name of the company which is “Airbed & Breakfast”. The
concept came from the simple idea when the co-founders (at that time students) were living
together, they were renting out a place from their loft and offering home-made breakfast for visitors,
all to cover the cost of their living. The essential need turn out to a business, and they launched
officially the Airbedandbreakfact.com on august 2008 (schonfeld, 2008). In 2009, the founders
change the name to Airbnb.com and expanded their activity to cover all kind of accommodations
(Brennan, 2011). They financed their company first via selling a special edition breakfast cereal of
the USA presidential candidates, then after received a $20.000 from Y combinatory investment
(Rao, 2009). The company has been growing significantly through the years, and in 2010, it has
succeeded in raising up $7.2 million in series A funding from Greylock Partners and Sequoia Capital
(Wortham, 2010). In 2011, the company raised $119.8 million in venture funding; whereas in March
2014 the company announced that it is going to receive $400 to $500 million, bring it to a valuation
of $10 billion (Rusli et al, 2014). If the funding round turns out to be successful, the company will be
considered as the most valuable startup in all times.
1.1. Services and Target Market:
a) Services
Aibnb, Inc provides to its users an online platform that connects freely between hosts and renters.
This online platform could be accessible from the application on a smartphone or online via the
aibnb.com or any other websites through which Airbnb provide services (yu, 2012). The concept
comes from the “economy sharing” or as know by the “Collaborative Consumption” where people
make good use of their assets by providing services to other people through a specialized virtual
Marketplace, which is the case of Aibnb.
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b) Target Market:
The target Market is the users of the website that are property owners (that have extra place that
want to rent) and renters (Travelers that are searching for a good experience with a reasonable
price). Every user must create a personal account (linked to a social network media) where it
provides detailed personal information. Details shown in profiles are reviews and shared social
connections that build reputation and trust among users (Van Grove, 2011). Moreover, property
owners (Hosts) create listing where they publish pictures of the place offered and details concerning
prices per period and rules. Users after connecting and communicating their needs and intentions,
travelers (Guests) book the place via the website and conclude the transaction.
1.2. Distribution Channels:
The Online website, mobile application (Android & IOS), social networks (Facebook, twitter,
YouTube) and blog are the channels of distribution that the company uses to provide services to
customer. The collaborative market lays on the internet usage because it is considered a cheap
communication network that is available to everyone (Personal global connection); it gives a wide
access to public network (Social sharing); it provides standardized communication protocols and a
great user interface (Mcnurlin et al, 2008).
1.3. Number of employees and length of time:
Since august 2008, Airbnb has been operating as an actor of the collaborative consumption. It has
been growing through the year and raising funds in order to satisfy in an accurate way its target
market. The company, one year after its creation, had 15 employees that were working in San
Francisco office. Nowadays, the company counts 12 offices all around the world with a number of
employees that reached 1.324 (Crunchbase, 2014).
1.4. Competitors and Acquisitions:
Airbnb competitors can be divided in two categories: Websites promoting the hotels bookings or the
websites operating in the same field. For the first category, Expedia is the major competitor in the
market as long as it offers a range of hotel offers that compete against the one of Airbnb. For the
second category, Airbnb is obviously the leader in the peer-to peer rentals, followed by 9flats that
has also some popularity (Bryant, 2012). The market also knows the presence of a huge number of
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websites that offers the same service like CouchSurfing, Homeaway, HouseTrip, Luxorbnb, Kozaza,
Castlecave.com, stopsleepgo and ratedapartments. (Chubbybrain, 2014)
Since the website started to be more popular by travelers, Airbnb started its international expansion
by acquiring number of competitors around the world, such the example of Accoleo in Hamburg,
CrashPadder in London, NabeWise and Localmind. Because the company has no boundaries
through its e-business activity, the acquisitions has strengthened its presence internationally, and
provided more services to the international travelers (Crunchbase, 2014).
2. Engagement in E-business and Internet Business Models
2.1. Engagement in E-business :
According to Afuah & Tucci (2003) that had studied the internet business models and strategies
through creating a scheme of e-business development, Airbnb is considered to be a firm using only
digital channels by operating all its transactions and customer services online. Since it started its
activity, the percentage of revenue contributed by the online activity represents a 100% because the
core activity of the company relies on the technology and internet, which classify it in the Pure-play
businesses.
The E-business stages described by Chaffey (2007), Bocij et al. (2005) and Turban et al. (2006) do
not apply for Airbnb because the company is a Pure-play business, which started its activity as an
online platform. The revenues of the firm are all generated from the online activity based on
commissions for achieved rentals.
2.2. Internet Business models :
The internet business model is defined to be the way by which a firm can manage to sustain itself by
considering the advantage of using internet McNurlin (2006). It can focus on different
approaches like the revenue generation or the costs savings, but it also has different
categories. In the case of Airbnb, the business Model is concentrated on Brokerage and
community models.
a) Brokerage
Airbnb’s website works as a broker meeting hosts and guests together, creating instead a virtual
marketplace and facilitating transactions (Rappa, 2010). The revenues of the company are made
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from the commissions on bookings going from 6% to 12%, all depending on the price (Bly, 2012).
Also the firm charges 3% fees taken from the host’s revenue due to the credit processing system
(Couts, 2012). Airbnb revenues are only extracted from these commissions, but also protect both
hosts and guests from undesirable situations such as damages or non-respect of conditions that
could affect the guest journey, by holding the transaction and not completing it until both parties are
satisfied (Normally after the check-in by 24 hours) (Bly, 2012).
b) Community Model:
The community model relies on user’s loyalty and heavily on the network effect (Rappa, 2010).
Hosts are the main contributors listing the properties on the website, but also the guests saw a
particular relationship with the Hosts. After achieving the transaction between the host and guest,
both parties are required to leave reviews and grades, in a way to build a reputation that would
impact positively or negatively the property’s owner. The reputation enhances the chance to have a
network that could increase the demands, but also it is considered as references for future users.
However, the startup did not make any changes over time related to its e-business model.
3. Impact on the competitive strategies and Challenges posed by E-
business activities :
3.1. Impact on the competitive strategies
Internet is a tool that most companies use, not only as a mirror that reflects their brand image, but
also for profitable operations that generate revenues. Michael Porter (2001) in his article “strategy
and the internet” discussed the impact of the internet on the competitive strategies of a firm. The
bargaining power of buyers become high because the users find themselves with more choices for
product and services, more informations are given about the service, but also more transparency
concerning the prices (Porter, 2001). The switching cost reduces because the users have more
information about the offers, and they can benchmark the market to find the best quality /price
report. However, the case does not apply for Airbnb because they tend more to lower the switching
costs by increasing the networking effect of the users. More the users get reputation and have a
good grade, more they become loyal to the website, and forget about switching to website. The
threat of substitute products increases because the existing products become obsolete, new digital
services and products are created such as the disruptive product and services (Porter, 2001). The
barriers of entry are almost eliminated due to the fact that internet does not require any big
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investments in physical assets, any sales force that represent the company or any proper channels
of distribution (Porter, 2001). The internet applications also starts to be difficult to preserve because
there is a mass of entrepreneurs that follows the trends and copy the concept, which results in a
flood of new entrants in industries (Porter, 2001). The bargaining power of suppliers decreases
because the level of competition becomes higher, due to the fact that small and big firms become
the same (Porter, 2001). As a result, the rivalry among existing firms increases because making
differences between the products become difficult, beside the fact that there is resemblance of offers
(Porter, 2001).
3.2. The challenges posed by the e-Business activities:
Shaping a platform that delivers new services to internet users is challenging because the company
does not know how the feedback is going to be. Overcoming the e-business activities came by
shaping a platform that provides interaction leverage (Hagel et al, 2008). This type of platform
reduces the costs and efforts required for a diverse array of participants by coordinating their
activities (Hagel et al, 2008). Airbnb designed this website by distinguishing between guests and
hosts, and even from different kind of allocations that are provided in its website. Moreover, the key
value lies on the set of protocols and practices designed to facilitate interaction between users
(Hagel et al, 2008). Airbnb make possible the communication between the users by creating a chat
section where both parties build trust between each other, but also coordinate for a better
comprehension of the rules and pre-requisites. The website also asks users to allow the
implementation of cookies in their browser in order to detect their special need directly and place the
appropriate posting. Also, the company focuses on taking professional photographs of the
accommodation in order to improve the design of its posting and make them more enjoyable.
Airbnb online platform provides powerful leverage for both shaper and participants. From the users
perspective, this platform increases functionality by allowing them to rent out or find place without
significant waste of time; it decreases adoption costs because it is easy for every person to follow
the protocols (because they are standardized); and generate revenues for hosts or good quality
price report for guests- those effect amplified as users grows (Hagel et al, 2008). From shaper´s
perspective, the platform helps in concentrating the flow of knowledge as the activity is engaged with
more users (Hagel et al, 2008). Winter Olympics in Sochi were the perfect example of a functional
website, when journalists could not find hotels with good infrastructure. Airbnb replied to the tweets
by giving them the opportunity to be hosted by Russian, avoiding then a possible disaster for the
organizers (greve, 2014).Airbnb acts also in cases like natural disasters by uncharging the fees for
refugees and people in need for location.
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4. Carr´s writing :
Carr (2003) in his article “IT doesn´t matter” discusses a number of issues related to IT and the
internet. He declared that internet and digitalization used to be considered as a competitive
advantage for the companies when they adopt it in the early stages of their life cycle. He assumed
that using internet remains an expensive and risky way to invest, especially that it lays on
uncertainty (Carr, 2003). Companies started implementing IT departments in order to follow the
trend and acquire significative market shares. Carr (2003) argued that competitive advantage
happens when only few companies adopt or use a resource in order to differentiate from others.
Also, he advanced that strategic advantage occurs when there is an innovation or the use of a
scarce resource such as a patent or unique business processes. However, he indicated that once
the internet will be available and cheaper to everyone it will become a commodity accessible to
everybody (Carr, 2003). Carr (2003) also claimed that the IT functions became more like a
commodity, and companies investing on it are wasting their budget, and tend to be unprofitable. He
recommended to companies using IT functions a number of points that turns around managing the
risks and focusing only on vulnerabilities and not opportunities, keeping the costs low (especially
when it is subject of getting the last version of a software, while the ones that the firm has work
correctly), and be a fast follower because the company applications are duplicable, but creating
them are very expensive (Carr, 2003).
Talking about Airbnb, Carr´s argument about technological companies seems to be wrong. The firm
has only 5 years old and could operate on the international level within 2 years, with less fixed costs
and considerable profits. It has multiple offices around the world, and still continues its expansion
due to the interest of the population to the collaborative consumption that offers several advantages.
Airbnb is considered one of the first movers to this trend, and developed its IT functions in order to
satisfy number of worldwide users. Nowadays, internet became a source of information and is
indispensable for daily users, it is cheaper than what it was in 2003, and offers a number of
opportunities. However, Carr argument about vulnerabilities has a part of truth, because Airbnb is
focusing on both vulnerabilities and opportunities. Because in this kind of activity, incontrollable
incidents can occur such as the stolen items and damages done by guests, in this case Airbnb had
to overcome the situation by setting a contract with insurance companies going to refund an amount
until a million dollars. The opportunities rely on detecting the need of launching a new product
satisfying a new niche of customer for example.
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5. Future competitive environment for Airbnb:
The collaborative consumption is a new trend that helps people sharing experiences and assets that
are not used in appropriate way. Airbnb understood that the internet activities move rapidly and
faster than the traditional one, and started acquiring numbers of competitors in the international
market to keep on following the trend, gaining more market share, and specialize massively in its
industry (Bryant, 2012). The future competitive environment will stand for the corporations that are
carrying about the security of the users; Airbnb already understood this concept and made some
actions regarding the consequences that resulted by contracting with insurance companies, and
guarantying an automatic refund for damages. The legislation aspect is the one that the firm should
observe constantly because the activity is not yet regulated and taxed. Innovation and looking for
specific products for another niche of consumer is another point that Airbnb should think about.
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