Airbnb business model – and how to replicate it in your industry.
Airbnb has become a very popular and acceptable alternative to hotels since its launch in 2008. And it is only getting better and more popular by the day. I give you an example. I and 6 other close friends are making plans about about a possible 2 week vacation in Dubai next year and throughout our search for a place to lodge hardly has anyone mentioned a single hotel. Almost all the options that have been presented are all Airbnbs. At a point I had to pause to reflect on how that has suddenly become a default option for travellers. That alone for me, is a testimony to how far, how popular and how acceptable Airbnb has become.
This platform lets travellers find a place like home in a foreign city and lets hosts give their home in exchange of rent. Just like Uber, Airbnb is an aggregator business model which allows several apartment owners sell their homes to intending customers with Airbnb only facilitating the process in a seamless manner.
Incidentally, Uber and Airbnb are contemporaries. Both of them were founded just one year apart; Airbnb in 2008 and Uber in 2009.
Despite obvious issues with a model of this nature like safety, trust and others Airbnb has proven to be a very successful idea. And today, I will be sharing details of this business model. I will share it’s value proposition, how it makes money and why it has become very successful.
However, before I delve fully into the Airbnb business model, for the sake of those who may not know, I will first explain what Airbnb is.
What is Airbnb?
Airbnb is a community-based online platform for listing and renting local homes. It connects hosts and travelers (guests) and facilitates the process of renting without owning any rooms itself. Moreover it cultivates a sharing-economy by allowing property owners to rent out spare rooms in their flats.
The unique service offered by Airbnb has made it climb the success ladder in just few years of launch. The Airbnb business model immediately appealed to avid travelers who wanted not only better prices than hotels but also unique experiences.
The growth of Airbnb has seen it amass mouthwatering traction in little over a decade:
- 2.9 million hosts on Airbnb worldwide
- 7 million listings
- 200 countries reached
- 150 million users on the site
- Average of 6 renters checking into an Airbnb-listed property per second
Airbnb Business Model – How Airbnb Works
As a type of business model, Airbnb business model is an aggregator business model just like Uber. The key drivers of the model are the individual travellers (guests) and the hosts (property owners). So while the travellers generate the demand, the hosts fill that demand. Airbnb only acts as an online platform/facilitator to ensure seamless transaction.
So all a host does is decide to put up their apartment for rent, a traveller discovers it through Airbnb and pays the rent to check in and enjoy a unique experience.
So in 8 quick steps this is how the Airbnb business model works:
- Hosts list out their property details on Airbnb along with other factors like pricing, amenities provided etc.
- Airbnb provides the option to use a professional photographer(if available) to the property location in order to take high-quality photographs.
- Travellers search for a property in a location they wish to stay and browse available options according to price, amenities etc.
- Booking is made through Airbnb and the traveller pays the amount listed by the host and an additional transaction fee
- Host approves the booking.
- Traveller check in and stay there
- Airbnb pays the amount to the host after deducting their commission.
- Reviews from host and traveller are provided for the sake of the broader community.
AirBnB Business Model – The Market Segmentation
In the business model canvas of Airbnb there are four key personnel:
- Experience providers
Let’s take a brief look at each of these market segments and their roles in the Airbnb business model.
- Hosts are those people who list their spare rooms or apartments on the airbnb website
- When any of the properties are booked the hosts will get rent in exchange
- Hosts have the liberty to accept or reject the travellers by reading the reviews from other hosts
- They can also list their property with the facilities they will be providing along with the rent, check-in and check-out time
- Travellers are those who book the living space from hosts on rent
- Travellers have the option to filter the search as per their needs and wants
- They can set the rent amount range, basic amenities they will need and the number of guests before selecting
- They can book by paying the amount online even before arrival
- Airbnb hires freelance photographers to click high-definition pictures of the property
- The best quality photographs that get the most bookings are paid by Airbnb
- The amount paid by Airbnb is pre-agreed
- These are usually specialists within a local area that provide classes, tours or events.
- Experience providers are also rated by guests.
- They pay a 20% commission to Airbnb for all activities that are booked.
- Of course this is optional for travellers
AirBnB Business Model – Value Proposition
The Airbnb business model has four distinct customer segments: hosts, guests (travellers), photographers and experience providers. However, the two key segments that really account for the success are the hosts and the guests.
As a platform business model, Airbnb has to provide a very strong and compelling value proposition to bring the two-sides on board. And that is exactly what Airbnb did with her business model.
Value Proposition to Hosts
- Extra source of income on their terms
- Simplicity and convenient transaction
- Safety despite hosting a supposed stranger – Airbnb performs a backgound check on both hosts and guests
- Airbnb provides insurance to listed properties
Value Proposition to Guests
- Gives cheap options to travellers to stay with local hosts.
- Facilitates the process of booking living space for travellers
- Wide range of options to choose from – over 7 million listing
- Unique and fun experience of living like a local for every travel
- Rating and review system for hosts and guests.
- User-friendly app and web-based structure.
AirBnB Business Model – How They Make Money
The popular way we know that Airbnb makes money is by charging commission. However, the commission Airbnb charges is a two-way commission. What that means is that they charge the host and also charge the guest. However, the guest pays more. The commission from guests is usually between 0% and 20% for their stays. And that of the host is 3% of the fee.
Like other online marketplace models, the Airbnb business model has proven highly scalable and profitable.
AirBnB Business Model – Why it is Very Successful
So having seen the business model of Airbnb and how it works, what can we then say is the reason the idea has become a mega success in such a short time? Well, there are a couple of reasons:
- They focus majorly on user experience
- It is clearly more affordable than hotels – once again validating the importance of price as a market penetration strategy
- It operates a free market where the forces of demand and supply reigns supreme
- Airbnb is an open platform that helps maximize what could have been an idle asset
- The unique experince and integration with locals is a major attraction
- It is a lean model without much overheads and that takes away any burden of wanting to increase price to balance the books
AirBnB Business Model – Before We Go
Airbnb business model is one that has been regarded as a game changer in the business world. The model has given hotels around the world serious headache and sleepless night. And since it is impossible to compete with them no matter what, some of the hotels are now listing their hotels under Airbnb as the only way of remaining relevant and in business.
But with all that Airbnb has done, there is a feeling that they are just getting started.
Let Airbnb business model and astronomical growth inspire you in designing a scalable peer-2-peer model with your own unique idea.