Everything About Airbnb: A Case Study for Business

Here’s a story about Airbnb, a unique and creative venture started by three people: Brian Chesky, Nathan Blecharczyk, and Joe Gebbia. Even after experiencing so many failures and downfalls, this startup broke the prevailing orthodoxy of the startup world. They are now a multibillion-dollar company, and their strategy and grit have proven every notion wrong that existed when they started. Let’s look at the case study on their successful business structure in detail.

“It’s fine to celebrate success but it is more important to heed the lessons of failure.”

What is an Airbnb, and how does it work?

Airbnb is an online commercial centre where travellers explore local hosts during travelling. Airbnb is the first choice of travellers to explore locals. It also gives the chance to experience the local style of living.

As a two-sided platform, it gives hosts the option to list their property on Airbnb for renting to travellers. On the other side tourist and travellers book the local host to get an inclusive local experience.

Why are they called Airbnb?

During starting days, Airbnb used to provide sleeping Air mattresses and beds with an excellent breakfast for the guests. That gave them an idea to combine air mattresses, Beds, and breakfast to form the name we know as Airbnb.

About Airbnb Business Model:

Airbnb has a modern approach in terms of Business Model. Their fundamental business structure is based on the aggregator model. It is a networking E-commerce business model where a company, called the Aggregator, aggregates data about several different services, property, or assets providers and makes those providers part of their business. These rented properties or goods are then displayed on the Aggregator’s website or platform to be sold as a service under its brand.

The company also have to assure uniformity in the price and quality of services registered on its platform. Therefore, Airbnb follows the asset-light model in which it provides services like photography, management and advertisement to rented spaces in exchange for some commission.

Airbnb as an aggregator takes its share from revenue earned by the provider registered on their platform. Also, it takes charges from the traveller who booked the property of the provider through their platform. It is similar to the C2C business model that generates revenue from the provider who sells the product or rents his property and the interested customer who pays for it.

Earlier, we had a conventional model where you need to own or buy property first to start renting or use it for other purposes. Airbnb has changed this approach by connecting demand and supply through its platform. People with vacant living or multipurpose spaces willing to earn money and interact with new people would rent their property. Meanwhile, travellers interested in spending time with locals or experiencing the art and culture of that place would readily pay the rent to feel at home in a new place to visit. Also, it feels light in the pocket of tourists as compared to hotels.

The Airbnb business model has endless possibilities for expansion and what makes them unique is they sell experiences apart from affordable spaces.

What is the goal of Airbnb?

The goal of Airbnb is to build a network that can connect travellers from all over the world to hosts in different cities so they can get an insight into local life in different cultures.

Revenue Model: How Airbnb makes Money?

Airbnb lists the properties of local people on their platform for free. It also allows tourists or travellers to find hosts or places to stay as per their interests which suits them best.

All the bookings, transactions and monetary takes place on Airbnb’s platform. That is how Airbnb makes a significant chunk of its revenue. Let’s see the breakdown of its revenue collection:

How are Airbnb fees calculated?

Airbnb calculates its fee based on the number of nights stay plus management fees. It also includes some percentage of Airbnb fees and taxes. Airbnb deducts its percentage during transactions made on the web.

What percentage does Airbnb take?

Percentage of fees from Host or Owners of property: Airbnb takes 10% of hosts’ income on every booking received through their platform.
Percentage of fees from Tourists or Travellers (Guests): Airbnb takes 3% from every transaction made by Travellers on any confirmed booking.

Case Study on Airbnb Principle of Management.

As we know about Airbnb that it’s a large-scale operating business. For smooth working of any large-scale enterprise. You need to follow the principle of management. It will help to control internal activity in your business.

Here is how Airbnb managed its business to build a stable and successful company using the principle of management:

Division of Work in Airbnb: This feature helps Airbnb to improve employees’ productivity and efficiency. With the help of the division of work, they have reduced the workload on employees. Hence, it increased the accuracy and speed of employees. Airbnb has divided its work into various departments like IT, R&D, Finance, customer care, and marketing.
Authority and Responsibility in Airbnb: Airbnb gives various authorities and power to its managers to make crucial decisions. It makes them responsible for work done under the guidance of their leadership. This practice increases the efficiency of management at a smaller level.
Discipline in Airbnb: Airbnb follows discipline in their business activities. If you open the Airbnb application, you will find that everything is in the correct order and placed perfectly. They also follow discipline in their various business operation.
Unity of Command in Airbnb: All the departments, managers, and employees follow the command of one boss, the CEO of Airbnb. It means having one boss will lead to no confusion among subordinates. No ego clashes between managers also improve the effectiveness of working.
Unity of Direction in Airbnb: Every member of Airbnb follows one goal and one direction. This role helps them to achieve organizational goals. All the efforts of employees get unified towards one direction to grow the business.
Subordination of Individual Interest in Airbnb: The employees of Airbnb work to grow its business keeping aside their interests. The employees always keep Organizational interest first rather than their interest. It means there is less chance of fraud within the company.
Remuneration in Airbnb: Airbnb believes that. Salary plays an essential role in the motivation of their employees. That is why the average wage in Airbnb is $115k per year. It depends on its employees.
Centralization and decentralization in Airbnb: Director of Airbnb has decentralized his power of decision-making like financial decisions and decisions related to the market to reduce workload. Some force of management is still centralized, like controlling and directing. So, the director of Airbnb can still make some vital business decisions.
Scalar Chain in Airbnb: When Airbnb takes any decision, it passes through many levels of discussion. Airbnb ensures that the order of any decision should pass through the top level to the bottom level. First, it passes to different departments of Airbnb for discussion. Then it goes to the manager level. At last, it is passed to other subordinates for implementation. In this way, Airbnb reduces the chance of any flaw in decision-making.
Order: In Airbnb, everything is in order. On entering their office, you will find everything is in order, including men and materials. There is a separate room for everything. For example, a particular place for the IT department, a separate meeting room, and a different location for Kitchen. The main aim of Airbnb is to develop a good work culture for employees. It helps in increasing their productivity.
Equity in Airbnb: All employees are equal in the eyes of the Airbnb administration. They give equal respect to every employee. As per their ethics, everybody is equal in Airbnb seeking for job or in the job. No matter which religion they belong to and what is their Color or Gender. Even if they have a physical disability, they will be equally treated by the administration and colleagues.
Stability in Airbnb: Airbnb avoids frequent termination or transfer of an employee, giving them a sense of job security and stability. It motivates employees to deliver their best to their company as a give-back gesture.
Initiative in Airbnb: They have set up an innovative workspace for their employees. Airbnb has designed its office in a way that employees can feel working at home. They always encourage their employees to give suggestions before any decision Airbnb makes. They always try to develop a feeling of belongingness inside their employees. With the help of this activity, Airbnb encourages its employees to come up with great ideas.
Esprit de Corps: Espirit de corps means a feeling of pride and mutual loyalty shared by the group members. Airbnb management follows the same principle to form a positive working environment. For example, A team of 10 Airbnb employees is working to achieve a target, but three of them fell ill. Now, to handle the case, seven employees left will take all the workload of the other three. That’s the motivation and spirit to achieve the goal in the team.

Core of a Business Model: The CAC / LTV "Rule"

CAC = Cost of Acquiring a Customer
LTV = Lifetime Value of a Customer

This rule is a mantra followed by every successful business model. The fundamental goal of the rule is to bring down the value of CAC lower than LTV.

CAC is the sum of costs of all the resources involved in acquiring a customer. These resources can be advertisement, marketing, employee salaries, customer bonus benefits, product and service costs, etc.

LAC is the total revenue generated from a customer acquired by the business. These revenues include one-time charges, subscription fees, and extra fees for maintenance and operation.

Hence it is a visible fact lesser the CAC than LTV, the higher the profitability of any startup or business.

Case Study on Airbnb financial management

Finance management is an essential part of the business. A business must ensure that funds are spent on the right things in the right place at the right time. Companies should have a Chief financial officer to manage all the finance tasks. Airbnb also has a financial officer named Dave Stephenson, who takes care of all the financial management in the company.

The aim of a financial manager is profit maximization while maintaining liquidity in the business. He ensures that proper use of funds is done for meeting financial commitments.

Here are some of the financial decisions:

Investment decision: Airbnb has decided to invest $200 million in India on budget hotels. They have more plans to invest in emerging markets like India and China for higher Growth of business.

Financing decision: Airbnb raised billion dollars from venture capital like Y Combinator to expand its business.

Dividend decision: Airbnb avoids raising funds from dividends because their business earnings are unstable. Their earnings are dependable on the tourism sector.

Case Study on Airbnb Marketing Strategy

The Airbnb marketing strategy involves a social process in which they target the needs of their customers and create a familiar connection with them. Airbnb makes many offerings for the free exchange of services.

Let’s take a deep look at the features of Airbnb marketing:

Need and want: Airbnb focuses on customers’ needs, wants, and demands by upgrading itself. Here are some features launched by Airbnb to complete the customer’s needs and want:

Flexible Booking: To make bookings flexible, Airbnb has a feature I am flexible. This feature helps travellers book their host or confirm the place even if they have no fixed time. Also, travellers can cancel their bookings anytime. That is why professionals always prefer Airbnb.

Availability and Uniqueness: Airbnb has spread its business around 167countries. That is why Airbnb is the first choice of travellers. It allows travellers to book local-host anywhere in the world and gain diverse experiences. For example, a day with an Olympic athlete swimmer, a bicycle tour of the city, tasting local food, and more. Travellers can choose their hosts according to their interests. It is the most attractive feature of Airbnb, which makes it a unique concept in the market.

Business Traveller: Now, Airbnb has a new search button for business people. It makes Airbnb more compatible with business travellers. With the help of this advanced feature, they have attracted customers from the business domain to their platform.

Creating a market offering: Airbnb always provides complete information about the property, its feature, facility, and host. They always take care of the quality of the apartment or house, including food service. They send a professional photographer to the host’s property to upload good-quality photos. With this method, they provide more clarity to their customer on their platform. It is one of the game-changing tactics of Airbnb to win the trust of customers.

Customer value: Travellers prefer Airbnb because, on their platform, bookings are cheaper than on other platforms. They provide real-time alerts and notifications of properties available at an affordable price. They also give coupons on completing any task to get a discount on further bookings.

Exchange mechanism: To boost user experience on any platform, you need to make a smooth exchange mechanism. Airbnb provides service in exchange for money through a smooth payment system. Their application allows you to select bookings by filling in some basic details to enhance their platform’s user experience.

Production concept: Airbnb ensures that most of the hosts listed on their platform are cheaper than hotels and rooms available in the market. They always encourage people to list their property on their platform. So, that travellers would get a large number of options for their searches. They try to manage the availability of bookings in every situation. The variety of options and a large number of listings attract the customer to the platform. This feature helps Airbnb provide freedom to choose various places up for bookings at a cheaper rate.

Product concept: Airbnb follows the product concept. Under this concept, Airbnb always cares about quality service. Following this concept, Airbnb sends professional photographers to the host property to get some nice and clear photos that improve quality.
Additionally, it offers features such as I am flexible, allowing travellers to book rooms even without a fixed time. If the program is cancelled, they can also cancel their bookings. Airbnb keeps improving its application according to customer requests as well.

Paid Promotion: Airbnb takes the help of aggressive promotion techniques and influencer marketing to sell their service. The main focus of Airbnb is to increase the sales volume of its service. They attract tourists through advertising various offers and features of Airbnb through influencers, brand partnerships, and sponsorship.

Societal concept: Airbnb takes exceptional care of societal welfare to connect with society. One example of Airbnb societal work is that they forgive 20% of your earnings for societal impact experience. So, most of the money goes for your mission.

“Get closer than ever to your customers. So close that you will tell them what they need well before they realize it themselves”

- Steve Job

Co-founder Apple

How Airbnb Finds Customers?

One of the significant parts of Airbnb marketing strategy is to find its customer and reach out to them. Airbnb uses three basic common types of promotion techniques to grab the initial attention of its customers :

Advertising: The primary advertising technique of Airbnb is Digital Marketing, including Internet ads. Airbnb spends millions of dollars on sponsorship, influencers, and paid advertising platforms like Facebook, Instagram, YouTube, and Google AdSense. They always target an audience that takes an interest in tours and travel. In this way, they find new customers who need a platform like Airbnb for their travelling. They use to sponsor different types of events for their brand. For example, they sponsored Tokyo Olympics 2021 and signed a $500 million sponsorship deal with IOC extending for 9years. This means all of us will see Airbnb’s brand throughout the upcoming Olympic games for the next nine years. That’s how they advertise their brand by sponsoring the events too.

Sales promotion: They give discounts on bookings for every new season or festival. It helps to attract more travellers for bookings active during specific seasons or festivals. Airbnb provides free listings of the host on their platform. That is why they have a large number of registrations for a host on Airbnb. They are also running their affiliate program which pays money per referral. Under the affiliate program, users of Airbnb send referrals to their friends, which invites them to join the Airbnb platform. Airbnb uses AI in the background to check user interest and shows pop-ups or flash sales based on it. It also brings out promotional offers like a holiday trip discount, coupon giveaway, and many more. Airbnb also has an advanced price match feature that can filter the list of hosts according to your budget.

Public relations: Airbnb focuses on public relations to bring that connection of the family with customers. To achieve public relations and connection, they made a new website, Airbnb newsroom. With the help of this website, they deliver essential news related to Airbnb. New features by Airbnb are also introduced on their Newsroom Website. Additionally, they have a blog that highlights all the exciting hosts on their platform, catching the attention of users to rent from them. Some examples of blogs are: Celebrate amazing firework, A Day with Anderson on the treehouse, etc. They also have an active social media presence to make their influence in public.

How do I start a Business like Airbnb?

Young minds that are aspiring to venture into the world of entrepreneurship often ask: How do I build my own business like Airbnb? So, here are a few steps to keep in mind when building such a startup:

Find and establish a source of business finance to perform all business activities. You must have enough money to make a business successful.
To be precise, it might cost you around $1000 to $2000 to develop an app and website like Airbnb except for other business expenses. You must have an MVP ready to lure investors and get funding at an initial stage.

Start planning your business, keeping the tour and travel market or your niche market in focus. As we know, a platform like Airbnb is a two-sided platform where a host lists his property to earn rent. On the other side, travellers book the local host to experience the local culture and know its people better. So, your planning should be according to the customer-to-customer (c2c) business. You may check our full guide on how to write a perfect business plan.

When business planning is complete, start organizing your business. In this, you have to perform different business activities. You have to divide work according to employees’ skills and talent. Next, you have to Create departments for different types of work. Assign duty and establish reporting relations in business.

Start developing a website or app with the help of your IT department. Your application and website interface should be interactive, smooth, and eye-catching. The application and website should have integrated new features in practice to keep pace with time.

After setting up the platform, start doing market management. It will help to promote your business by marking your presence in the market. Various features of marketing and promotion techniques allow you to attract users. It is an essential step to run any startup. You can take reference from the case study given above on Airbnb marketing management.

How profitable is running a company like Airbnb?

If you are new in this business and have an average market base, you can earn around $500 to $1000per month. Travellers are always in search of new options for their journey. So, they also like to try new platforms with unique and new concepts.

Imagine the revenue of Airbnb is $1.7billion in 2016, and in 2019 it is $4.7 billion. It means the craze for platforms like Airbnb is increasing. This market has the potential for businesses to earn more money in the future with innovation.

Conclusion

What’s special about Airbnb is that it broke all the pre-existing notions of investors and the startup domain. It proves how a crazy idea can bring a revolution in market needs.

They as an startup revolutionized the essence of travelling and brought significant innovation to the tourism industry. The idea of connecting communities and cultures through a platform has given them a customer base that will only keep increasing with tourism in the future.

Airbnb presents a modern efficient business model that incorporates all essential management, finance, and marketing principles.

They broke the conventional approach and perspective of society toward travelling and tourism. Their journey of achieving this feat gives us many lessons and tactics to build a successful startup.

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