Airbnb Business Model(Case Study) How Airbnb

Works And Earns Money?

If you are a traveler then you must have listened to the name of Airbnb. Started Brain
Cheskey and Joe Gebbia in 2008. Airbnb has revolutionized the way people travel by
focusing on building a community and not just a mere distribution platform. Airbnb is a
marketplace where travelers get to stay at the property listed on the site by the local hosts.
Airbnb is a community built on sharing. It was started by two friends when they faced
difficulty in paying the massive rent and had a spare living kind of a room. Airbnb is based
on an aggregator business model. Airbnb take-offs flat 10% commission from hosts for
every booking done through the platform. Usually, the payment processing fees are 2% that
here is 3. So, an additional 1% is also levied that the host pays. Airbnb charges an amount
up to 20% of the booking total that is set as a service fee by Airbnb for travelers for every
confirmed booking. This fee is non-refundable. Airbnb business model also includes
business ready homes that fulfil certain requirements for home type, amenities, check-in,
reviews, responsiveness, and host commitment. Airbnb also provides services like for
which it charges a flat 20% commission from the person who provides it.

Link 1:
https://youtu.be/Km685QCdGUk

What is Airbnb?
Airbnb is a marketplace where travelers get to stay at the property listed on the site by the
local hosts. A person who has a spare room can list his property on the website and the
person who is travelling to that particular location can book it and get to have a unique
experience offered by the host.

Airbnb is a community built on sharing. It was started by two friends when they faced
difficulty in paying the massive rent and had a spare living kind of a room. They got a
mattress and started marketing it offline as a space for rent. Later they started offering
breakfast with that as well.

They got 800 cereal boxes which they sold for around 40$ each during the presidential
campaign. They earned so much money and reinvested back into the business.
Airbnb is now operational in more than 190 countries and has a presence in 34000 plus
cities.
It has turned into a huge business now with 150 million-plus users and 1.9 million-plus
listings that the user can book at any given time.

Link 2:
https://youtu.be/dA2F0qScxrI

Airbnb business model

Airbnb is based on an aggregator business model. Aggregator Business Model is a network
model where the company collects the data about a specific good/service providers, make
the providers their partners, and sell their services under its brand.

Link 3:
https://youtu.be/16cM-RFid9U

Since the aggregator is a brand, it has to provide services which have uniform quality and
price. This is done by signing up a contract with the partners. You can understand it as an
asset-light model where you earn a commission for the services you provide without
owning any inventory.

If we talk about the conventional model where you had to purchase a hotel to get started
with bookings, they have turned the game around and connected the demand and supply.
This is one of the reasons for its rapid growth.

People having vacant space at their home and willing to earn some extra money can list
their rooms on the website and earn some extra bucks. Also, the key differentiator is they
sell experience and not just space.

Many travelers want to feel like home once they go out to travel and explore different
countries. The travelers get a local like feel and also feels light on the pocket as compared
to hotels.

Airbnb also has personal profiles and rating/reviewing systems that help the travelers make
an informed decision about the hosts and what is on offer. Hosts too can decide and have a
choice about whom they have to rent out their space. These help to build trust and
reputation in the community.

Besides the travelers and hosts, the Airbnb business model also includes a huge network of
freelance photographers in all major cities of the world. They visit a property and get high-
definition photographs of the property.

These high-definition photographs improve the click-rate and help in getting more
responses. Airbnb pays these photographers directly.
How Airbnb Works?
Airbnb is a platform that connects travelers to the localhost. If you have a spare room in
your house, you can list that on Airbnb’s property and earn for every booking.

It is a kind of opportunity for both the travelers and the host as travelers to get live cheaply
as compared to hotels and also get a feeling of the homestay. On the other hand, hosts earn
money for the property they provide.

The host can provide additional services like breakfast, tour guide, pet-friendly
environment, etc. for which they can decide the amount they want to rent.

The rating and review system builds trust and if you read the reviews for some properties,
travelers make a long term connection with the host.

Airbnb vs Uber vs Oyo Rooms:

Airbnb, Uber and Oyo Rooms all work on the aggregator based model. Oyo Rooms has still
shifted significantly and have started to operate the full buildings independently. Also, they
have expanded to co-living and co-working spaces.

Uber has simplified travelling from one place to another. Its business model is such that it
acts as a middleman between the drivers and the riders guaranteeing a standardized level of
service.

However, this is different from the Airbnb business model that thrives on discoverability.
The level of service is not consistent. The travelers are free to choose from the listings that
are there on Airbnb’s website after going through its reviews.
Uber too has ratings and reviews for both riders and drivers. It doesn’t give the facility to
the user to choose a driver they want to ride with. Also, the reviews on Uber, if you would
see are not as elaborate as those on Airbnb.
The most Uber can do is suspend a driver or rider if his/her ratings are too low. Uber pays
its driver partners through a fixed rate of commission for every ride.

Oyo Rooms business model is based on quality control or standardization where they
ensure a certain level of uniformity in their services. The case with Oyo Rooms is that a
person books the room with the brand and not the individual hotel.
With Airbnb, the case is opposite, a room is booked through the website with the host
providing it. Just like Uber, Oyo ensures a certain level of service. As I told above, Oyo has
now started to lease out the full property and run the entire building under its brand name
which gives it the access of day to day operations.
Airbnb has no such control over the quality of the homestay. The difference is also; Airbnb
earns through commissions mainly.

How Airbnb Earns?

As we talked about Airbnb being run on an aggregator based model, its main income comes
from the commission on every booking made. The property owner can list their properties
for free.
The booking and monetary transactions are carried out on the Airbnb platform. The
company mainly earns from these transactions in the following ways-

1. From the hosts/owner of the property

Airbnb take-offs flat 10% commission from hosts for every booking done through the
platform. Usually, the payment processing fees are 2% that here is 3. So, an additional 1%
is also levied that the host pays.
2. From the Travelers/Guests
Airbnb charges an amount up to 20% of the booking total that is set as a service fee by
Airbnb for travellers for every confirmed booking. This fee is non-refundable
3. Airbnbmag
Airbnbmag is a magazine product that the company has added. The thinking behind it is to
make the travellers feel that they belong to the place they visit. This 15 dollar magazine is a
result of the partnership between Airbnb and Hearst. The motive is also to help the traveller
discover the place through the locals’ eye.
4. Business Travel
Airbnb business model also includes business ready homes that fulfil certain requirements
for home type, amenities, check-in, reviews, responsiveness, and host commitment. This
feature is designed especially for travel managers of the companies to provide better
transparency and more accurate reporting for their company.
5. Airbnb Services
Airbnb also provides services like for which it charges a flat 20% commission from the
person who provides it.

Marketing Strategy of Airbnb

Marketing is an essential part of any business and below we have discussed some strategies
adopted by Airbnb to get their product out there to more and more people.
1. Influencer Marketing
Influencer marketing means promoting your product/service through social media
influencers who have the audience. It could be YouTubers, Social Media celebrities,
bloggers and even movies stars.

In 2015, Airbnb hosted a ‘floating house’ publicity stunt on the Thames River in London
with a variety of related events including a #FloatingHouseParty where attendees were
encouraged to live stream, take pictures and splash the night all over social media.
The resultant coverage turned out to be massive. 340 press pieces in the UK alone, which
translated into over 70,000-page hits, 10,000 new users, and more than 200 million social
impressions!
Airbnb also leverages the impact of celebrity stays.

Since then, Airbnb has partnered with several celebrities – picking up the tab for their stay
in return for some social media love.
Link: https://youtu.be/mb3sX8NnahM

2. Quality imagery
Airbnb understands the importance of high-quality images and that’s why they offer all of
their hosts’ free professional photography to maintain consistency across their media.
They even spend more money on production than promotion because they understand that
better quality content will always get more engagement. Travel lovers use Airbnb because
they feel inspired by what they see in the beautiful pictures on the Airbnb website.

Link: https://youtu.be/O_w95nFQiB8

3. Community building
Airbnb knows the value of community building and hence focuses on building trust through
regular communication, detailed profiles and strong reviews. That makes the engagement
phenomenal. Another advantage is booking a room with Airbnb is just a matter of a few
clicks if we compare it with the conventional hotels that include a longer process. This is
one of the reasons customer keep coming back to the website.

It is also the authenticity of the experience that makes Airbnb such a successful community.
Hosts go out of their way to make their home their guests’ home with detailed local
knowledge of the best eateries, transport links and hidden gems.

4. Brand partnerships
Airbnb has shown us n number of times that collaborating can provide some serious
exposure and generate a lot of buzzes. Successful Airbnb partnerships include KLM Royal
Dutch Airlines, UK bookstore chain Waterstones and even the French government.
Think what customers of each brand would love and find something that appeals to both.
The brand crossover has to offer something unique, something you can only offer together.
For example, with KLM a contest was created where the winners could spend a free night
in a luxury ‘Airplane Apartment’.

With the French government, it was a night in the Paris Catacombs at Halloween, which
helped raise the profile of a lesser-appreciated French tourist spot.

Link (the airplain apartment): https://youtu.be/ojdfIaYAMKg

Airbnb India
Airbnb has huge expectation in the Indian market and said their co-founder said that
Millenials will drive its growth in the country. It is active in most of the tourist places like
Goa, Delhi, Mumbai, Rishikesh, etc. Recently it has invested in Oyo Rooms also around an
amount of $200 million. More than one million Indians have travelled on Airbnb globally.
With over 30,000 listings in the country, Airbnb listings in India have grown by 115% over
the past year. There has been almost 2x growth in the number of nights booked on Airbnb
in India since 2016. We have witnessed over 100% YoY growth in inbound guests from
around the world (2017-2018)
Airbnb statistics
 Airbnb has 31 offices across the world.
 Around 400 million guests have been hosted since the company’s launch.
 Over 150 million users are on the platform.
 Airbnb has more than 5 million listings worldwide
 53% of travellers use Airbnb because of price
 Airbnb has a total of 21 acquisitions to date related to its business. They are
constantly improving their product for the good of both hosts and guests.
 Airbnb has raised a total funding of around 4.4$ billion till date in 15 funding
rounds.
 Millennials account for roughly 60% of all guests who have ever booked on Airbnb.
 There’s million-dollar insurance coverage for an Airbnb host
 Airbnb users can book 1.9 million listings at any given time
 Airbnb has a total of 1000-5000 employees.
 The website has monthly traffic of around 86,570,491 with a monthly visit growth
of around 3.99%.
 Cost of renting an average home on Airbnb is cheaper than a single hotel room.
 Airbnb has spent $23.5 million and counting on advertisement in the U.S
 Airbnb has a total of 21 acquisitions to date related to its business. They are
constantly improving their product for the good of both hosts and guests.
 Airbnb has raised a total funding of around 4.4$ billion till date in 15 funding
rounds.
 The company had a profit of around $93 million in the year 2017 and has reported a
profit in the year 2018 as well.