Airbnb is a service provider which serves both people who have space to let by providing customers in need of a place to stay and serves the people who need a place to stay by connecting them with people who are offering the same. The space renters are both professionals and non-professionals with the majority of the people offering their house for sharing.
The Airbnb started from the need for two roommates, Joe Gebbia, and Brian Chesky to supplement their rent. The two created a simple website and advertised their three spare air mattresses and breakfast, found their first three customers and the rest is history. Airbnb went on to become so popular across the word to even overtake Hilton in night bookings in 2012. Airbnb is essentially a sharing economic business model (Airbnb 2016).
Airbnb SWOT analysis
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Strength · Well recognized and established brand name · Has a business model that allows it to offer low prices and compete well with established hotels · Well trained and Competent staff · Presence across the world in over (192 countries) · Great potential for Growth globally |
Weakness · It would be easy to copy Airbnb’s business model · The company faces accusations of violating laws on housing in many countries · The company depends on the goodwill of the hosts and if they fail to abide by the company specifications, the clients suffer which may dent the company’s reputation |
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Opportunity · Many countries and states like San Francisco are changing their hosing laws to accommodate the Airbnb’s model · Increased mobile usage enhancing the sharing economic model like the one of Airbnb · Guests are likely to continue shunning high priced hotels in preference to cost effective accommodations · More people are trusting the platform including celebrities who are offering their houses for short rentals |
Threats · The company depends on the hosts to comply with varied housing laws · The company faces law suits and hefty fines for violating laws in the countries where it operates. · Increased competition from companies offering similar services including FlipKey and Wimdu |
In sharing economy, the main component is on shared use. The participants agree on an economic model of sharing what they have for mutual benefit with one party gaining financially while the other party is gaining regarding services (Botsman & Rogers 2012). Another important aspect of the shared economy is the act of providing access to service rather than ownership. Most businesses involved in sharing economic models do not have ownership to the tangible products, and they simply facilitate or act as go-between two parties in which one has the services on offer while the other party is in need of the said services (Botsman & Rogers 2010).
The services are characteristically short-term, and the customers in need of short-term services find the arrangement beneficial compared to the traditional models (Bardhi & Eckhardt 2012). Technology is the biggest driver of sharing economy, with the internet having the ability to connect two parties from different parts of the world in the shared economy (Denning, 2014). A tourist from the US planning on visiting Australia can, through the internet connection with a person offering his house as accommodation (Bucher, Fieseler, & Lutz 2016) All the tourist has to do to log into the Airbnb website, and he or she will get access to people in Australia offering accommodations. The tourist makes a choice, books and pays all in the comfort of his her room (Guttentag 2013).
Airbnb Value Curves
Economic considerations are also important drivers of the sharing economy. Most people offering their services in a shared economic model are not professional services providers. In other words, they did not set up or purchase the facilities expressly for providing the services and earning a profit from them (Cusumano, 2014).
In most cases, people participating in the sharing economy like the AirBnB provide the services using their current assets which they might still be using, or they let out some properties they are currently not using (Saarijärvi 2011). In shared economy, a person will rent some spare room in the house he or she is using, or let out a car which he or she uses for the office, but lays idle the better part of the day. Such individuals earn extra income from the assets they are already using. The income prospects motivate a lot of people to offer their services on assets they are already using (Tonnquist 2008).
However, sharing model businesses do not exclude professional service providers, and people can buy new cars and build specialised accommodation spaces and used professional drivers and attendants and advertise the same on platforms like Airbnb for anyone willing to consume their services (Winter & Szczepanek 2008). Because most of the people engaging in sharing economy did not invest in the assets specifically for offering these services, they can offer the services at a fraction of what the professional services providers would offer. The customer, therefore, gains from lower costs of services (Smolka & Hienerth 2014).
Sharing is a uniquely human trait, and it has just been harnessed through social media platforms such as Facebook, Twitter Instagram where people share information knowledge and ideas. Sharing has provided the spur for the phenomenal growth of the peer-peer businesses based on sharing economic model (Botsman 2014).
AirBnB business model canvass
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Key Partners |
Key Activities |
Value Proposition |
Customer Relationships |
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v Community (Host who offer their spaces for rent and guests who pay to use the spaces) v Investors (those who provided capital and shareholders) |
v Building networks (including recruiting of more hosts, and advertising to new customers) v Online and offline advertising (SEO optimisation, billboards, endorsements from celebrities) v Management and development of product including platform maintenance and updates v Product segmentation (region, occasion, budget) v Identity Documents’ Verifications v Insurance provision Payments v Customer Service |
v Affordable Services v Accessible v On-demand business model for both the service providers and users v Customised services (can choose according to taste rather than be restricted to traditional accommodation setting v Generating trust amongst peer users v Extra income for host v Lower-cost accommodations compared to traditional B&Bs v Optimal usage of Resources v Establishing terms and conditions for P2P transactions v Home insurance provided by Airbnb |
v Prompt customer support v Automated services v Loyalty programs and promotions to encourage new and repeat customers v Co-creation through ratings and reviews v Prompt dispute resolution v Social media support for easier interactions and feedback v Customised recommendation |
Customer Segments v Simple customer: a place to stay for customers who are interested in hassle-free accommodations v A business traveller who might need more room at a lower cost, who may want to cook own food, or may prefer home-away-from-home feeling. v Globetrotters (may need to live among the locals and experience their culture) v Family travellers: they may be travelling a big family, and standard accommodations may not be sufficient. v Customers who need customised services |
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Key Resources v Technology v Guest information v Network of hosts v The Airbnb brand which is an asset to the company v Community |
Channels v airbnb.com v Mobile App v Secure Web-based online payments v Creative and tech-savvy human capital |
v |
v |
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Expenditure Structure v Fixed costs including salaries insurance, PR, Lobbying, advertising v Technological Setup v Variable costs v Online payment processing firms |
Revenue Streams v Initial capital from investors v Data use/reuse v Peer provider’s 3% transaction fee v Peer consumer’s 6-12% booking fee v 3% currency conversion fee |
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Value Proposition Canvas For AirBnB
Blue Ocean Strategy Tools
Blue ocean strategy refers to strategic thinking which drives a company from bloody competition in the red zones to blue zones of creating new value where there is no competition. In strategic management, the blue zone consists of untapped markets, new customers, and unique value creation. According to Kim & Mauborgne (2005), companies should focus on making competition irrelevant rather than spending all their resources on finding ways to become more competitive in the market.
Instead of companies cutting prices to fend off stiff competition in the red zones, management finds unique ways of creating value to the consumers by either introducing new products in the market, or finding unique ways of creating value for the customers (Staats, Brunner, & Upton 2011).
The blue zone is characterised by market disruptions, where a startup finds a gap in the existing market and capitalises on it to provide customers with unique products or processes (PMBOK Guide 2008). In the beginning, the new products or services caters for the lower economic echelons of the society, but in time, the whole industry adopts them, and it becomes mainstream catering for all the economic categories. Low costs and added value characterise the value proposition in the blue market. Most startups operate in the blue zone consisting of finding unique ways of creating value to the customers and sometimes introducing new products into the market (PMI 2011).
Then again, if one somehow happened to dispatch business with a blue sea procedure and advertising administrations that were not already offered there is a chance to make to entire new request cycle. Cirque du Soleil made another market space in the amusement park, producing solid, gainful development, therefore. They did it in a declining industry since they could construct a radical new interest for an administration that did not already exist (Pettersen 2009). What reliably isolated champs from washouts in making blue seas was their way to deal with the methodology. The organisations got in the red sea pursued a regular methodology, hustling to beat the opposition by building a faultless position inside the current business.
Airbnb has virtually been operating in the blue ocean zone with little competition.
The company leveraged the power of the internet and the sharing economy to create unique value for the participants in the platform which includes the travellers and the hosts. The company offers travellers a chance to access unique accommodations which is cheaper than the traditional tourist hotels with their standardised services and high costs. The company offers the travellers the chance to live in and experience authentic cultures among the people while travelling.
Initially, the Airbnb target market mainly consisted of travellers who were more interested in saving on expenses. However, as the company expanded and put in measures that ensured relative safety of the traveller and the host, the number of people whose primary need is to live in authentic conditions have steadily improved encompassing people who can afford to live in opulent conditions but prefer to live among the people and share their social conditions.
Airbnb offers the host the chance to get more value for their assets regarding the money they charge their customers. In most cases, the people offering boarding spaces on the company’s platform are people who possess houses that are either unutilized or underutilised. Such people offer either their whole unoccupied houses or some rooms in the house they already occupy. Initially, most of the hosts at the Airbnb platform were people whose main desire was to share their available spaces to enable them to offset the rent bill.
However, as the company expanded and gained a reputation, people invested in houses (bought or leased) in strategic places and offered the same to the travellers on the company’s platform. One of the main value that Airbnb offers to the host is access to the market. Many people across the world possess underutilised spaces, and which they would gladly rent out for a fee. However, due to lack of information on a need in the market for such services, the potential hosts were not able to benefit from their assets. The company provided the owners of such properties with a platform where they could advertise their spaces for hire to tourists across the world.
Most of the travellers patronising boarding spaces provided by hosts on the Airbnb platform are mainly people travelling as groups for instance families on vacation who need a large space at a reasonable cost. However, the market is experiencing rapid change with people of all calibre opting to stay in shared premises for various reasons with cost being the least of their motivations.
In the Australian segment, Airbnb needs to plan on entering the blue ocean zone with various strategies rather than on planning on competing in the red zone. In the red zone, companies offer packages which include the tour guide with a strict itinerary. In the blue zone, Airbnb can capitalise on the fact that many Australians are hospitable people, and in addition to offering the boarding facilities, they might also offer to be tour guides at a fraction of the charges from the tour companies (Nekofur Karim 2011).
Also, the local people are more knowledgeable compared to the professional tour guides employed by the tour operators. The local tour guides are flexible, and one does not feel pressured to attend an event as the traveller will have a choice on what to do and when to do it without being dictated to by strict programs that do not serve the needs of the customers (Botsman & Rogers 2012).
Exchanges are worked given three key standards including “correspondence,” “decency” and “audit framework.” Correspondence alludes to the way that a client shares a used item with another client in the sharing economy showcase (Tussyadiah, & Pesonen 2015). The correspondence is not restricted to a solitary trade, however, might be fulfilled by any client in the system. Merchandise is traded for comparable esteem or notwithstanding for nothing (Morris 2008). In any case, clients are urged to trade as a result of the conviction that they could get some profitable things again from different clients. Also, the decency standard oversees exchanges in redistribution advertises by adjusting benefits among dealers and purchasers (Belk 2014).
On the off chance that clients consider others as nonsensical and narrow-minded individuals who endeavor to amplify their advantages, trust won’t exist among merchants and purchasers. Disappointment in adjusting benefits gains between clients prompts the fall of a market (Owyang, Samuel, & Grenville 2014). Strangely, tests have demonstrated that each gathering will follow up on the method of reasoning that the advantages they gradually get trump the other party’s advantages; regardless of whether this conviction prompts an impossible to win circumstance for the two gatherings. This implies purchasers won’t acknowledge over-cited bargains, regardless of whether they could lose their advantages, instead of enabling vendors to improve bargains. Merchants likewise comprehend this reality, modifying their offers to guarantee the offer of their items.
Using Test Cards
Business model formulations inevitably involve the assumptions on various issues in the business including the value propositions for the business and the fit of the solutions to the pains the customer is grappling with. The assumptions might be detrimental to the business once the model is implemented, and it is important to test the major assumptions in the business model to ensure that that they align with the business mission and vision. In the testing process, the strategist creates design prototypes, identifies risks, and makes the final decision.
In designing prototypes, the creation of prototyping identifies alternative paths for the development of the business. It is important to develop many creative prototypes to ensure that the management has many alternative business paths. In preparing the prototypes, the business strategists use value proposition and business model canvas to capture the business model and the value proposition to the customers in the prototype. The result of the prototyping is the development of alternative means of implementing a business vision made concrete/real on paper.
The second step in the testing process is identifying risks through critical evaluation of the designed models. The identification of risks should be made with the first model, and the process continues throughout the process. To identify risks, the manager analyses the potential benefits and risks associated with alternative prototypes and chooses the most appropriate. The result of the process provides a realistic analysis of the potential risks in the various business models.
The final step in the testing processes involves the making of decisions on the model that appears most promising as a basis for establishing a viable business. The decision should be made during the first sprint, followed by revisions on the plan on a need basis. At this point, the manager chooses as the starting point the most promising business model and customer segment.
Testing sounds unsafe, yet it diminishes hazard. Finding an imperfection is cause for festivity since we get the chance to address the issue early. Even better, it is anything but an expansive “The business doesn’t work” sort of explanation, however a more exact determination concerning where we have to roll out an improvement. Testing causes us to pinpoint which components are going great, and which ones require some development.
Recommendations
The centre thought of the Lean Startup development is to approve your business thoughts with client tests/tests before scaling them. We concocted a straightforward instrument to more readily plan those trials/tests since we weren’t great at it at the beginning of the organisation. Watch the video in this post to find out about the Test Card. it is critical to converse with clients a considerable measure and constantly direct examinations previously we dispatch something new. However, in the good ‘ol days, we didn’t learn as much as we ought to have notwithstanding conversing with huge amounts of clients. We were everywhere. That is the reason we developed the Test Card for ourselves.
Implementation
The Airbnb’s Australian segment needs to have plans on market entry with various strategies rather than on planning on competing in the red zone. In the red zone, organisations offer packages which include the tour guide with a strict itinerary. In the blue zone, Airbnb can capitalise on the fact that many Australians are hospitable people, and in addition to offering the boarding facilities, they might also offer to be tour guides at a fraction of the charges from the tour companies. Also, the local people are more knowledgeable compared to the professional tour guides employed by the tour operators. The local tour guides are flexible, and one does not feel pressured to attend an event as the traveller will have a choice on what to do and when to do it without being dictated to by strict programs that do not serve the needs of the customers.
Conclusion
Airbnb business model in Australia’s market segment needs to concentrate more on attracting individual travellers compared to the traditional model which concentrated on families and tourists travelling as a group. The company has invested a lot in ensuring that the travellers’ concerns are taken care of, including insurance for hosts and background checks on the identities of the host. All these background checks and certification makes it safe for business travellers to trust the host the same way they trust the established accommodation providers.
The leap from focusing primarily on groups to tourists travelling alone will move the business deeper into the blue ocean zone where there is less complete. The company will have to offer value for the individual traveller’s money by ensuring that there are a variety of choices of hosts that fit the customer’s unique needs.
References
Airbnb, 2016, Airbnb Official Website. Retrieved October 7, 2018.
Bardhi, F., & Eckhardt, G. M., 2012, Access-Based Consumption: The Case of Car Sharing. Journal of Consumer Research, 39(December), 881–898.
Belk, R. (2014). You are what you can access: Sharing and collaborative consumption online. Journal of Business Research, 67(8), 1595–1600.
Botsman, R., & Rogers, 2012, What’s mine is yours: how collaborative consumption is changing the way we live. London: Collins.
Botsman, R., & Rogers, R., 2010, Beyond zipcar: Collaborative consumption, Harvard Business Review, 88(10), 15.
Botsman, R., 2014, Sharing’s not just for start-ups, Harvard Business Review.
Bucher, E., Fieseler, C., & Lutz, C., 2016, What’s mine is yours (for a nominal fee) – Exploring the spectrum of utilitarian to altruistic motives for Internet-mediated sharing. Computers in Human Behavior, 62, 316–326
Cusumano, M. A., 2014, How traditional firms must compete in the sharing economy. Communications of the ACM, 58(1), 32–34.
Denning, S., 2014, An economy of access is opening for business: five strategies for success, Strategy & Leadership, 42(4), 14–21.
Guttentag, D., 2013, Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector. Current Issues in Tourism, (September), 1–26.
Kim Chan W. & Mauborgne R., 2005, Blue Ocean Strategy- How to create uncontested Market space and make the competition irrelevant, Harvard Business School Press, Boston.
Lynch, A, 2009, “Marketing Strategy and Execution”, In Dartnell Marketing Manager’s Handbook, edited by Stewart Henderson Britt and Norman F. Guess. Dartnell Corp.
Morris, R. A., 2008. Stop the Insanity of failing projects. Industrial Management.
Nekofur, S., Karim, A., 2011. IPMA-Project Perspectives: Lean Project Management – In large scale industrial project via standardization. The annual publication of IPMA, 33.
Owyang, J., Samuel, A., & Grenville, A. (2014). Sharing is the New Buying: How to Win in the Collaborative Economy.
Pettersen, J., 2009. Defining lean production: some conceptual and practical issues. The TQM Journal, 21(2). pp. 127-142.
PMBOK Guide., 2008. A Guide to Project Management Body of Knowledge. 4th ed. Pennsylvania: Project Management Institute, Inc.
PMI, 2011. PMI’s Pulse of the Profession report: Highlighting key trends in the Project Management Practice. Project Management Institute.
Saarijärvi, H., 2011, Customer Value Co-Creation through Reverse Use of Customer Data. Tampere University Press, Tampere.
Smolka, C., & Hienerth, C., 2014, The Best of Both Worlds?: Conceptualizing Tradeoffs between Openness and Closedness for Sharing Economy Models. 12th International Open and User Innovation Conference.
Staats, B., Brunner, D, J., Upton, D, M., 2011. Lean principles, learning, and knowledge work: Evidence from a software services provide. Journal of Operations Management, 29(5), pp. 376-390.
Tonnquist, B., 2008. Project Management – A guide to the Theory of Project, Program and Portfolio Management, and Business Change. Halmstad, Bonnier Utbildning.
Tussyadiah, I. P., & Pesonen, J. (2015). Impacts of peer-to-peer accommodation use on travel patterns. Journal of Travel Research, 47287515608505.
Winter, M., Szczepanek, T., 2008. Projects and programmes as value creation processes: A new perspective and some practical implications. International Journal of Project Management. 26, pp. 95-103.
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