Airbnb Business Model Investigation

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BUSINESS MODEL INVESTIGATION WILLIAM KHEY


Home should be the treasure chest of living. Le Corbusier. 1965


1. INTRODUCTION

INDUCTION/THEME/FOCUS/INSIGHT/FRAMEWORK

2. CHOICE

METHODOLOGY/BMC BREAKDOWN

3. CONCLUSION DISCOVERY


THEME Home

+

Treasure

What is home?

What is treasure?

We identify comfort with home, a resting place where it’s warm and safe from the daily tasks and stress. Individuals associate the beginning of a day and end of the day with home, a place where it’s a starting line and a triumphant finish line. We value home like nothing else, we want to create an environment that expresses their individuality and to function so that it caters their needs the best. This means we have created a nesting place where all around the world it can cater to an individual with similar interest. Meaning no matter where you are, who you are, out of the billions of individuals on earth, you will be able to find a place just like yours.

Treasure in concept is seeking an idea in a reverie. Wishing for a reality heightened by an individual’s goals and motivations. Treasure can come in many shapes or forms, it could be an object, place or a moment in time which left a legacy in the mind.


THEME

Key Insight I approached the concept with some set key insights in mind. I analyzed companies which dealt with the shared property economy, and out of those whom valued individualistic expression and pursuit of ultimate desire. As result I came up with business motives that value the combination of both words.

[1] Platform which values expression of individualistic properties

[2] Network enabling consumers to find parallel facets which others are willing to offer them


FOCUS Profound

Induction Now that the framework and the foundation has been identified I was able to deduce the list of organizations that corresponded with the values. I looked to see which companies that match my research, the current market system and the need and wants of the general consumers.


‌ we no longer are required to step a foot to find what we desire.

INSIGHT Searching

Often we associate treasure with distance. An idea which is far from home and must travel to come to discovery of its wealth and pleasure. However, we have narrowed the gap of discovery with the IoT, we no longer are required to step a foot to find what we desire, want and need. My thesis is based on the ideology of hyper localization, bringing things which were considered far and inaccessible to the threshold.

This will result in our behavior in searching drastically changing, meaning that we will search more than ever in pursuit of happiness. Thus it is important to research and comprehend how brands develop a business model that associated themselves with personalization and desire, which will create a culture of association like never before.


FRAMEWORK STRATEGY In association with the definition of home and treasure, I have discovered number of companies that follow similar criteria. This involved me placing each organization on a value scale of their ability to provide and personalize the process of shared property.

The spectrum was narrow as expected as the market for shared property service is dominated by few key industry leaders, but for the sake of comparison I added additional companies that dealt more with the theme of treasure. I picked three companies that tackled the insight I have provided closest to their meaning to my research and the objective of this report.

Roomorama

Hostel World Wide

HomeAway

HOME

One Fine Stay Airbnb

TREASURE

Tripping Flipkey Craigslist

VRBO


TREASURED HOME Airbnb Airbnb is an online marketplace connecting travelers with local hosts. On one side the platform enables people to list their available space and earn extra income in the form of rent. On the other, Airbnb enables travelers to book unique home stays from local hosts, saving them money and giving them a chance to interact with locals. Catering to the on-demand travel industry, Airbnb is present in over 190 countries across the world. They now offer “lifestyle experience� as a package deal, where experiences are designed and led by some of the most interesting people out there. Meeting locals who share guests interests, from art collectors to avid hikers. Or surprise themselves by trying something totally new.


HOMESTEAD HomeAway HomeAway is a vacation rental marketplace with listing over 1,000,000 in 190 countries. They connect selection of rentals to families and groups to find accommodations such as cabin, condos, castle, villas and barns. Their mission is to make the world available for every traveler to find home in the online market place and create an unforgettable travel experience


TREASURE CHEST One Fine Stay One Fine Stay is an unscaled version out of all the shared property marketplace. Their listings include 2600 homes, offering the most exclusive properties in the city. They offer the guests to experience the highest level of living in the city they choose to travel. Operating out of the fantasized cities such as, New York, London, Rome, Paris, Los Angeles


CHOICE Best In Class

“Belong Anywhere”


CHOICE Searching

The reasoning behind choosing Airbnb be as the main focus of this project was due to the organization’s core value in emphasizing individualistic expression. Since the theme I am looking to research is the concept of Home and Treasure, Airbnb exemplifies my goals and discovery the best. The remainder of the research will be analytical and quantitative with my own definition on understanding the market’s value of Home and Treasure, and Airbnb’s understanding of those two terms.



METHODOLOGY Forward

I began the research by looking at reviews on the Airbnb website and the diversity of the listings, this gave me a complete overview on the mindset of the renters and need of the guests. I recorded the number of reviews with the key words: Dream, Unforgettable, Home Away, Comfortable. These data points allowed me to create a visual map of level of experiences within in the Airbnb community.

Furthermore, this research will include full break down of the business canvas: Key Partners, Key Activity, Value Proposition, Customer Relationships, Customer Segments, Key Resources, Channels, Cost Structure, and Revenue Streams


KEY PARTNER Airbnb grew at an accelerated rate in the last 5 years and now has partnership with many entities in different industry sectors. Since their main objective is providing connections in, housing, and experience, its variety of partners cover the globe. Airbnb, Inc. was founded in August, 2008 and in a short span of time, it blossomed into a technology masterpiece. Having received 2.3 Billion from 31 different investors, Airbnb entered the BD club. Airbnb is represented by brand ambassadors and renters in 34,000+ cities across 190+ countries. They recorded 1.2 million listings, and the company caters to 35 million guest since in genesis, and to put it in perspective, at any given day, there are 140,000+ people staying at an Airbnb listed properties.

One of the biggest reason for Airbnb’s success was its emphasis on visual representation. The first unit ever rented out by the Airbnb service was the loft of the founders, Nathan Blecharczyk, Joe Gebbia and Brian Chesky. The founders discovered that by having well photographed images of the loft, the response rate rose significantly. Since then, Airbnb recommend freelancer photographers to highlight some properties around the city, these highlighted properties would make it to the top of the list in the listing. Airbnb also has sponsored properties which the company caters, they employ interior designers to create a property that would satisfy majority of the seekers on the website. This method of customization creates unique experience that is memorable.


KEY PARTNER Airbnb’s key partnership begins with the host, they rent out their spaces: apartment, condos, guestrooms, entire house. And with the new addition to their services “Experience�, the host take their services further by not just offering a place to reside, but to give the full immersive experience of living in the destined city and share a piece of their interest to the guests. The other spectrum are the guests, these individuals rent the spaces for various reasons, most guests seek the service of Airbnb, because they either want to experience their trip in more local manner or, they prefer the comfortable aspect of a residential property to a hotel room

Advertisement for Airbnb takes many shapes and forms. Their partnership with government agencies are the greatest stakeholder in advertisement. During the elections in 2016, at both GOP and DNC, Airbnb provided housing for more than 9000 attendees, this was all through government advertisement on public websites and news outlets. Other outlets for advertisement happens through Facebook, Instagram and other lifestyle/travel editorials. Social media became the most efficient way for any tech companies to broadcast their business to the mass. Articles about positive experiences featured on blogs being posted on Facebook has a greater impact than having a paid advertisement, therefore social media became a key stakeholder in the success of the organization.


KEY ACTIVITY Recruitment process is one of the most important activity Airbnb spend their efforts on, because the more they register host and their units, there will be more freedom of choices for guests. This recruitment process happens through online based advertising, this is a great way to boost their awareness and customer consideration level. They do these advertisements through storytelling and journey mapping, two great tools in design to elevate their purpose and goals. Although not as common, Airbnb implements offline based advertisements, this is done through common channels such as billboards, bus stops, airports, and subway stations

Airbnb has used endorsements as another method of raising awareness of their presence in the market. In popular blogs or media sites, there are stories of celebrities using Airbnb to find their vacation spots. By having celebrity endorsements, it raises level interest in certain properties, giving the property a new sense of wonderment and specialty. This plays into the theme of treasure; these properties will be sought out for those who seeks the same lifestyle as a celebrity in their vacation time.


KEY ACTIVITY The technology section of their key activities is how they feeds the recruitment process with high performance and results. They provide different product segments, giving options in various forms: budget, region, seasons, activities, occasions, and events. This allows each listings to personalized and fit the needs of the customers. Since customer satisfaction is the driving force in the success of Airbnb, their websites are carefully groomed, catering to every aspect of the experience. One of the section of the service that needs to be addressed is the customer service, since the platform engages individuals with others, the mediation process needs to be thorough and managed carefully. Airbnb offers protection in damage, careful screening so that both parties can depart feeling satisfied and not being felt taken advantage of.


KEY PARTNER VALUE PROPOSITION

Airbnb VALUE PROPOSITION CAN BE DIVIDED INTO

8 SEGMENTS OF SATISFACTION


VALUE PROPOSITION

Convenience:

Tailored customization:

Finding what you want with the least amount of effort is critical, speed and efficiency must be present in every step of the way in navigating through the platform. No matter what season, date or current event, Airbnb made sure it is only few clicks away to find the perfect place for you to make you destination

Hotel rooms are standardized all across the board, finding a special place in the current hotel market is costly and difficult to find. Airbnb passes the competitions by giving users mix and match of suggestions to cater to the personal preferences.

More Money Less Hassel:

Home Insurance:

Airbnb tapped into the market of unused space. The core idea of a house is that it is only profitable if someone is inside making use of it. Once a property is vacated, it makes negative money, meaning that it cost money in rental, property fee, property tax, and utility bills. It is obvious that if a company can allow an individual to profit from a negative asset, why wouldn’t someone want to make more money?

Host can feel burden with the worries about their property. Service such as Craigslist and Kijiji that offer sublets and weekly rentals offer no insurance, the honor system is completely in the open for corruption and damage. Airbnb carefully manages this fragile relationship through home insurance, giving peace of mind for the host when they rent out their units.


VALUE PROPOSITION

No Middle Man:

Treasured Experience:

Airbnb only takes a commission fee that is 6-12%, while hotels charge 15+%, this makes the option for Airbnb much cheaper for customers to use. Therefore, allowing guests to spend their budget on what matters the most on a vacation, experience.

Memorable moments in a vacation starts with the place you stay, after a wonderful day of events, it is important to return to a place where you can cherish those moments. The tailoribility of the property can fully allow the guest to have the best experience possible.

Dollar for Dollar:

On-Demand:

Airbnb properties is exactly like a house, fully furnished with all the amenities a guest would find in their own home. Hotels only offer the basic needs such as a bed and a TV, providing a very distant service and usually impersonal experience. When a guest is in an Airbnb property, they can feel just as home, by having more space, amenities and freedom.

Hosts and guests can find out about the situation ASAP, the speed is key to having a fluid transaction. The communication is fast, this is due to Airbnb’s dedicated staffs working around the clock to answer any problems, questions and satisfaction of both hosts and guests.


CUSTOMER RELATIONSHIP Going global is a necessary step for an organization to grow, it also requires tremendous amount of logistic and analysis to successfully transition into the global market. Customers are awake 24/7 and require constant support. Airbnb created customer support department that serves in over 50+ languages via live support and web support. The support staffs handle everything from taxes, experiences, feedback, policy awareness, problem resolution, and hosting questions. Because Airbnb operates around the world, tax is a tricky issue to resolve for those travel abroad.

VAT (value added tax) are calculated according to the local rate of the customer’s country of residence. Airbnb charges VAT on its service fees for customers from the Albania, EU, Iceland, Norway, South Africa and Switzerland. Airbnb charges JCT on its service fees payable by guest located in Japan. Number one issue that would rise from customer to customer platform is dispute regarding property and finance. Airbnb tries its best to satisfy both end of the business transaction by mitigating every step of the resolution.


CUSTOMER RELATIONSHIP On the side of maintaining new relationships, Airbnb created algorithm that tracks returning users to speed up the process of finding their new property. Properties frequently click through, positively affect the placement in search for the host. Quality of the photo plays a big part, the verified photos by Airbnb enters the system and raises the common hit rate more frequently. If a host is willing to make more amenities available, it will diversify the search engine and allow the host to receive more exposure during the search.

All this effort is to keep the customer relationships strong, ensuring that the first time user will return to use the services again.


CUSTOMER SEGMENT Based on the analysis of the reviews on properties. Guests can be categorized into 4 groups: Business travelers, globetrotters, family travelers, and bespoke users. Business travelers favor the expense saving aspect of using Airbnb, they also enjoy the larger space, allowing them to host meetings in a setting that is more comfortable and focusing then a hotel room. Next are the globetrotters, they favor the fact that they can immerse themselves in the local environment, giving them the chance to experience the unique cultures first hand

. Other users were family travelers, most of families traveling have difficult time finding the perfect room in a hotel. Since most hotels only accommodate up to 3, larger families cram into a one room or have to spend excessive amount to book two rooms. This efficiency in room spacing eat heavily into the budget of a family vacation, cutting into the moments that can me memorable. Last customer segment that Airbnb caters best to is the bespoke travelers. These travelers are extremely conscious of the place they stay. They are very selective in what is require and what is wanted. Hotels can only cater to a certain degree, but a host on Airbnb platform can cater to virtually every need for a fair compensation.


CUSTOMER SEGMENT Hosts are the other spectrum of customer segment, they are the drivers behind the business, host play a big part to make sure the variety and choices are available. They too consider aspects like budget, availability and choice of guests. Keeping both segments of customer is vital in keeping the business identity positive and strong.


CHANNEL CHANNEL Search:

Awareness:

The main channel of communication is Airbnb.com. This is where all searches, transaction are executed. Airbnb is an independent entity and has no partnership with travel agencies or booking agencies. This creates a seamless movement through the platform, unlike websites like HomeAway, where its umbrella company Experdia, Inc. forces the user to jump back and forth between two platforms.

Airbnb’s method of advertisement does not follow the traditional channel such as television and radio, instead they focus on marketing to consumers on the digital landscape. Using social network platforms such as Facebook, Twitter, Instagram and on travel blogs and forums. YouTube also became an efficient way of advertising just like television advertisement, showing strong video graphed material to the consumer market, inspiring a fun, active and adventurous lifestyle using “Belong Everywhere� slogan.

On the Go: Mobile app is another channel of communication. To go is the biggest trend in platform development, a strong desktop platform is important, but to have an efficient and fast mobile app is what keeps the user assured and coming back.


KEY RESOURCE

Airbnb’s ingenuity allowed it to tap the market of shared property across many countries and became the most reliable service for housing. With its diverse range of properties and customizability, Airbnb draws resources from all over the world to prolong their operation for the consumer landscape.


KEY RESOURCE Physical: Airbnb allows host from 190+ countries to list their property, this gives Airbnb to have tremendous amounts of assets. With over 500,000 active properties this gives Airbnb even greater presence over hotel chains. All this is through the concept of dropship sales method. By not having any ownership of a property (like hotels), this allows Airbnb to have more freedom when it comes to financial management. By not having to pay property tax, housing staff, and other costs that comes with owning a building, the profit margin is massive for companies like Airbnb.

Technology: With more cost effective way of operating a property business, Airbnb has taken all the resources and development into networking and UX design. Airbnb has attracted some of the very best technical and design talent in Silicon Valley, competing with the best in the tech sectors like, Google, and Facebook. Took look further into the platform and what it really is, it can be divided into 3 sectors. First is the algorithm for pricing, this dynamic pricing- that is, offering new price tips daily based on changing market conditions. They tweaked their general pricing algorithms to consider some unusual, even surprising characteristics of listings. And they’ve added what they think is a unique approach to machine learning that lets their system not only learn from its own experience but also take advantage of a little human intuition when necessary


KEY RESOURCE An important aspect of this system architecture is being able to consider all the risk and minimize it for the host. Example of this would be; a host wishes to rent out his Paris apartment for 2 weeks. Before listing he would look at similar properties to get an idea for the pricing. The difficult part is after the listing, when the offers come in, it can be difficult to determine the cut off point for profitwhat happens if he went too high or cut it too close to the date of booking, there are chance he could lose out on the opportunity. Perhaps the opposite could occur: If he was to take the first offering, he would be regretting for the next months as high bids would come in.

So to battle these they have set key attributes: Similarity, recency, and location. One surprising attribute they have discovered was the number of reviews. It turns out that guest is willing to pay premium price for listings with high reviews. By thoroughly expecting every outcome when it comes to pricing, Airbnb has ensured the users that there is no need to worry about making the proper profit. By doing so, they have created a groundbreaking algorithm that can be restructured to manage price points for property.


COST STRUCTURE Most of the cost for Airbnb is directed towards the platform development. They employ 250 people worldwide, and about 70% of the employees are in development and design. Airbnb continuously update the platform in order to match the changing behavior of the consumer landscape. To divide the 3 main cost structures, I had to research the main focus of the company: Security, Fluidity and Insurance. Forms of payment has been changing to and because all Airbnb transactions are via online, the organization has created partnerships with credit card companies such as, Mastercard, Amex and Paypal. As of last year Airbnb has taken a step further into their partnership and created the “Experience Card”. This loyalty based program allows travelers have a prepaid Airbnb Credit card that has a 10 percent rebate rate. From this Airbnb lessens the cost paid to the payment companies.

The talents at Airbnb are the biggest makeup of the cost structure. Although it’s employees are fewer compared to let’s say, Google. But the level of design and system architecture creation is equally comparable to the tech giants. And as talents would follow, the employee are contracted fairly, with the median salary for any design or software job within the company is $100,000+. My further research informed me that per project depending on its size, average cost would cost a business about $200,000+, this focuses on custom development. Although it is highly organized and almost guaranteed that a polished project will be delivered, but nature of software development is volatile and unexpected, there are necessary marginal cost that must be calculated. By having a well-rounded talent in the office, Airbnb is known to have low rate of server crash and meets launch deadline consistently.


REVENUE STREAM

There is only one revenue stream for Airbnb, and it’s from the transaction between the host and the guest. The host pays about 3%of the booking fee, and guests are responsible for about 6 to 12% fee.


CONCLUSION Airbnb From researching Airbnb, there were 3 key things them emphasized in their business model. First being convenient, they understood that the more steps you take, less people will be engaged in, they created their platform to be only few clicks to achieve what you desire. Second thing was catering to virtually every need; design affordance was found on every aspect of the platform experience. Third is the cost efficiency. Airbnb has the most competitive price due to the pricing algorithm they have created. This allowed the users to fit every need to have the memorable trip they wanted.


CONCLUSION DISCOVERED

Deduction I have taken many steps to discovered the companies that correlated to my theme and project scope. The ultimate theme of Home and Treasure is something that is uncommon in a field where such theme should embraced. However there were companies that met those ideologies and I have broken them down into the BMC. This furthered my idea of the market and what makes a company successful in their market.


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