How Airbnb Works | Insights into Business & Revenue Model

What is 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 homestays 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.

Founders, Funding received, Salient features & Facts:

Founded on 1 August 2008, it grew as a technology masterpiece in a short span of time. Having received massive funding, It is a part of the Billion dollar club. Here are few interesting facts-

• Founders: Nathan Blecharczyk, Joe Gebbia and Brian Chesky.
• Funding received: $4.4B (Till December 2017)
• Company valuation: $31 Billion
• Present in 34,000+ cities across 190+ countries.
• Having 1.2 Million listings, the company has served over 35 Million guests.
• Headquarters: San Francisco, California, USA.
• 140,000+ people stay at an Airbnb listed place everyday.

Before moving on to read about its customer segments, value propositions, and understanding its business model canvas let’s go through the Success Timeline.

Airbnb Timeline

Value Propositions 

• Enables owners to list their space on the platform and earn rental money.
• Airbnb provides insurance to listed properties.
• Gives cheap options to travellers to stay with local hosts.
• Facilitates the process of booking living space for travelers.
• Rating and review system for hosts and guests.
• User-friendly app and web based structure.

The 3 customer segments defining Airbnb’s Business Model

Hosts:

• Hosts are the people who own property and want to make some money by renting out their available space.
• They can create a listing for their property on Airbnb, add property details and set their own rent, check-in, check-out time etc.
• Hosts can accept or reject a booking after reading the reviews of the travellor or after going through his social profiles.

Travelers:

• Travellers are the people who book the listed available spaces from local hosts.
• Travellers have the option to search for a property by filtering them according to rent, amenities provided, location etc.
• Travellers can instant book a space by paying through the portal.

Freelance Photographers:

• Airbnb has a vast network of freelance photographers in all major cities of the world who go to a location and click high-definition photographs of the property.
• The high quality photographs get more responses and the freelance photographers are paid by Airbnb directly.

Airbnb Business Model Canvas

The business model canvas of Airbnb explains the key partners, key activities, key resources, value propositions, customer relations, channels, and customer segments of Airbnb. Along with this, the cost structure and revenue streams of Airbnb have also been listed. Check it out:

The 5 step model about how Airbnb works:

1. Hosts list out their property details on Airbnb along with other factors like pricing, amenities provided etc.
2. Airbnb sends a professional photographer (if available) to the property location in order to take high quality photographs.
3. Travellers search for a property in the city where they wish to stay and browse available options according to price, amenities etc.
4. Booking is made through Airbnb where traveller pays the amount mentioned by host and some additional money as transaction charges.
5. Host approves the booking. Traveller stays there and finally Airbnb pays the amount to the host after deducting their commission.

The host and the traveler can rate each other and can write reviews based on the experience.

Revenue model: How Airbnb makes money?

Airbnb offers free listings to property owners and lets travelers browse the listed spaces and select the one which best suits their needs on the platform. The business model of Airbnb is such that the booking and monetary transactions are done on Airbnb’s platform. This is from where the company earns its share of the revenue from 2 different sources which have been explained below:

• Commission from Property Owners (Hosts)

Airbnb charges a flat 10% commission from hosts upon every booking done through the platform.

• Transaction fee from Travellers (Guests)

Airbnb charges 3% of the booking amount as transaction charges from travelers upon every confirmed booking.

How Airbnb finds customers?

A customer for Airbnb is the one who adds up to the company’s revenue. He can be a host who offers his space for rent and lists it on the platform or he can be a traveler who books a space. So, from where does Airbnb find hosts and travelers? Well, Airbnb was founded in the year 2008 and its first customers came through a simple website built by the owners. Since then Airbnb has grown into 1.2 Million listings on the platform. The major sources to accumulate hosts and travelers include:

1. Social Media
2. Word of Mouth
3. Digital Marketing including Internet ads.
4. Promotional offers
5. Affiliate Model / Refer and earn offers

Key problems and Solutions:

• Trust Problem:

The biggest problem faced by travelers or hosts using Airbnb is the trust factor. After all, giving your space to a stranger as a host and living with strangers at their place as a traveler might not be easy. But the verification process is in place for every host and traveler on its platform. Apart from the verification badge, Airbnb also motivates people to sign up with their Facebook account or at least link it with their account for better transparency.

This is not all. In case something goes wrong, an insurance policy is available too.

• Traveler Retention:

Another problem being faced is the retention problem. To grow, the company needs to retain its travelers so that they do not choose a hotel room on their next vacations. To retain them, it gives offers, promotional codes, and credits to frequent travelers. As a solution to this problem, it also sends such promotions to hosts to motivate them to take a vacation and stay in an Airbnb at their favorite destination.

The Future of Airbnb:

Airbnb is already a multi-billion dollar company and is sure to grow further. Having a presence in 190+ countries across the world, it is now concentrating to further increase the daily transactions on its platform. The unique business model of Airbnb has become stronger as people prefer staying at an Airbnb rather than a hotel.

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