Airbnb's Success Case Study

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‍What about Airbnb?

90% of start-up companies fail. Thus, it is very important to understand the quality of those rare  successful ones and learn from them. One of the most successful start-up companies in the past  decade is Airbnb, a major disruptor of the short-term rental market launched in 2008. Airbnb currently  stands as the representative of the entire short-term rental industry, but how did this company get  there, what early-stage quality it had and in hindsight what could be done to solve their early-stage issue? 

In this report, Airbnb’s current state will be stated, the initial launch will be discussed, a SWOT analysis will be done to understand the internal quality of early-stage Airbnb, a Porter’s five forces analysis will be performed to understand external threat for early-stage Airbnb, and what could be done differently  will be discussed.  

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Summary of Airbnb’s current state 

As one of the most successful and profitable start-ups, Airbnb was created by Brian Chesky and Joe  Gebbia to provide a different kind of lodging experience — one that was less expensive and more  accessible. It started with the duo purchasing cots to rent out in their New York dwelling to the $100  billion company it is today that provides homeowners the opportunity to make supplemental income  through short-term lodging. [1] As at the end of 2021, the company has over 7 million listings  provided by 2.9 million hosts across 100,000 cities from 220 countries. This has been far away from  what Airbnb started with. It is important to see what the company has achieved before its past was  analysed. [2] 

With 72.1 billion USD Market cap, Airbnb achieved 5.99 billion USD revenue at the end of 2021, which was a 77% growth when compared to 2020. [3] However, the lingering impact of a global pandemic  combined with Airbnb’s own rapid expansion left the company with net income as $ 300.21 Million.  At the end of 23^rd of May, 2022, Airbnb was publicly traded at 113.28 USD per share. [4] 

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What is Airbnb’s organisational structure like? 

Since its founding in 2008, Airbnb’s organisation structure had multiple iterations in order to adapt to  its rapid growth and expansion of business branches. As for now, the company is still led by its co-founder and CEO Brian Chesky. However, instead of favouring the traditional hierarchy management system, Brian Chesky chose a relatively newer concept for company structure known as “Holacracy”.[1] 

Also known as a “flat organisational structure’, this means instead of hiring people to fill in predetermined roles [5], Airbnb would hire people to fill a seat in a team, and allow the team to function  democratically within the enterprise where all members can bring up unsatisfying aspect of work  environment and collectively solve the issue. This system would enable the company to harvest the collective intelligence of their employees and benefit from it. [6] This system enabled Airbnb to be more  transparent, agile and flexible in daily operation, and fully utilise the talents under their employment  to improve on itself all while the teams are aligned with the enterprise’s purpose.

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In order to achieve this, the top-level executives were structured as shown in FIG 1 [7].  

FIG 1: Company structure of Airbnb.

As FIG 1 has shown, Airbnb’s structure is far removed from the traditional hierarchy system; Many  executives with titles that would traditionally not collaborate or communicate with the CEO are at  roughly the same level of those who traditionally would. Additionally, the employees were divided  into roughly 10 member teams and functioned under the company’s guiding principle without higher  level executives’ interference. If any team is lacking in capability or resources, they can reach out to  other teams within the company and request a collaboration in order to fill the missing links.  

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Airbnb’s company culture

Thanks to the flat structure of the company, the employees of Airbnb are collaborative and coherent.  To quote the CEO: 

“Having a clear mission and making sure you know that mission and making sure that mission  comes through the company is probably the most important thing you can do for both culture  and values.” [8] 

By utilising a non-traditional company structure, the company only needs to provide a clear guiding  principle, and let loose the teams, allow them to innovate on their own, and fully embrace the benefit  brought along by diversity. However, it is stale and cliché to claim the company “is like a family or  tribe”. A family-like working environment is highly likely to exist in a business with employee count  less than 50. Airbnb may start as so, but for what it currently stands as a multi-billion company with  employees across the world, it is disingenuous for the company to claim so. 

It is still plausible that the employee experience is still relatively similar to what a small business  would provide. Considering Airbnb divides their employees into smaller teams that run parallel to each  other, thus leaving their employees feels more like they are working for a collection of small businesses  all under the Airbnb corporation instead of directly working for a mega-global multi-billion enterprise.  This would make their employees to be more relaxed and form close bonds with their teammates, thus  forming a more cohesive working relationship. However, this could also lead to tribalism and rivalry  between teams. This would require proper team leadership and guidance, which explain the existence  of the position of “Head of global diversity and belonging”. In this way, not only the employees would hold 

a more intimate relationship within the teams, but also allow cross-team collaboration to form more  naturally. With the work space interpersonal relationship smoothed through all the countermeasures,  a clear company-wide guiding principle would properly channel all employees’ energy towards a  mutually beneficial direction.  

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Airbnb’s current market share

Airbnb, as it is currently publicly listed, is in the “vacation rental” or “Travel services” industry under the  “Consumer cyclical sector”. At the end of 2019, the market share of Airbnb is estimated as 20% [9],  however due to COVID, the booking via Airbnb has reduced by approximately 87%, as at the end of 2021,  the market share of Airbnb has reduced down to approximately 14%. [10] 

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History of Airbnb- from the founders’ backgrounds to company formation

Now with what Airbnb has achieved, it is time to look at what the beginning of Airbnb was like. In this section, the founders and their background, their initial inspiration, the initial launch,  the initial market and their first wave of competitors will be discussed and analysed.  

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The Founders

The current CEO of Airbnb Brian Joseph Chesky is 1 of the 2 major co-founders of Airbnb. He was born  under the loving union of Robert H Chesky and Deborah Chesky, both of them are social workers  working in Niskayuna, New York, United States. He showed high interest in designing and art in his  early age, which lead him to pursue education of landscape and architecture at Rhode Island School  of Design (RISD) in 1999 where he met the other founder of Airbnb, the current CPO Joe Gebbia. [11] 

Similar to his good friend Brian, Joe also was considered the “art guy” through his early ages. Joe was  born the son of Eileen and Joe Gebbia, which made him actually Joe Gebbia Jr. Joe Gebbia Sr owned  Health Matters, Inc, a company specialised in sales and marketing for health supplements, and had  been a council man of the city of Brookhaven, Joe Gebbia started to show his early entrepreneurship  when he sold Teenage Mutant Ninja Turtle illustrations back in high school. Considering he was born  in Atlanta, Georgia. In The United States, he initially planned to pursue a full Painting major at the Atlanta  school of art until his teacher suggested that he apply for Rhode Island School of Design, where Joe met  Brian. [12] 

Outside of Brian and Joe, there’s a third founder, Nathan Blecharczyk. Nathan was born the son of  Sheila and Paul Steven Blecharczyk at Boston, Massachusetts, United states. Nathan’s first job was a  web-hosting business where he offered hosting for spammers, which for a while was listed as  Spamhaus and considered the top spamming service. This led him to attend Harvard University for  computer science. His career started at OPNET technology in 2005 as an engineer, and he continued  his path as the lead developer at Batiq in 2007. He later partnered with Brian and Joe to found Airbnb and served as the company’s first CTO. [2] 

It is interesting seeing 2 out of the 3 founders stepped into “vacation booking” or “travelling service”  by accident, not by intention. Additionally, considering both Brian and Joe started as architecture  students and ended in an industry they had nothing to do throughout their upbringing. Thus, it is safe  to conclude that the founders’ education has limited impact on the success of Airbnb. And consider  the third founder was added for his technology knowledge, so it is more important for the founder to  understand their gap of knowledge and find proper personnel to fill that gap. 

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The Blooming Of An Inspiration

After graduating from RISD, Joe convinced Brian to move to San Francisco in order to start a small  business together. However, at this point, their landlord decided to raise the rent by 20%, rendering  the rent unaffordable. Thanks to their network, they recognized the industrial design conference was about to take place at San Francisco and the hotels would have been fully booked. Combining both of  these issues, Brian and Joe come to the conclusion that it could be profitable to rent out their living room  and air mattress to conference goers who did not get a booking. So, they named the new business  “Air Bed & Breakfast”, and became the very first host of their company. They managed to receive 3 bookings and paid off their rent. With this small-scale success, they decided to expand on this idea and invited the third founder of Airbnb to build the necessary tech platform to launch this new business.  [13] 

The first hurdle the company needs to overcome is finding some initial investor for the company.  While the team is struggling to find pre-seeding round angel investors, Joe came up with an idea: to  bank on the Obama VS McCain election that year, Joe came up with the idea of making their own  breakfast cereal to fit in their “bed and breakfast” brand. Joe designed cereal boxes using the likeliness  of Mr Obama, which was named as “Obama’O”, and Mr. McCain, which was named “Cap’n McCain”.  The team found manufacturer who are willing to manufacture 1000 boxes with the design, and the team purchased proper amount of generic brand version of Cheerio and Chex cereal, repackaged them with the custom-made boxes and sold them as a “breakfast” option of their “Air bed & breakfast”  business for 40 USD per box. [14] This marketing campaign landed them on multiple morning talk shows and got the attention of celebrities like Katy Perry, who signed and auctioned it to her fans. This wave  of promotion increased the “Airbed & breakfast” brand recognition, and also provided the company a 30,000 USD fund, which kept the company functioning until they finally landed venture capital investment from Paul Graham, a computer scientist and venture capitalist who founded Y Combinator, personally and Y combinator. 

Fig 2: the viral marketing campaign utilized by Airbnb Founder Joe Gebbia.

The story about how Airbnb got their inspiration is proof that timing is important, and catching the right timing is even more important. The design conference took place as they moved in and struggles for money was  a coincidence, but connecting the lack of hotel room to their extra space in the apartment takes ingenuity. Similarly, needing to raise funds while the election fever was in progress is being lucky, but  spotting a viral marketing opportunity and actively following up need a good eye for opportunity.  

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So how did Airbnb expand its business? Let’s dive into their business model and strategy.  

Before any further discussion, the business model of Airbnb needs to be clarified in order to  understand its position in the initial market and its differences from competitors.  

The revenue structure of Airbnb can be summarised as shown in fig 3.  

FIG 3: Summarised Airbnb revenue structure (TheBusinessModelAnalysits.com, 2022) 

This revenue structure is the baseline of Airbnb’s “Two-way Platform” business model. This business model has gone through multiple iterations throughout the decade Airbnb operated, but the  core concept remains the same. As the model’s name suggests, the model generates revenue from  both ends of clients. Airbnb functions as a platform that offers both guests and hosts an access to the  short-term rental market, connecting the guests to hosts. In return, Airbnb receives service fees from  both ends as their revenue. 

FIG 4: the Airbnb Business model canvas (TheBusinessModelAnalyst.com, 2022) 

Fig 4 showed the summarised full business model canvas of Airbnb currently using. Some components have been added since the initial launch. However, the value proposition remains generally the same. For  the guests, Airbnb would offer a unique accommodating experience based on the host and location,  for example, the Obama’O and Cap’n McCain was one part of the unique breakfast experience Airbnb  offered in 2008. For Hosts, Airbnb would allow them to list either full standalone property or idling  space in their property to generate income through short-term rental. 

What truly sets Airbnb apart from all its competitors is the “Shared space listing” part of their value  proposal. Thanks to the share economy started by ebay back in 1995, by 2008 the share economy has had  a few successful participants and the concept has been relatively accepted by the general public. At  that time, Airbnb introduced the share economy into the short-term rental market and significantly  lowered the entry point of the market. The host no longer needs a full property in order to participate  in the market. And initially, the hosts do not require to be the owner of the space they listed because the founders’ apartment living room, which was the first listing of Airbnb, was not owned by the  founders. Additionally, by not charging hosts any upfront subscription fee and only taking commission-like service fee, Airbnb further lowered the financial burden on hosts and made themselves a more  profitable listing website for the hosts. This model comes with risk for the hosts considering they are  inviting complete strangers into their daily living space, which was a problem until Airbnb established a long term partnership with insurance companies.  

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Airbnb’s initial market prior to launch  

When Airbnb initially launched, it was named as “Air Bed & Breakfast”, it was a simple platform  allowing property owners to list their idling property or spare space so searchers can find and rent  them. This very simple format is now highly associated with Airbnb, but back when Airbnb first came  to market, it was not as unique as the current day environment made it seem. Companies that provide very similar products have been existing since the late 90’s, and some of them are still the major  competitor of Airbnb today. 

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Back in 2008, before the housing market bubble burst, the US domestic vacation rental market was  estimated to reach 24.3 billion USD at the beginning of the year. And at that time there’s already  multiple major players in the market: Vrbo, HomeAway Inc, Booking.com, Flipkeys and Craigslist. [15] If only short-term rental market is considered, based on AirDNA’s data, the market share based on  unit sold can be plotted as shown in fig 5.  

Fig 5: market share of Airbnb based on Unit sold. (AirDNA.com, 2019) 

As the graph showed, Airbnb did not break 1% until at least 2012. This is not to diminish what Airbnb  had achieved in its early stage, but it is very important for entrepreneurs to understand when it comes  to a massive potential market, even 1% market penetration is not as easy as it sounds.  

Net market share is a vertical way of measuring success of a company, as listed above, short-term  rental market at 2008 is not virgin land, in fact, there is a few major competitors, if the major merging  and purchase in 2015 was retroactively taken into consideration, the total market size, company worth,  year-to-year growth for each company and overall market year-to year growth can be plotted together  as shown in fig 6 [17]. 

Fig 6: overall summarised data regarding all the major participants of short-term rental market. (Skift.com, 2020) 

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As fig 6 has shown, the overall growth of the market has been slowed down due to multitudes of  reasons that will be discussed later. Contrary to the overall market trend, each individual participant  has shown steady increase in their growth rate from 2010 to 2019 while the rest of the market has  been slowing down. This could be a sign of consolidation of the market. This means smaller  participants are now merged, purchased or pushed out of the market by the major players. As  described above, a few major merging and purchases took place in 2006 and 2015, which means  consolidation had been the trend in the short-term rental industry before the rapid growth and  mainstream attention brought by Airbnb.  

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Airbnb’s major competitors at launch

As explained above, the short-term rental industry has multiple major participants already established  prior to the founding of Airbnb. In order to understand Airbnb’s success, its initial major competitors  must be discussed.  

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Vrbo

Founded by David Clouse in 1995 at Aurora, Colorado, United states, Vrbo was the first website that  realized the term “vacation rental”. The name is an acronym for “Vacation Rental by Owner”. And as  the name stated, Vrbo platform allows the property owners to list their vacation home for people to  rent for short terms. Vrbo focuses its partnership with property owners, airline companies, travel  agencies and car rental companies. VRBO was purchased by Homeaway Inc. for 160 million USD in  2006, which roughly worth 163.53 million in 2008 when factoring in the inflation rate from 2006 to 2008  was approximately 1.12%. [15] Using the estimated short term rental market worth at 2008, it is  reasonable to conclude that VRBO holds at least 0.6% to 1% of the total market share, which is

considered a relevantly achievable market share for start-up. The platform model and the achievable  market share made VRBO in 2008 a direct competitor of Airbnb.  

The business model of VRBO is shown in fig 7: 

FIG 7: Summarised VRBO business model. (Ncrypted Technology, 2021) 

Based on this business model canvas, it is simple to conclude that as a competitor of Airbnb when it  was launched, the major difference between VRBO and Airbnb can be summarised as following:  

• VRBO only list stand-alone property 

• VRBO takes a subscription fee from hosts instead of commission/ service fee.  • VRBO requires higher operational costs to manage all its partnerships.  

As Fig 7 has summarised, VRBO’s revenue streams have a two-sided structure, income generated from  property owners is a steady stream of subscription fee to allow listing, and income generated from  renters are small percentile booking/ service fee when they make a booking. This structure allows a  steady cash flow from the property owner side, who are more likely to be wealthier members of  society and run the listing as a form of passive income thus more likely to accept the subscription  fee. And for the service fee charged on the guest side is placed to compensate for additional customer  service and data processing work VRBO may need to provide. [18] By mixing stable recurring income  with one-off payments, VRBO would have a more stable financial baseline. However, because the  requirement for listing is higher for both stand-alone property ownership and acceptance of  subscription fee up-front, this would limit the listing source, thus forcing VRBO to aim for a higher  economical demographic for both hosts and guests and compete against both peers in short-term  rental market and established high end hotels. To compensate for this down side of their revenue  structure, VRBO chose to collaborate closely with not only their two-sided customer base, but also travelling agencies, airline company, car rental company and corporate travelling managers to share customer base and strike deals for additional perks for VRBO’s customers.  

The value for selecting VRBO is from a better experience than hotel and Airbnb because VRBO only  allows stand-alone vacation property to list, thus eliminating the possibility of sharing space with other  guests. This was the major difference between VRBO and Airbnb, and it was used as the main promotional point in their 2018 to 2019 ad campaign. Additionally, VRBO platform provides a two 

way review system, this allows both the hosts and the guests to leave their opinion, which enables the  company to moderate customer experience and to encourage more mutually beneficial behaviour,  thus maintaining a more friendly community base and cultivating a positive reputation. This positive  reputation is what Airbnb was lacking during its growth period. The amount of “Airbnb Horror story”  exploded online almost tanked the reputation and trust level  

VRBO’s business model would form a more friendly community and higher reputation in the industry,  however, the higher threshold for entering and close partnership with more companies would lead to  a higher operational cost for them and squeeze the margin of net revenue for the company, making  it harder to invest back into themselves and grow. It is safe to conclude that this limited margin  issue could be the reason VRBO struggles to compete against Airbnb. Currently this issue is partially solved when HomeAway IncVRBO's parent company, was purchased by Expedia Group, a travelling  shopping company founded by Microsoft. 

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HomeAway Inc.  

HomeAway Inc. was founded by CEH Holdings in 2004 in Austin, Texas, United states. Currently, the  trade handle that used to belong to HomeAway Inc., AWAY: US, is now trading for the ETFMG Travel Tech  ETF because the company had been absorbed by Expedia Group [19]. All the websites under  HomeAway Inc. now consolidated under VRBO after its rebranding to Vrbo.  

Back in 2008, despite purchasing its major competitor VRBO in 2006 [18], HomeAway still operated  apart from its subsidiary when Airbnb was coming into the scene. In fact, Homeaway is a company  that operates through over 50 websites in 23 languages currently, it’s basically an amalgamation of  multiple smaller short-term rental websites, which leave the actual core company function less like a  short-term rental company, but more like a private equity company that specialises in short-term  rental market.  

This purchasing history of HomeAway Inc. up to 2008 is as below [16]:  

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Table 1: list of acquisitions made by HomeAway Inc.

In 2008, HomeAway used a business model that is similar to VRBO, which is charging property owners  442 USD per year as subscription fee for listing, and hosts can pay extra to get their listing promoted  similar to promoted posts in Instagram in the current day. And they would charge an additional service fee if  the guests are paying with credit cards. This model allows HomeAway to have a steady incoming cash  flow while not implying additional cost on the guest side. HomeAway only makes money off property owners.  This means HomeAway Inc. willingly discarded one of their income channels, which makes no sense.  However, if HomeAway Inc is not truly not a short-term rental location but a private equity firm  specialised in short-term rental market, then it makes sense for its main income does not come from  the actual rental but resources acquired via consolidation. Thus, the annual subscription fee is only  placed to maintain a positive cash flow for more capital raising and acquisition.  

This can be proven true considering HomeAway Inc. has on record raised 160 million from venture  capitalists in 2006 in order to purchase VRBO, and again raised 250 million in November 11, 2008 via  equity capital raise to fuel further acquisition. So instead of attracting more hosts to list on their website,  HomeAway Inc. aggressively took over other existing semi-successful short-term rental websites and  included their listing under HomeAway to increase their listing size. Once they break through a “critical  mass” of listing, then they can use the sheer size of their platform to attract more hosts, thus bringing in  more income. It is safe to assume HomeAway reached this tipping point between 2015 and 2016  because a pay-per-booking model was introduced to the hosts on HomeAway in 2016. [20] 

HomeAway Inc. set them closer to a private equity firm, which immediately set itself apart from Airbnb.  Thus, HomeAway Inc. is still Airbnb’s competitor, not in the sense of competing in the production line  or services, but in the sense of potential hostile take-over. As explained in the earlier section, Airbnb  struggled to acquire funds and survive in the first year after founding. It is safe to assume the initial  struggle and the explosive growth right after Airbnb averted HomeAway’s purchasing interest.  

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Booking.com 

Booking.com was founded by Geert-Jan Bruinsma in 1996 at Enschede, Netherlands. Booking.com was  initially Booking.nl, a Netherlands focused website for booking hotels online without contacting any  travelling agency or directly contacting the hotel. Booking.com was formed when Booking.nl and Booking  online were merged. Booking online, a website operated under the URL Booking.org, was founded  by Sicco Behrens, Alec Behrens, Marjin Muyer and Bas Lemmens. At this stage, Booking.com is still  mainly focused on its domestic market. [21] 

Booking.com was considered ahead of its time, when it tried to advertise on the largest daily  newspaper “De Telegraaf”, it was rejected due to the newspaper only accepting advertisements for phone  numbers, online business was considered as unreliable or a scam back then. [23] And in 2008, the year  Airbnb was founded, Booking.com contained some unique features that can still be considered as ahead of its time. For example, the landing page of Booking.com back in 2008 was shown in fig 8. 

Fig 8: Booking.com’s landing page back in 2008. (waybackmachine.com, 2021) 

This may not look like much for today’s standard, but this is in 2008, this landing page provides  functions and information that is not available on its competitor’s website. [24] This includes searching  by availability function, clear review right next to pricing listing and an email sign-up box for future  email marketing. This proves that Booking.com’s team understands online business before it becomes  the mainstream method of shopping, and has the capability to implement said components much earlier than its competitors.  

Currently, Booking.com has a private property rental section, but it was not the case back in 2008.  Booking.com is a hotel-booking-only website, and it had already reached international partnership  back when Airbnb was founded. Business model wise, Booking.com took on the Agency model from  early on and did not change much since. The main revenue channel for Booking.com was commission.  Booking.com takes 30% to 40% commission per booking on their website. [22] Additionally,  Booking.com offers paid promotion and preferred program, both are contracts requesting higher  commission percentile in exchange with more traffic and additional perks. Because of this business  model, Booking.com only generates income from hosts, but because the hosts are all established hotels,  it is reasonable to consider Booking.com more like a traditional travelling agency instead of a new age  short-term rental firm. Because of this revenue structure, Booking.com does not need to spend time and  energy on managing client experience. This means less capital need to be spent on personal 

Booking.com can be considered as an initial competitor for Airbnb because back in 2008 the  short-term rental market did not have enough differentiation from the existing vacation rental market.  Thus, companies in these two markets would compete for the same pool of guests. Booking.com would offer a more traditional, easy-to-accept customer experience, but because they worked with  hotels, which are not exclusive to Booking.com, the availability of rooms was less flexible in  comparison with Airbnb’s listing. Including searching by the availability function mentioned above  would reduce the impact of rigid availability, but the issue still stands. But working with an established  facility would allow Booking.com to have a more reliable source of clients and less effort spending on  customer service, which enable them to venture out for more contract negotiation and expansion.  This in return would lessen the stress on space availability for Booking.com. But this business model  also would shut themselves out of the vast market of share economy where Airbnb started. Overall  Booking.com took a limiting but less risky approach to the vacation booking market. They would have  slower expansion and growth, but they also shielded themselves from controversy and risk in  emerging industries. Booking.com may initially compete with Airbnb for the customer pool, but their rigid  approach to business left enough gap for Airbnb to fill in. Booking.com can be considered a pioneer in its field, however, their slow reaction to the growing share economy limited their growth and got  left behind.  

Flipkey  

Flipkey is a short-term rental site founded by Carl Query, Jeremiah Gall and T.J. Mahony in 2007 at  Boston, Massachusetts, United states. Flipkey was quickly purchased by TripAdvisor after the founding  as TripAdvisor’s response to the emerging short-term rental market. [26] 

Flipkey initially provides the unique service of allowing vacation house owners to list their vacant  property so they can swap with other hosts, and Flipkey would charge a subscription fee for using this  service. By swapping access to each other’s property, Flipkey as the platform would be able to avoid responsibility in managing customer experience. Because in this case, hosts and guests are the same  group of people, and it is reasonable to assume these people would not want the other side of this  swap to have a bad experience since they would not expect to receive a bad experience. This unique  service enabled a community driven customer experience management; however, this would also  hinder their growth potential due to limited customer pool. [27] 

Unique does not always mean good, which is suitable for Flipkey’s case. The house swap platform model  is unique for sure in the short-term rental market, but it also limits both hosts and guest’s amount.  People need to own a property to become a member, additionally, they need to be comfortable with  swapping property access with a stranger instead of making money off their vacant property. Without  Flipkey’s participant, this model would also introduce a scheduling issue for customers. Because  without a trusted third party, the customers need to take vacation roughly the same time to avoid any  complication regarding key returning. Thus, the initial model for Flipkey is more like a novelty service,  it would have long term growth issues and fizzle out eventually. It is a step in the right direction to sell  the company to TripAdvisor.  

TripAdvisor used Flipkey as a supplement for their traditional online hotel booking service. Under  TripAdvisor’s management, Flipkey was redirected towards a business model closer to VRBO and  Airbnb, thus eliminating its growth limitation. However, this also brought Flipkey into directly  competing with VRBO and Airbnb. Flipkey did not bring any new idea into the short-term rental  market, its parent company moulded it towards copying VRBO’s business model since they already  have a decent number of subscribers. Flipkey finally included a pay-per-booking model in 2013. 

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Craigslist 

Craigslist was founded by Craig Newmark when he first moved to San Francisco in 1995. Initially it was  a non-profit email list similar to an online version of town centre notice boards in order to notify web  developers and software developers in the San Francisco Bay area about upcoming events. However, this  non-profit list quickly caught the attention of the entire internet and software developer community, and  the subscriber grew rapidly. And with this explosive growth, subscribers are starting to use the list to post  non-event related notifications. This led to different categories of the list being made. And in 1999,  Craigslist finally incorporated into a for-profit company after multiple technology upgrades through the  years. By 2008, Craigslist became an international listing space by including Spanish, French, Italian,  German and Portuguese to support language. At that time, Craigslist accepted listings from almost all  cities in North America, 16 countries in Asia, 22 countries in Europe, Egypt and South Africa. To make  profit, Craigslist charges for paid listings for either promotional purposes or specific categories such as job search [28]. 

Craigslist has both a rental listing category and a housing listing category, which landed them a corner  in the short-term rental market. And the peer-to-peer nature of the site made it technically a  competitor of Airbnb when it first launched. However, Craigslist is not specifically a short-term rental firm, it is an advertisement hosting site and a marketplace similar to current day Facebook  Marketplace, which means it filled the role of Google before Google became the representative of  online searching.[29] Thus, Craigslist is Airbnb’s competitor, but it is not actively trying to compete with  Airbnb because it does not rely on one specific market to remain profitable And because of this, Airbnb  leveraged themselves via Craigslist, basically they would directly contact lister on Craigslist and tell them  about Airbnb, then rely on the lister to talk about this new listing website.  

Craigslist is still operating and turning profit currently, they launched their IOS app in November 2019.  However, the old school marketplace had fallen off favour of the general public, additionally, Craigslist faced multiple controversy due to its old school approach to content regulation and its combative  response towards its direct competitors. [30] For example, Craiglist was criticized for hosting sexual service ads in 2010, and in 2013 it was criticized as it was doing what it did to newspaper through  lawsuit against their competitor. With all the issues combined, Craigslist fell off competition with  Airbnb as time went on. 

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Conclusion of Airbnb’s Initial Market 

To summarise the short-term rental market when Airbnb initially launched, it is clearly an emerging  market with a lot of opportunity. Traditional hotel booking has become the rigid established default  for travelling accommodation, and the rigidity is ripe for a disrupter to appear. There are a few  forerunners that try to disrupt the market by utilising the Web 1.0 infrastructure, but the service provided either converges back to the traditional system, or this is not feasible for long term growth. Other companies that either splash into this market without fully depend on it or operate through  consolidation and private equity.  

Thus when Airbnb initially launched, the share space listing allows hosts who don’t have a full  standalone property. This lowered the entry point of hosts and immediately set Airbnb apart from its  competitor. This allows Airbnb to fill the market gap for travellers who didn’t book a hotel in time or  simply seeking for a more affordable option.  

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SWOT analysis for Early-stage Airbnb: 

SWOT analysis is an acronym for Strength, Weakness, Opportunity and Threat. This is an analysis to  review both internal competency and external challenges. Here instead of using the current situation 

of Airbnb, only early-stage (2007 to 2010) information will be considered. The results were shown in  table 2. [32] [33]  

Strength

• First mover advantage 

• Unique experience 

• Price advantage 

• High accessibility  

• Early brand recognition 

Weakness

• Safety risk for all customers 

• Legal conflict with local law 

• Vulnerability for Brand name 

• Replicable business model 

• Inconsistent service quality 

Opportunity

• International expansion 

• Technology integration 

• Continue to upsell the experience 

• Expand business field 

• Riding on the economic crisis

Threat

• Lawsuit and other legal issues 

• Property damage 

• Controversy and social impact 

• Copycat company

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Table 2: SWOT analysis for early-stage Airbnb. 

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Strength: How did Airbnb stand out of the crowd?  

First Mover Advantage  

Airbnb may not be the first online company to enter the short-term rental market, however, they are  the first one that introduced the share economy into this market. As the first company that allows space  listing instead of full property listing, they would be the company to shape the market as it grows.  Airbnb would have the advantage as the first mover of the industry such as higher brand loyalty and  higher chance of improving efficiency then competitors. This would give them a much higher chance of  success down the road, which was proven correct by now.  

Unique Experience

Different from its competitor, Airbnb demonstrated their capability of offering a unique experience to  guests when they offered the politically charged cereal product to guests. Additionally, due to the shared space nature of their business, each host would be able to add their personality to the accommodation  experience they offer. Thus, Airbnb would be able to offer a unique experience for each listing instead  of the homogenous experience from traditional hotels, and Airbnb can leverage this and market it  towards more adventurous customers.  

Price Advantage  

Thanks to the business model, the hosts on Airbnb generally would list their share space at a lower  price. According to data on Statista.com, the average daily rate of a hotel room was 73.74 USD per  day in the Americas in 2008, which was the lowest globally at that time period. And based on archived  website on Wayback machine, Airbnb’s listing is between 37 USD to 100 USD, it is safe to conclude the  average in 2008 was lower than 68.5 USD. [31] 

High Accessibility:  

Prior to Airbnb, short term rental is either for hotel, or is for full standalone property listing. Airbnb  opened the gate to shared space listing, which significantly lowered the entry point for hosts. As  described in the competitor section, Airbnb’s competitor charges a subscription fee, which is upfront  payment before any listing was even made. Airbnb took a commission-like approach to their service  fee, it is less stable, however, it does not imply financial commitment for hosts. Thus, lower income hosts  would be more inclined to listing on Airbnb, which in return would increase the availability of spaces  for guests. Overall, Airbnb’s flexible business model increased accessibility for both host and guests.  

Early brand recognition

The president's debate cereals marketing campaign landed the team a decent amount of exposure in  morning talk shows, which had, and still currently hold, a decent amount of influence on the U.S general  public. This gave Airbnb, which was still “Air bed & Breakfast” then, brand exposure and much higher  brand recognition then its competitors. And the recognition exposed their creative accommodation  solution to the public, which solidified their first mover status. The viral marketing campaign also left  customers with a company image as young, innovative, and having a good sense of humour, which are all qualities to humanise the brand. Thus later when they launched their aggressive online marketing  campaign, their brand name is not only recognised by the public, but also accepted by them. All these combined gave Airbnb an edge in attracting traffic and converting the click into booking or listing.  

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Weakness: What might cause the downfall of Airbnb?

Safety risk for all customers  

The shared space model provides many advantages as discussed in the section above, however,  it introduces a new type of risk to all customers of Airbnb. It is inviting a complete stranger into hosts’  living space after all, this is a safety and security concern. Back in 2008, Airbnb lacked any safety measure  or background check, which leaves all customers vulnerable to assault and invasion of privacy. This  puts everyone’s safety on the line. Worst of all, there is no clear solution because it is an inherent risk  built in the business model.  

Legal conflict with local law  

In regard to share space listing, it is technically a form of subletting, and laws about subletting may vary  from country to country, or even state to state in the U.S. Generally speaking, it is safe to assume it is legal  to sublet if the host is the property owner. However, the early-stage Airbnb allowed hosts who are not  the owner of the property to list, this landed them in the legal grey area. Taking Australia as example,  subletting is only legal if the property owner is aware of it and agreed to it in Australia, otherwise it  can be considered as a violation of contract, which is an offence that can be sued or fined. The same  situation is applicable for hosts in the U.S. in some states, and may not be for other states. This is not an issue early-stage Airbnb lacks manpower or system to resolve.  

Vulnerability for Brand name  

The downside of having high brand recognition early on is that the brand name is easier to be  damaged and smeared by controversy. Considering the growth Airbnb experienced in its early stage,  it is almost inevitable a scandal would surface and expose some fundamental issue within the  management and/or business model of Airbnb. If legal action was pursued due to the scandal, it could  irreversibly damage a company’s public reputation and would require a lot of damage control.  

Replicable business model  

Airbnb has a creative and unique business model; however, it is still possible for other companies to  replicate what was done by Airbnb. This is because down to the very core of the business model, it is 

simply allowed share space listing instead of full property listing with commission-based revenue  stream. For a company with a larger capital pool to work with and better insurance partnership, it is not  impossible or even hard to replicate this business all on their own. Other companies can simply do the  same thing but better, similar to the “myspace VS Facebook” competition. This would completely ruin  Airbnb’s future growth.  

Inconsistent service quality  

Due to the peer-to-peer nature of Airbnb’s business model, it is near impossible for Airbnb to manage  the quality of service to be consistently acceptable. Even with the guest review system they  implemented at a later time, the service received by guests is still wildly different in quality. It is possible  for Airbnb to re-contextualize this varying quality as “unique experience”, but unique does not always mean good or high quality. One bad experience is all it took for a guest to abandon Airbnb forever.  

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Opportunity: How did Airbnb take advantage of rising trends to upscale its business? 

International expansion  

After the initial launch gained enough traction in 1.5 years and they had built the necessary  infrastructure to accept more non-US hosts, international expansion is naturally the next step.  With the brand recognition level Airbnb holds, they can extend their reach by running aggressive online  marketing campaigns and push further recognition. And they can also utilise the massive number of  existing hosts and apply Jones theory to get more hosts.  

Technology Integration

Through 2008 to 2010, a few major future-defining technological milestones were made. Facebook  become the major representative of social media, Android system was used in more electronics, and  iPhone along with the App store become the future baseline of smart phone.[34] Highly capable  computer that can fit in your pocket is no longer a sci-fi concept, and companies that run their business  online is now facing one of the greatest opportunities to evolve with the technology trend. This  includes Airbnb, they had already run their business online, and bringing that platform to mobile would  further increase its accessibility and boost its reach to wider public.  

Continue to upsell experiences

In 2020, the average price for boxes of cereal in the US was 3.27 USD for the 1 kg pack. Considering the inflation since 2008 has accumulated 34.28% price increase [41], it is safe to assume the average 1kg pack of breakfast cereal in 2008 was 2.44 USD [35]. And Airbnb had upsold their breakfast cereal utilised  in their viral marketing campaign at 40 USD per box. This is a 1639.3% upsell. Clearly, not only was this  extreme upsell not a problem for the unique experience provided, but also praised for its  humorous take on current affairs. Airbnb is more than welcomed by its customers to continue to  provide unique experience and upsell it with imaginable margin.  

Expand business field

Considering all three founders were not from business or hospitality background, their viral marketing  campaign utilised their designing skills. It is not a stretch to consider Airbnb to expand beyond the hospitality and short-term rental market. The Designing and Architecture field is suitable considering the  founders’ background. A travel agency or real-estate market is also possible to expand into because  those are adjacent to Airbnb’s current industry and market. Additionally, Airbnb could also emphasise  on unique experience and expand into event organising business.  

Riding on economic crisis  

During 2008, the housing market crashed in the US and triggered a worldwide financial crisis. In usual term,  financial crisis means disastrous impact on all businesses, however, for Airbnb, it could be an

opportunity. Considering Airbnb have a clear price advantage on its competitor, and it is a pioneer in  share economy, for people who need to make some additional money, Airbnb become a highly  attractive place to list their spare room for that purpose; and for people looking for affordable  alternative of escapism vacation, Airbnb become a prime solution to their issue.  

Threat: What are Airbnb’s associated threats?

Lawsuit and other legal issues  

Due to the share space model Airbnb adopted, customer safety and legal conflict was proven to be  the major built-in weakness of their concept. Thus, a lawsuit against Airbnb is inevitable. In fact, people  who used Airbnb from 2015 are now eligible to be compensated through a class lawsuit that was settled  in February 2022. This lawsuit cost Airbnb 6 million USD to settle [37]. It may not be much for a multi 

national multi-billion company, but this is only one of the most recent ones. Through the past decade,  Airbnb was under a lot of legal issues. Incidents varied from host throwing guests’ suitcase out of  window to sexual assault [36], and most recently, racial discrimination for host and guest. Although  extensive insurance offered a certain amount of protection, the overall issue still lingers until today.  

Property damage  

Same vulnerability that leads Airbnb into legal issues also exposed them to property damage of the  hosts. The term “Airbnb nightmare” has become a phrase used on social media to describe either horrible  guest experience or significant property damage Airbnb hosts sometimes have to endure. [38] It is  reasonable for the hosts to request compensation when damage occurs. Thus, for early-stage Airbnb,  mitigation of conflicts and compensation for damage was a major cost. If the issue was not handled  well, it can develop into a legal battle and further ties down their operation.  

Controversy and Social impact  

Even though some issues are not severe enough to be quantified, it still left a negative impact on  Airbnb’s brand name for the public. One of the most infamous examples is the hidden camera  controversy. Record of this issue dated back as early as 2013 when a German woman found a hidden  camera in her rental via Airbnb in California.[39] Airbnb was also accused of causing unaffordable  housing in 2015 which resulted in a protest at their HQ. The claim was later proven to be statistically  correct, according to a study conducted in 2017, for each 10% increase in Airbnb listing, the rent in  the neighbourhood would increase 0.42% and the housing price would increase 0.76%. [40] In the  following years this study was peer reviewed and proven multiple times. Airbnb got involved with a  lot more controversy and social issues in recent years, however, it is foreseeable considering how  vulnerable the business model is towards such issues.  

Copycat company  

As described earlier, the business model of Airbnb is not hard to duplicate, practically anyone could  utilise this model given enough working capital. After Airbnb made themselves a well-known name,  many other companies started to adopt Airbnb’s business model and integrated into their existing  system. Additionally, websites like Homestay.com [44], a company specialised in student  accommodation initially, adopted Airbnb’s method and started to accept spare room listings and share  space listings for backpackers and travellers. 

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Porter’s Five force analysis  

Created by Harvard Business School professor Michael Porter, Porter’s five force analysis is a tool to  identify the main source of competition in one company’s industry or sector. A company needs to  understand their main competition and their own core competency to optimise their strategy. [42] 

Porter’s Five force includes:  

1. Rivalry among existing firms 

2. Threat of new entrants 

3. Bargaining power of buyers 

4. Bargaining power of suppliers  

5. Threat of substitute products or services.  

For this analysis, only early-stage Airbnb’s quality and competition was taken into consideration.  

Rivalry among existing firms  

As explained in the competitor section, for early-stage Airbnb, there are many companies that have shares  in the market, however, only 1 can be considered as potential rivals.  

For VRBO, it is an older brand, thus having higher credibility and brand recognition in the industry.  Additionally, VRBO does not accept shared space which negates Airbnb’s major weakness, and they utilise a subscription-based revenue system which brings them higher stability. However, VRBO was not really  doing exactly what Airbnb did. Thus, Airbnb’s clients would find it hard to find services to  replace Airbnb, which in return would give Airbnb a fairly healthy stream of income. The rivalry among existing firms is low. 

Threat of New Entrants  

Easy-to-duplicate business model is a weakness of Airbnb’s business model, however, at the time  Airbnb launched, there were a few important barriers newcomers needed to pass.  

First, brand recognition. For early-stage Airbnb, thanks to their successful marketing campaign, they  are considered synonyms for peer-to-peer short term rental. A modern-day comparison is Bitcoin to  Cryptocurrency. Thus, it is significantly harder for a newcomer to attract the same or similar level of traction in the Peer-to-peer lodging industry.  

Second, operational cost. Airbnb struggled to keep themselves afloat when it initially launched. They  managed to survive thanks to the viral marketing campaign which raised them 30,000 USD. They started to really grow when Y Combinator invested in them with 20,000 USD in 2008, and Sequoia Capital invested 600,000 USD in 2009. Which made the lowest possible cost of duplication 650,000 USD in 2009. [43] The newcomer would also need to run a relatively aggressive marketing campaign in order  to reach the same level of brand recognition Airbnb holds. Additionally, they need to provide a decent  amount of incentive for both listing and booking in order to wrestle market share off Airbnb, which leads to more operational cost. It is safe to conclude that for a brand new company to duplicate Airbnb, the cost could be too high, however, for existing companies to leverage off their own platform and  transform them in order to duplicate Airbnb is still possible with enough capital.  

Third, legal regulatory commitment. Legal volubility is one of Airbnb’s biggest weaknesses. Thus, newcomers need to solve the issues exposed by Airbnb which Airbnb themselves haven’t solved on top of the issues that haven’t appeared back then in order to fully comply with legal regulation. Otherwise, the newcomer would not be able to set itself apart from Airbnb and compete with them. 

With these 3 barriers, it is safe to conclude that the newcomer threat is medium to low for Airbnb.  

Bargaining power of the buyers  

For Airbnb, the buyers of their service are the guests despite their two-way platform model allowing  them to charge both guest and host. Guest groups for Airbnb include any traveller who does not mind  sharing space, which would include any one age 18 to 50. This is a huge demographic, but it was  targeted by all competitors in the short-term rental market and hotels.  

Considering lower rate was a part of Airbnb’s value proposal, it is safe to assume buyers of Airbnb  would be more price sensitive then its competitors’. However, Airbnb as a platform, the actual income  is commission based from their supplier (hosts) listing price. In this way, buyers of Airbnb have a minimum amount of influence on pricing. For buyers who only focus on value proposition, the level of  flexibility Airbnb provides and the low pricing made it stand out. For buyers who are more interested in  the experience side of Airbnb, there are no other companies that provide both experience and  accommodation in 2009, thus it is near impossible for them to find the same service elsewhere. 

When taking substitute into consideration, for Airbnb in 2009, back when the unique experience was  just starting, the substitute of short-term rental is abundant, Additionally, the cost for switch is  minimum, they may face higher daily rate for switching to Airbnb’s competitor, but the service they  receive would remain relatively the same if not better.  

Taking in all factors of buyer power, it is safe to conclude the buyer power is medium to high.  

Bargaining power of the suppliers  

For Airbnb, the suppliers are the hosts of spaces who choose to list on the platform. This made Airbnb  highly dependent on their supplier.  

In 2009, Airbnb recorded 10,000 active users of their website, and they have a total of 2500 listings.  This means there are at least 4 times more potential buyers than suppliers on Airbnb. [45] And  considering at that time, some of the listers are also unique experience suppliers, further cementing  the high dependency of suppliers.  

For hosts who are willing to rent out the entire property, Airbnb’s major competitor VRBO was still  the leading force in the short-term rental market, which made switching the listing site not hard. However, VRBO  charges upfront payment via subscription fee of their lister. For hosts who are listing only shared spaces,  there is no available substitution or alternative in 2009 for them to list on. Thus, it is impossible for  those listers to switch. Thus, it is safe to consider the switch costs for suppliers are high, and in return,  switch costs for Airbnb to find new suppliers are low.  

Considering Airbnb providing only short-term rental in their early stages, the risk of forward  integration, also known as “cutting out the middleman”, provides minimal advantage and is rarely  possible before the booking considering Airbnb do not provide direct contact between hosts and  guests. However, forward integration brings no reasonable benefit for the host nor for the guests. For  hosts, holding exclusivity for a certain guest booking a few days per year made them have a much  longer vacancy period and potential income. And only holding priority instead of exclusivity did not  require them to de-list themselves from Airbnb. As for guests, signing on exclusivity with a host would significantly reduce their flexibility for booking, and there is minimum financial benefit to be gained in  getting priority with a host and cutting out Airbnb. Thus, the forward integration has low threat.  

Taking in all aspects of supplier power, it is safe to conclude that early-stage Airbnb have medium to  high supplier bargaining power. This may lead to limited profit margin in the future. 

Threat of substitute good or service  

Airbnb as a platform does not provide real goods, thus only their short-term rental service and unique  experience service should be considered for this section of analysis.  

Considering the uniqueness of Airbnb’s business model back in 2009, there was no direct substitute  available and direct substitutes would not appear in the market with ease. However, VRBO as a close  competitor already provides service for both hosts and guests. And all other competitors listed earlier  in this report can be considered as clear indirect substitutes.  

For customers, here referring to guests who make a booking on Airbnb, they do not need to face any  switch cost for choosing a substitute. Thus, if the service provided by Airbnb is subparted or Airbnb loses  its value proposition, it would make maintaining customers a giant threat. 

It is safe to conclude the threat of substitute service is high.  

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Conclusion for Porter’s five force analysis  

The purpose of Porter’s five force analysis is to identify the company’s core competency and the major threat from the market. Based on this analysis, it is safe to conclude that for early-stage Airbnb, they  have a minimum number of existing rivals who are doing exactly the same as them, and newcomer or  copy-cat companies need significantly higher working capital and successfully navigate legal issues to  become a full competitor. This would leave Airbnb to become the poster child of the short-term rental  industry. It would have much higher exposure, higher brand recognition and higher brand loyalty compared to its competitors. Thus, it is possible for Airbnb to set the trend and new rules in this  emerging industry and be the guiding force of the market.  

However, when it comes to bargaining power, both buyer and suppliers, represented by the  guest and the hosts, have medium to high bargaining power. This would make the profit margin of  Airbnb much tighter, the dependency on suppliers much higher and the company less attractive for  investment in the long future. Airbnb must properly manage both ends of their business actively to  avoid those issues. This would increase the need of human resource and training on Airbnb’s end to  fulfil the needs in the future, which would increase its operational cost and further decrease its profit.  

The biggest threat for Airbnb is substitution. When both buyer and supplier have a decent amount of  bargaining power, and the product provided was not differentiated enough from its competitors,  Airbnb would have significant pressure on maintaining active users or gaining new users. Additionally,  to reduce the threat of substitution, Airbnb needs to focus on differentiating themselves. It is different  enough for the hosts, but for guests it is still not unique enough or even repulsive to live with a  complete stranger on vacation. This circles back to the unique experience side of Airbnb, listing more  unique property, developing their own special tour or hosting their own events would all be beneficial.  

Overall, Airbnb needs to utilise their first mover status to set new standards for the industry in order to  differentiate themselves from competitors, actively manage both ends of their business to maintain a  healthy community-like experience and broadening their business field. 

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Cultural analysis  

Airbnb has a unique business model to let it stand out among the emerging short-term rental market,  however, there is a significant amount of cultural background to let this happen.  

Started as AuctionWeb, ebay was founded in 1995 in the early stage of the internet era. Many considered this the beginning of the “Share economy”. By definition, the share economy is an economic model based  on Peer-to-Peer (P2P) transitions. The P2P model for the platform is relatively easy to set up, companies can use either commission or subscription fee to monetise it, and no supplier required, thus making it  a profitable form of forward integration. [46] The flexibility and low reliance on supply chains led to a  rapid growth in the sector and paved the way for many other share economy markets such as the shared  ride market where Uber reigns; P2P lending and crowdfunding market where Kickstarter made their  name; and B2B platforms like Alibaba. As internet accessibility increased, people got more and more  acceptance towards the “share economy” model, and this led to a cultural shift towards flexible  working hours and working environment, freelancing on various platforms became a viable and  acceptable job. More and more people are starting to gravitate towards this multiple flexible job with or  without a stable main job work life as an alternative to working a 9 to 5 job in the corporate world. And  this self-motivating and potentially overworking lifestyle culture was named “Hustle culture” in 2006.  It was named after the hit song “Hustling” by rapper Rick Ross released the same year. [47] 

In 2008, the same year Airbnb launched, the US housing market crashed and triggered one of the  largest financial and economic crises in recent years. To salvage the situation, the US government  spent over 2 trillion USD domestically [48], and up to 15.7 trillion USD internationally was utilised in  currency swap contracts overseas to provide liquidity. [49] This major crisis marked the steepest  recession of the economy since the 19^th century. Many families lost their homes due to mortgage  foreclosure, and the unemployment rate at times rose to about 10%. [50] The full scope of the financial  rescue policy was not revealed until years later. This crisis forever changed policy making, financial  regulation and geopolitical situations. Many blamed this massive bail-out intensified the wealth gap  in the US and gave rise to the nationalism widely spread in all countries currently, but for people who  were living in their newly purchased property during the crisis, all they cared about was to make ends meet. At  this time, hustle culture has taken shape, and was intensified by this crisis. Some people need more sources of income, others need to find a distraction with a lower price tag. Here comes Airbnb, the  solution to both of those problems.  

For hosts, the P2P platform with share space listing significantly lowered the entry threshold, giving  hosts who are in need of a new source of income a chance to utilise share space rental to supplement  their mortgage and keep their home. For guests, the rising cost of living during the crisis made them favour the more affordable option for travelling and temporary accommodation Airbnb holds. The  price listed on Airbnb also would be lowered due to property devalued during the crisis. On top of all  the grand economic background, the crisis also ignited public interest in politics, which Airbnb  identified as an opportunity and boosted their brand recognition via the viral marketing campaign.  

The financial crisis brought serious impact and lingering issues across the world, but when there is an issue, there is opportunity. Airbnb may not intentionally pick this timing, but it is the best possible  moment. Too early and the early-stage issue of the company could lead it to be bought off by competitors,  too late they would miss their golden moment for a viral marketing campaign and stand out. This proves  again one of the most important elements for a successful start-up is timing.  

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What improvement could Airbnb work on? 

It is important to fully understand where the issue lies and what countermeasures could be laid to  foster faster growth with minimum controversy. From hindsight there are a lot of issues present in  early-stage Airbnb. Here, the major issues can be summarised as following:  

1. The pioneering business model put them in a legal grey zone. 

2. The lack of protection for both hosts and guests would lead to a multitude of safety concerns

3. Service provided was not differentiated enough, thus vulnerable to substitute and replicate.

4. High reliability of hosts, leaving tight profit margin. 

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The easiest one to tackle is product differentiation. By 2009, there were already a few unique listings  such as tree house and igloo in Alaska on Airbnb. Thus, doubling down on acquiring unique listings and utilising the founders’ designing background to provide unique accommodating experience is the best  approach. It is possible to approach new homeowners within the area the company wishes to expand  into, providing consultancy on home improvement and interior design with minimum fee in exchange for acquiring listings on Airbnb. This would also expand Airbnb’s service range and business field, which  lead to another action that could be taken.  

Expanding into adjacent business fields could also be a method to further differentiate Airbnb from  others and make Airbnb harder to be duplicated. One direction Airbnb could take, and in fact did take,  was to develop their own unique event or activity attached to their unique accommodation. Dipping  into event organising and working closely with a travelling agency could differentiate Airbnb from its  competitor, and it could be used as a strategic move to close out its competitor from future  partnership or turn their competitor into partner. For example, Airbnb’s biggest competitor VRBO  work very closely with travel agency in order to provide additional perks for their customers, Airbnb  function as both an event organiser and a rental listing company would provide more value for the  travel agency’s customer, thus potentially shut VRBO out of partnership or at least slow down its  expansion. Alternatively, Airbnb can move into the designer industry, providing a unique brand of interior  design and/or designer furniture, and tie it back with their main business, providing discount or free  consultancy for their hosts. This is utilising the founder’s designing background and their existing  network within the industry. This could open up more channels for revenue, strengthen hosts’ brand  loyalty, and differentiate their more generic listing from similar listing on competitor’s site.  

The major issue and weakness of Airbnb that still continues to harm the company even today is the  legal and safety concern rooted in the shared space model. When the listing amount is low, Airbnb  could get a listing auditing team and investigate individual cases. However, as Airbnb grows, the  amount of complaints associated with such issues would inflate to a state that manual review is going to  be impossible. Thus, utilising Airbnb’s first mover advantage and actively pursuing regulation and legal  support could be a better approach. In this way, Airbnb could pursue a manageable system for safety  insurance and background check, and assemble a lobbying team or legal team to actively make such a system the legal standard requirement of the entire industry. In this way, Airbnb would increase the  safety for their customers, leading the industry towards a mutually beneficial direction, boosting  brand recognition and brand image, shape regulation and policy in their favour, and potentially reduce  competition by increasing their operation cost. Additionally, Airbnb can form their own third-party  auditing and fact checking company that works closely with law enforcement, and then hire them to do  safety and background checks for Airbnb. And set this new auditing company as the standard for the  entire industry. This can diversify their revenue channel and gain better control over the entire market.  

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Conclusion  

Airbnb started as a creative solution to low availability of hotel rooms in the travelling season, and now a  multimillion company and growing. It gained their initial traction via a smart market campaign that  boosted their brand recognition and opened up the short-term rental market to people who cannot  afford to rent out full stand-alone property. Their two-way platform business model gave them  multiple channels of revenue but also increased their operational cost for relationship management.  Airbnb creatively brought in the “share-space” rental model, which significantly reduced rental market  entry threshold, but also introduced safety concerns for guests and hosts. Additionally, their model  would put them as the industry leader and major disruptor of the market, however, it also landed them  in many legal hot waters. 

When inspecting external elements, the major threat for Airbnb in its early days comes from the high  reliance on hosts and substitution services. This would end them with larger companies mimicking their  model and pushing them out of the market because their reliance on hosts leave them relatively low profit  margin to sustain itself.  

Potential solution is to branch out into adjacent industries such as interior design or event organisation  in order to diversify their income channel and differentiate their services from competitors’. And for  safety concerns, using their first mover status and push for regulation reform would allow them to  shape policy in their favour and solidify their leading position in the industry.  

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Reference:  

[1] Airbnb (2022) https://www.linkedin.com/company/airbnb/ 

[2] Airbnb (2022) https://en.wikipedia.org/wiki/Airbnb 

[3] Airbnb Inc (2022)  

https://www.google.com/finance/quote/ABNB:NASDAQ?sa=X&ved=2ahUKEwj9n4H2tvT3AhXNTmw GHWbgBDMQ3ecFegQIJxAg 

[4] Airbnb-Inc. Company Report 2019 by Research Methodology 

[5] Holacracy, by HolacracyOne, (2021): https://www.holacracy.org/explore/ 

[6] Holacracy ,by Incestopedia, (2021)  

https://www.investopedia.com/terms/h/holacracy.asp#:~:text=A%20holacracy%20is%20a%20syste m,accomplish%20tasks%20and%20company%20goals. 

[7] Airbnb executive team by Comparably, (2022)  

https://www.comparably.com/companies/airbnb/executive-team 

[8] The importance of Company Culture at Airbnb, by Heryaty R (2014), https://inside.6q.io/the importance-of-company-culture-at 

airbnb/#:~:text=Airbnb's%20Human%20Resource%20team%20pride,company%20has%20their%20o wn%20culture. 

[9] Competitors For Airbnb: Who’s Stealing Market Share From the Industry Giant? (2020)  https://hospitable.com/competitors-for 

airbnb/#:~:text=Airbnb%20market%20share,the%20realms%20of%20%2420Billion. 

[10] Airbnb Revenue and Usage Statistics (2022) https://www.businessofapps.com/data/airbnb statistics/ 

[11] Gallagher, Leigh (July 1, 2015). "The education of Airbnb's Brian Chesky". Fortune. 

[12] Airbnb's Joe Gebbia on How Art School Prepared Him to Be an Entrepreneur". Artsy. Retrieved 1  January 2022 

[13] "How 3 guys turned renting air mattresses in their apartment into a $31 billion company,  Airbnb". businessinsider.com. Retrieved April 8, 2021. 

[14]"What's For Breakfast At Your House: Obama O's or Cap'n McCain's?". TechCrunch. Retrieved 1  January 2022. 

[15] VRBO (2022): https://en.wikipedia.org/wiki/Vrbo

[16] HomeAway (2022): https://en.wikipedia.org/wiki/HomeAway 

[17] Global Short-Term Rental Market 2010-2019 (2020): https://research.skift.com/wp content/uploads/2019/08/Figure-3-1.png 

[18] Momentous insights on how does VRBO work (2021): https://www.ncrypted.net/blog/how does-vrbo 

work/#:~:text=Vrbo%20uses%20an%20annual%20subscription,how%20does%20Vrbo%20make%20 money. 

[19] Away:US ETFMG Travel Tech ETF (2022): https://www.bloomberg.com/quote/AWAY:US 

[20] Vacation rental site lands $160M, buys competitor:  

https://www.bizjournals.com/austin/stories/2006/11/13/daily2.html 

[21] Booking.com (2022): https://en.wikipedia.org/wiki/Booking.com 

[22] Business models compared: Booking.co, Expedia, TripAdvisor (2017)  

https://innovationtactics.com/business-models-tripadvisor-booking-com-expedia/ [23] Alomtegenwoordige boekingsreus, de Volkskrant, 6 oktober 2014 

[24] Last 10 years of Booking.com, (2017): https://www.triptease.com/blog/last-10-years-of booking-com/ 

[25] Wayback machine: Booking.com @ 13/03/2008 (2022) 

https://web.archive.org/web/20080313162152/http://www.booking.com/ 

[26] FlipKey (2021) https://www.crunchbase.com/organization/flipkey 

[27] Apartment Rentals Are Flipkey’s Fastes Growing Category (2014)  

https://skift.com/2014/06/16/apartment-rentals-are-flipkeys-fastest-growing-category/ 

[28] How does Craigslist make money? (2022) https://finty.com/us/business models/craigslist/#:~:text=Craigslist%20charges%20%2425%20for%20job,appear%20in%20certain% 20search%20results. 

[29] Wayback machine: craiglist/about > fact sheet (2022)  

https://web.archive.org/web/20120805110958/http://www.craigslist.org/about/factsheet 

[30] Crovitz, L. Gordon (May 12, 2013). "Toward Rivals, It's Craigslitigious". The Wall Street Journal.  Retrieved August 18, 2013. 

[31] Average daily rate of the hotel industry worldwide for m2008 to 2019, by region (2020):  https://www.statista.com/statistics/245759/average-daily-rate-of-hotels-worldwide-by-region/ 

[32] Airbnb’s Growth Strategy: How they attract and retain 150 Million users (2019):  https://www.webprofits.com.au/blog/airbnb-growth-strategy 

[33] 2. The evolution of Airbnb’s Business Model: (2020) https://uq.pressbooks.pub/airbnb-978-1- 74272-321-1/chapter/the-evolution-of-airbnbs-business-model/ 

[34] The Top 10 tech trends of 2009 (2009):  

http://edition.cnn.com/2009/TECH/12/22/top.tech.trends.2009/index.html

[35] Is $13 too much for a box of cereal? General Mills doesn’t think so (2020):  https://www.usatoday.com/story/money/2020/02/20/cereal-13-box-general-mills-offers-morning summit-option/4817525002/ 

[36] Airbnb Lawsuits and Arbitration (2021): https://www.bennettinjurylaw.com/airbnb-lawsuits and-arbitration/ 

[37] Airbnb Settles $6 million class-action lawsuit, some Canadians eligible for up to $45 credit  (2018) : https://www.ctvnews.ca/business/airbnb-settles-6-million-class-action-lawsuit-some canadians-eligible-for-up-to-45-credit-1.5778567 

[38] Airbnb Is Spending Millions of Dollars to Make Nightmares Go Away (2021):  https://www.bloomberg.com/news/features/2021-06-15/airbnb-spends-millions-making nightmares-at-live-anywhere-rentals-go-away 

[39] Airbnb Has a Hidden-Camera Problem (2019):  

https://www.theatlantic.com/technology/archive/2019/03/what-happens-when-you-find-cameras your-airbnb/585007/ 

[40] Barron, Kyle; Kung, Edward; Proserpio, Davide (October 5, 2017). "The Sharing Economy and  Housing Affordability: Evidence from Airbnb". SSRN 3006832.  

[41] The U.S. dollar has lost 26% its value since 2008: 

https://www.in2013dollars.com/us/inflation/2008 

[42] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review  

[43] Airbnb’s Biggest IPO Winners (2020): https://www.theinformation.com/articles/airbnbs biggest-ipo-winners 

[44] Homestay.com, (2022): https://www.homestay.com/ 

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[45] Rao, Leena (March 4, 2009). "Y Combinator's Airbed And Breakfast Casts A Wider Net For  Housing Rentals As AirBnB". TechCrunch. 

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[46] Sharing Economy (2020): https://www.investopedia.com/terms/s/sharing-economy.asp 

[47] Hustle Culture: How “Every day I’m Hustlin” Become a Mantra (2020):  https://www.monster.com/career-advice/article/what-is-hustle 

culture#:~:text=In%202006%2C%20rapper%20Rick%20Ross,is%20a%20way%20of%20life. 

[48] The 2007-2008 Financial Crisis in Review: (2022)  

https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp 

[49] The real cost of the 2008 financial crisis (2018): 

https://www.newyorker.com/magazine/2018/09/17/the-real-cost-of-the-2008-financial-crisis 

[50] The Great Recession and Its Aftermath (2013) 

https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath

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