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Airbnb - Time to Reflect for This Disruptive Company

by Asit SahooApril 4th, 2023

Too Long; Didn't Read

Airbnb started as an idea for a survival pastime income and has grown to become one of the fastest-growing multi-billion dollar firms, which is set to go public through IPO. Analyzing such models helps us understand how companies have disrupted incumbents and transformed industries and consumers forever.

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The Success of Airbnb: Examining the Importance of Hosts and Guests in a Two-Sided Marketplace and Analyzing Its Disruptive Innovation in the Hospitality Industry

My first visit to Airbnb's San Francisco office in early January 2020, and later, an in-depth discussion with a professor in class, made me more curious than ever about this firm. It has pushed the boundaries of imagination, not only in the hotel and housing industry but also in the entire hospitality industry. Founded in San Francisco in 2008 by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, Airbnb started as an idea for a survival pastime income and has grown to become one of the fastest-growing multi-billion dollar firms, which is set to grow rapidly in the next decade. Airbnb has achieved its success on the back of one of the best data-driven decision-making teams in the valley. Today, it has become the largest peer-to-peer service housing accommodations provider in the world, with a presence in more than 190 countries.

To understand its growth from its first principles and to continue growing at the tremendous pace it has done, I would like to share a few thoughts on the following queries. These queries might help us discuss and debate this iconic company.

Does Airbnb's success and growth rely more on hosts or guests?

I believe that Airbnb, like Uber, Lyft, and Amazon, operates as a two-sided market where the supply side is the key trigger for growth. Quality supply and a platform that ensures a quality experience for consumers lead to an increase in demand. This creates a cycle where more suppliers lead to more demand due to both repeat consumption and new consumers attracted by word of mouth.

Therefore, guests are likely to use the platform only if they see a good supply of quality listings and great hosts. Thus, hosts are critical to Airbnb's success.

One of my friends, a product manager at a renowned tech firm, provided an interesting perspective. He suggested that customers always had other options such as hotels and motels, even if they had to pay more than an average Airbnb guest. However, homeowners now had a new avenue to supplement their income without committing to a long-term tenant or incurring expenses. Airbnb was the only significant player that catered to this demand, so hosts had limited options.

Therefore, hosts had less negotiation power as the alternative was no money or customers at an acceptable price. If Airbnb could enhance the homeowner supply by exploiting this power imbalance, guests would find Airbnb a preferred platform to avail great places to stay at below commercial market-level rates. It seems that Airbnb figured out that hosts were critical to their product -- “Low-cost regular homes for an above value experience” -- the most unique thing they offered. Without this product, Airbnb would not have anything unique or advantageous over other hospitality players for the network effect to kick in. Therefore, I believe that hosts should be the center of the initial focus for Airbnb.

However, one may question whether Airbnb is just a complement to the hotel industry or fundamentally changing the way the hotel or housing industry is defined. The powerful disruptive innovation framework, as defined by Clayton Christensen, may not be something that everyone agrees with, but it has helped corporate strategists realize potential industry disruptions. Analyzing such models helps us understand how companies have disrupted incumbents and transformed industries and consumers forever.

Is the Airbnb business model truly a disruptive innovation or simply another approach following conventional wisdom for success? Analyze its entry into and impact on the hotel industry.

I would classify Airbnb as a disruptive innovation. When it started, it seemed like a very inefficient way of finding a non-rated place when we could easily find a hotel or a motel through phone calls. And the hosts were not very professional or not in abundance to get users interested in the properties whose pictures were very unclear, giving no idea to the customers. However, with the advancement of technology, the speed of the internet, and the learning curve of Airbnb employees, they were able to not only bring both unstructured markets of house providers together but also got named hotels to participate in the platform. With better photos and easy search for users, they slowly become a single stop for cheap overnight stay housing. And now, they have become the first preference for consumers. Starting as a Peer to peer model, Airbnb has expanded to an all-form business model serving consumers of all income groups and supporting the hosts across ranges starting from part-timeshare economy enthusiasts to serious hoteliers.

Airbnb is no more the tiny startup whose actions are not going to bother the indirect societal stakeholders — may it be the government, housing markets, brokers, etc., besides the direct stakeholders like hosts and guests. Every step of it is monitored, judged, and opined by powerful institutions and the curious masses.

What should be Airbnb's role in building and shaping cities and public policy regarding residential and commercial real estate?

Recently, Airbnb has come under increased government scrutiny, with new regulations likely to impact its business model. As a result, the company has a greater responsibility to present its best self to the community. One way it can do this is by implementing programs and initiatives that focus on sustainability, affordable lodging, and housing for lower-income groups, with an emphasis on developing black and marginalized communities. Additionally, as a platform for multicultural exchanges, Airbnb has the potential to become a champion of cultural integration and promote positive social values. By being proactive, Airbnb can build a positive reputation and earn the support of lawmakers and policymakers.

Providing excellent customer service has become the minimum benchmark for any consumer-centric company. Companies like Amazon have set high standards for customer service that other tech giants must follow. Airbnb has been at the forefront of consumer obsession, with its data team using sophisticated techniques to understand reviews, ratings, and minute patterns of consumer behavior to improve guest experiences. Additionally, Airbnb maintains standard insurance policies for hosts to ensure quality and safety for its users. However, despite these measures, scams, accidents, and negative customer experiences can still occur. In business, it is impossible to satisfy everyone all the time.

Should Airbnb focus more on preventing scams and accidents or would it be an overreaction? And if the answer is yes, what are some meaningful ideas to explore?

In today's cutthroat business environment, insurance may not be enough for businesses to maintain their reputation when dealing with hypersensitive, tech-savvy, and unforgiving consumers. Reviews and ratings have helped platform businesses gain insights into both hosts and consumers, avoiding scams, theft, and other unpleasant situations. However, predictive algorithms for user behavior have not yet been integrated with social behavior to prevent sinister activities altogether. Proper risk analysis and the use of deep learning tools could help Airbnb take preventive measures instead of just reacting to incidents with a 24-48 hour response time. In order to provide the best experience for platform users and avoid antisocial activities, superior AI technology should be integrated with public organizations, such as the police and fire departments, with 24-hour hotlines.

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