Leading for Strategic Advantage
MGMT90204
Assignment 2: Research Report
Strategy Analysis on Airbnb
Giannina Chiavetta 844302
Xinyi He 823491
Xiaoci Lu 892062
Sanditi Rao 894277
Juan Wei 807199
Yuan Liu 773270
Zicheng Wang 817545
Word Count: 3,297
2
TABLE OF CONTENTS
Introduction ...................................................................................................... 3
External Environment ....................................................................................... 4
Global Market - Technological, Social And Legal Drivers ............................. 4
Australian Market - Porter’s Five Forces Analysis ........................................ 5
Internal Environment ........................................................................................ 9
Swot Analysis ............................................................................................. 12
Strategy Formulation ...................................................................................... 13
Strategies In Global Market ........................................................................ 13
Strategy In The Australian Market .............................................................. 15
Strategy Implementation ................................................................................ 17
Force Field Analysis ................................................................................... 17
Evaluation ...................................................................................................... 19
Conclusion ..................................................................................................... 21
References .................................................................................................... 22
3
INTRODUCTION
Airbnb Australia is owned by the American company - Airbnb Inc. Started as
a website, airbedandbreakfast.com now named Airbnb. It was founded in
August 2008 and headquartered in San Francisco, California (Passport 2017,
p. 4). Airbnb operates under the online accommodation booking Industry in the
Australian market. It facilitates the efficiency of accommodation booking by
offering a common e-platform to hosts (suppliers) who can rent out spare rooms
or houses, and guests (customers) who plan to book accommodation.
Moreover, it connects latent demands of people that are seeking a broader and
affordable range of accommodation and those who are willing to rent out spare
space, through which Airbnb tapped into a formerly hidden market. Furthermore,
Airbnb offers an unusually wide range of accommodation option as their
planned strategy, ranging from tree houses to trailer accommodation in unique
locations and ambiences. By employing a ‘pay-per-booking’ model, Airbnb
earns a 3% commission from the hosts and between 6% to 12% commission
from the guests (Passport 2017, p. 4). Since its arrival in Australia in 2012, the
company has witnessed an increasing brand awareness and rising revenues
(Tarrant 2018, p. 23) as a result of great strategic planning and implementation.
This report aims to describe, analyse and evaluate the strategies behind
Airbnb’s success by examining Airbnb’s external and internal environment,
as well as strategy formulation and implementation.
4
EXTERNAL ENVIRONMENT
Global Market - Technological, Social and Legal Drivers
With the opportunities offered by technological advances, e-commerce has
developed greatly, enabling Airbnb to launch as an online platform (Zervas,
Proserpio & Byers 2017, p. 687). Additionally, there is an increasing demand
for mobile applications along with the increase of mobile customer base. Both
the popularity of e-commerce and the development of smart devices has
contributed to Airbnb’s rapid growth (MarketLine 2018, p. 14).
E-commerce has influenced not only how organizations operate and make a
profit, but also how people access the goods and services they need – their
consumption habits. Today, consumers are more likely to embrace online
purchasing and sharing economy – share and rent things instead of owning
them, which can also stimulate greater demand (Lin, Wang & Wu 2017, p. 39).
While some governments encourage accommodation sharing by improving
the standardization and regulation, such as China (Passport 2017, p. 37),
Airbnb is considered lawbreaking by the regulators in many countries and cities
including Australia (Passport 2017, p. 10). In this case, Airbnb has to strive for
friendly policies and mutually beneficial relationship with governments
proactively to expand in these marketplaces (Passport 2017, p. 7 & 33).
5
Australian Market - Porter’s Five Forces Analysis
Porter’s Five Forces is a framework which consists of industry rivalry,
bargaining power of suppliers, threat of new entrants, bargaining power
of buyers (customers) and threat of substitutes (Porter 2008, p. 25). These
five factors can not only analyse the current competitive environment for
companies in their industry, but can also develop and optimize their future
planning of marketing strategy.
In a major study, the industry rivalry is considered as a primary factor of fierce
rivalry for companies (Porter 2008, p. 27). From 2013 to 2018, the industry
rivalry was high for Airbnb in Australia market, because there is a large amount
of competition for Airbnb. For example, Expedia Australia, Booking.com
Australia, Webjet Limited and Lux Group Limited respectively occupied 28.1%,
25%, 12.8% and 5.8% of market share in the online travel bookings industry in
2017 (Figure 1). However, Airbnb only took up 2% market share in Australia
(Tarrant 2018, p. 23). In fact, Airbnb set up the first Australian office recently in
November 2012 although it was founded in 2008 in the US (Tarrant 2018, p.
23). In other words, Airbnb needs more time to improve their brand awareness
in the Australian market, especially for Australian customers who are
concerned about the reasonable legislation of Airbnb (Tarrant 2018, p. 23). In
addition, the industry revenue slightly decreased in 2017, which was lower than
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overall past five years (Figure 1). A weaker economic growth may indicate that
the whole industry will run into a bottleneck which will lead to fierce competition
for Airbnb (Tarrant 2018, p. 3).
Figure 1. Industry Data Figure
The bargaining power of buyers (customers) describes the effect that
buyers (customers) have on the profitability of company, which is medium for
Airbnb (Porter 2008, p. 30). It is mainly because that the special living-
experience sharing model is considered as the personalized services of Airbnb
compared with other competitors (Edelman & Luca 2014, p. 4). However, the
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whole industry in Australia has a huge customer base which is very price-
sensitive for booking online (Tarrant 2018, p. 9). They are more likely to switch
their booking platform options based on the price, despite the fact that it is
difficult for them to gather all the information they need to give a full evaluation
on the various accommodation choices (Tarrant 2018, p. 11). Additionally, as
an American private company entering the Australian market recently, Airbnb
does not have very loyal customers base, which means that it is easy for the
customers to choose others on travelling bookings options.
Due to a large number of potential input suppliers who find difficulty selling
directly to customers in online travel bookings industry, the bargaining power
of suppliers for Airbnb is low (Tarrant 2018, p. 8). In the Australian market, it
is hard to find companies with similar operating model, which like Airbnb for
most house-owners. Hence, Airbnb may have more negotiation power to easily
switch to other suppliers, especially when Airbnb can create profit and value for
them.
According to the industry report, there are two viewpoints to support our
argument that the threat of new entrants for Airbnb is medium. Firstly, for the
new entrants in the online travel bookings industry, there is no paramount
barrier to enter this industry due to the existing brand presence established by
current industry players (Tarrant 2018, p. 4). In addition, the industry has been
8
experiencing rapid growth recently which may boost numerous industry
establishments catering to consumer demands (Tarrant 2018, p. 7). Secondly,
as a new company in the Australian market, Airbnb may face a formidable
barrier to gain more loyal customers than others, because of their low brand
awareness in Australia (Tarrant 2018, p. 23). Therefore, the threat of new
entrants for Airbnb is medium in the industry currently.
The threat of substitutes is medium for Airbnb in Australia. One reason is
that the price of Airbnb is lower than others which offer same conditional
resources, such as hotels, motels and hostels (Edelman & Luca 2014, p. 6).
Their customers may want to obtain much better values at the same price. The
other reason is that Airbnb shares customers’ living experience online which
differentiates them from other market choices available to the customers.
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INTERNAL ENVIRONMENT
Airbnb following the idea of offering travellers a home away from home has
become one of the most popular accommodation solutions for traveller around
the world, especially among young travellers. Analysing the resources which
contribute to the sustainability of a firm’s competitiveness is a major area of
strategy management (Porter 1985, p. 67) and it helps us to understand the
advantages and weakness of a company. According to Barney (1991, p. 111),
the classification of resources can be sorted as physical capital which includes
technological resources, geographic location etc.; human capital, such as
training, experiences etc. and organizational capital which are reporting
structure, team relations etc. Similar to Barney, Grant (1991, p. 13) argues that
resources can be identified as financial resources, physical resources,
technological resources, human resources, reputation and organizational
resources. Barney also argues that the resources of a company can be
categorized into four types as valuable resources, rare resources, hard-to-
imitate resources and hard-to-substitute resources. Applying the work of
Barney and Grant, this report is going to analyse the resources possessed by
the travelling accommodation provider Airbnb.
According to the statistic of financial times, Airbnb has generated a revenue of
over $100 millions with a booking growth of 150%. It is also stated that in 2017
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Airbnb started a $1 funding round at a valuation of $30 billion with investors
from General Atlantic and Andreessen Horowitz (Hook 2018). These are
considered to be enormous contributions to Airbnb’s financial resources. With
the investment, the company has the financial resources to expand and provide
more services for the users which can increase the customer's loyalty. The
financial resources are a valuable resource for Airbnb. Another valuable
resource for the company is its huge user base. Airbnb has more than 44.8
million registered users in the US. in 2016 and it is estimated that the company
will have 60 million within the US by the end of 2021 (Statista 2018). In 2017,
the company achieved 100 million guests globally (Molla 2017). It is also a
resource that is hard for other companies to imitate, for it takes years of
development to achieve such a huge user base.
Airbnb offers a low-cost method for people to travel. It provides service to
protect the interests of both the host, who offers accommodation and the guest,
who hires the place that is being offered, such as refund policies, insurances
etc. (Airbnb 2018). These services ensured both parties that the company is
reliable and trustworthy to use. Airbnb gained a good reputation with their
operating strategies such as SuperHost program, which labels those well-
reviewed hosts differently to ensure the users psychologically while booking the
accommodation. These services attributes to the reputational resources which
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built a trust between the company and the users. This is a valuable resource
and a hard-to-imitate resource for Airbnb.
Technological resource is a vital resource for Airbnb. Airbnb is operated
online which makes it easy for both the hosts and the guests to access to
information and communicate. With the website of Airbnb, guests are able to
book accommodations anytime in any place around the world. The technology
of Airbnb provides convenience to both party. All of these are achievable
because of the technological equipment and information engineers that the
company possesses.
By analysing the internal resources that Airbnb holds, we can conduct that the
company has a huge financial resource generated both from revenue and
from investment. As a technological company that offers a platform for sharing
accommodation, it is important for the company to maintain a well function of
their servers as well as the services that they offer.
12
SWOT ANALYSIS
Source: Passport 2017 & MarketLine 2018
Strength
- High market share and brand awareness on a global scale;
- Variety of accommodation and services
Weakness
- Low market share and brandawareness in Australian market
- Limited control over the guest experience;
- Vulnerable loyalty of hosts and guests
Opportunity
- The prevalence of sharing economy and e-commerce;
- The potential of underpenetrated market (e.g. Asia Pacific includingAustralia)
Threat
- Increasingly intensive competitionfrom other platforms
- The pressure of the local legislations
SWOT
13
STRATEGY FORMULATION
Strategies in Global Market
Based on the analysis of external, internal environment and SWOT of Airbnb.
It is clear that Airbnb is becoming one of the most popular online-booking
platforms recently both global and Australian market. Throughout the whole
development of the company, Airbnb mainly operates three strategies of
Porter’s generic strategies, which are differentiation, cost leadership and
focus strategies (Porter 1980, p. 30). However, it is noticeable that the
differentiation strategy is considered as the most important strategy for Airbnb
to successfully obtain a unique status in the whole online booking industry. For
example, Airbnb will design a personal website for both suppliers and booking
customers in the way of ‘build your own site’, which includes some personalized
pictures and comments from their hosts, as well as closely interact their
customers with a unique peer-to-peer platform of experienced sharing
(Allentrepreneur 2018). By using this strategy, Airbnb gained an outstanding
position than other competitors in the global market.
Airbnb also implements focus strategy in communities. For instance, Airbnb
always sets up community centres, which can connect with other hosts, sharing
their stories and asking for advice, as well as getting information from groups
(Community Center 2018). It aims to target some specific groups of hosts or
14
customers, particularly satisfying their needs. In addition, Airbnb takes cost
leadership strategy by the lower price of accommodation for targeting the
price-sensitive customers (Edelman & Luca 2014).
Based on the three strategies above, Airbnb primarily utilizes a planned
strategy for implementing in the global market. They have promoted according
to these strategies in many regions of different countries via its online-booking
accommodation business, which aims to expand global market share for the
company and increase their brand awareness for more potential customers.
For social media, Airbnb creates social media platforms on blogs, apps and
social media networks, such as Twitter and Facebook etc., which are planned
to use ‘media box’ get value for Airbnb in a long term (Crook 2017). Also, Airbnb
hires professional photographers for the hosts to provide quality images for
their renting rooms to post on the booking page in order to attract guests.
Besides for those, to solve the payment dilemma in group trips, Airbnb launched
Payment splitting function in November 2017 (Crook 2017). However, due to
some special situations, Airbnb also tends to change from planned strategy
to emergent strategy. For example, Airbnb faced the insurance issue, which
may not be able to secure the interest of the host in case of certain damages
to homeowner’s property. Therefore, Airbnb launched the Host Protection
Insurance in 2016 (Airbnb 2018).
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Strategy in the Australian Market
According to the external and internal environment analysis, Airbnb further
implements differentiation strategy in the Australian market. This strategy is
applied in accommodation sharing economy to building a sense of community
and infuse culture value, which differentiates Airbnb from traditional
accommodation industry in Australia. In addition, despite Airbnb possesses a
low market share in the Australian market, it is predicted to become more
popular in the whole industry. This situation could be attributed to their
differentiation strategy, which can differentiate itself from other competitors,
such as Booking.com or Expedia Australia (Tarrant 2018, p. 4). Additionally,
Airbnb utilizes focus strategy in specific segments, such as tourist and
millennials (Marketing 2017). According to the previous research about Airbnb
users’ constitution, there are roughly 60% of all guests who have ever booked
on Airbnb are millennials (aged between 18-35) (Tarrant 2018, p. 23).
Therefore, Airbnb regards this segment as a valuable group and continue
furnishing services which can attract more millennials with their good selection
of locations/variety of areas, offering more opportunities to gain the experience
of local culture, providing opportunities to meet people from different area and
making them feel part of the local community (Airbnb 2016).
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However, several issues still occurred with the incompletion of local legislation
for sharing economy although Airbnb’s business was comparatively mature
when entering the Australian market. How Airbnb responds to those problems
will clearly reflect their application of emergent strategy. Tax avoidance has
recently aroused attention from Australian Taxation Office (ATO). The income
from the Airbnb short-term holiday stay has to be taxed, while many avoid doing
so due to lacking a firm regulation of the industry (Legalvision 2017). In terms
of this, Airbnb’s public policy leader, Brent Thomas claims that “the company
will go canvassing extensively for adjusts to tax laws, to protect hosts are not
stung by punitive CGT and other tax liabilities (Tabakoff 2018)”. Therefore, in
this case, it is in both parties’ favour to negotiate a deal on the legislation term
to achieve a win-win situation.
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STRATEGY IMPLEMENTATION
Force Field Analysis
Force Field Analysis has been broadly used by organization development
practitioners to plan and implement organizational changes, which involves
Driving forces and Resisting forces to maintain an equilibrium (Thomas 1985,
p. 55). As for this case, Airbnb in both global and the Australian market, the
driving forces involve numerous demands from hosts and guests, for which the
preferences on travel accommodation various from consumers. While in the
meantime, the resisting forces from local government regulation and the
obstacle from traditional accommodate industry still exist (Figure 2).
Figure 2. Force Field Analysis for Airbnb in Australian Market
Within driving forces, Airbnb has become a trend among guests seeking for
leisure or business. In 2015-16, over 800,000 stays were booked through
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Airbnb around Australia with an average booking of 15 times for each host over
the financial year (Deloitte 2017, p. 11) resulted to the boom of the Australian
tourism. Tourism accounted for 3.2% of national income, estimated to
contribute $53 billion to Australian GDP from 2015 to 2016 (Deloitte 2017, p.
14). In addition, the exclusive living experience attracts customers attention,
especially for the millennial groups. They desire the in-depth local experience
by living among the local communities and receiving guide information from
local people. This directly resulted in a numerous demand from both the
domestic and international tourists as well as the Australian hosts.
On the other hand, due to the threat of Airbnb, traditional tourism industry
impedes Airbnb from entering the market. Various fixed-costs apply to
traditional hotel industry, such as maintenance cost, operating taxes and the
human resources expenses. However, Airbnb uses a peer-to-peer network, so
that the cost can be controlled by the company for Airbnb does not own the
properties that are listed online and the operating cost through the online
platform has less fixed-cost compared to physical hotels (Passport 2017).
Moreover, due to the law’s incompletion on levying the tax for Airbnb hosts,
traditional industry will raise more problems to challenge the inequality exists in
the horizontal competition. Thus, it may lead the government to accelerating
supervision for Airbnb.
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EVALUATION
Based on the analysis of strategy formulation and implementation above, the
success of Airbnb began by creating a new segment of customers who are
willing to rent rooms in another people’s house, providing them with a platform
where hosts and guests can meet each other. However, it is expected to
expand their business to a bigger and substantial market, which may include
the vacation rental etc.
People prefer to choose Airbnb, not only because they offer lower prices than
hotels, also they provide a significant variety of accommodation which can fit
most kinds of traveller’s needs. In addition, consumers will become much free
on booking rooms online currently. Therefore, the Peer-to-Peer
accommodation can completely transform the model from the tradition to
conventional hospitality.
For company’s strategy, Airbnb has made different from others, although the
model of renting another person’s place existed before. However, Airbnb
focuses on solving issues, providing trust for their customers. For example,
Hosts were concerned about the idea of letting a stranger to live inside their
houses, whether with others or alone. Prejudices and fears about the guests
have been one of the biggest challenges Airbnb had to face. By using their
implementation of strategy, Airbnb attempts to manage all issues based on
20
reviews from both host and guest. Airbnb has created a source of competitive
advantage which makes them different from others, continuing to provide
hospitality services to more than 2 million guests per month (Aufmann, 2016).
A research conducted for Ryerson University (Ryerson Today, 2016) show that
more than 89 percent of the Airbnb users were “satisfied” or “very satisfied” with
their latest Airbnb stay, and more than 90% of them were “likely” or “very likely”
to recommend Airbnb to their friends and family. In addition, over the 60% of
the users indicate they were “very likely” to hire accommodation services
through Airbnb within the following year (Ryerson Today, 2016). Thus, Airbnb is
becoming one of the largest hospitality companies in the world (Momentum,
2016). Additionally, the successful strategies of Airbnb have gained more than
190 countries around the global markets with the value over USD 31 billion in
2017 (Walters, 2017).
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CONCLUSION
In summary, based on the analysis of external and internal environment, this
report has elaborated the planned and emergent strategy of Airbnb. It has also
examined the formulation and implementation of cost-leadership, differentiation
as well as focus strategy during its market entry and penetration. From the
evaluation above, if Airbnb is still able to strictly follow the right direction and
adjust timely according to the environment, its market share and brand equity
will be expected to rise domestically and globally.
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