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How Airbnb works: Insights about Business Model, Logistics & Revenue

By Samriddhie Taneja 21st February 2018

The Airbnb Story

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.

Stats & Facts

Founded on 1 August, 2008 by Nathan Blecharczyk, Joe Gebbia and Brian Chesky, Airbnb grew as a technology masterpiece in a short span of time. Having received a massive funding of $4.4B (Till December 2017), it is a part of the Billion dollar club. The company, headquartered at San Francisco, California, USA, is valued at $31 Billion today with a presence in 34,000+ cities across 190+ countries. Having 1.2 Million listings, the company has served over 35 Million guests with 140,000+ people staying at an Airbnb listed place everyday.

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

Value Propositions

  • Owners can list their spaces on the platform and earn themselves rental money.
  • Insurance to listed properties provided.
  • Travelers are given opportunities to stay with local hosts.
  • Facilitates the process of booking living space for travelers.
  • Hosts and guests can be Rated and reviewed
  • Simple yet powerful platform- app and website.

The 3 customer segments defining Airbnb’s Business Model

Airbnb's Customer Segments Airbnb’s Customer Segments

Business Model Canvas

Airbnb's Business Model Canvas Airbnb’s Business Model Canvas

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, check-in, check-out etc.
  2. Airbnb sends a professional photographer to the property location in order to take high quality photographs.
  3. Travelers search for a property in the city where they wish to stay and browse available options according to their needs.
  4. Booking is made through Airbnb where traveler pays the amount mentioned by host and some additional money as transaction charges.
  5. Host approves the booking. Traveler 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.

Airbnb’s Revenue Model

Airbnb offers free listings to property owners and let’s 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 revenue from 2 different sources which have been explained below:

How does Airbnb lookout for its perfect customer base?

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 year 208 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 traveller 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. In order to grow, the company needs to retain its travellers so that they do not choose a hotel on their next vacations. In order 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 as to motivate them to take a vacation and stay in an Airbnb at their favourite 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 inn rather than a hotel. Read more about how hotel chains are going airbnb-ish nowadays!

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