How Airbnb works: Airbnb's business model

Posted On: May 11, 2022

Posted By: appsrhino

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Airbnb is a web-based platform where people can find rooms to rent and occasionally find properties in other areas. The company was founded in 2008 and is based in San Francisco, California. Airbnb allows people to search for a list of rooms available for rent and offers an option to submit a request to rent a room or property that is also available for rent. In addition, Airbnb provides a way for hosts and travelers to communicate with each other through the platform.

 

It is an interesting concept, and Airbnb's business model is unique. A whopping $2.2 billion in revenues in Q3 2021 alone is a testament to the success of Airbnb's business model. Airbnb has more than 20 million users today, making it one of the biggest hospitality companies across the globe.

Summary

Airbnb is one of the largest companies, not only in the hospitality sector, but globally, by valuation. It started in 2008 in California. Airbnb has been so successful that it is giving the most established hotels in the world a run for their money.

It has helped millions of customers experience tourist destinations in a whole another light, thereby generating passive income for the millions of homeowners. The success of AIrbnb can be attributed to its unique and well thought of business model.

Following are the salient features of the model:

  1. Focus on user experience
  2. Element of fun and personality
  3. Dynamic offerings

Revenue streams of Airbnb:

  1. Booking fee
  2. Marketing assistance
  3. Guest service fee

Airbnb’s Business Model

Key stakeholders

There are two key stakeholders in the Airbnb business model, as listed below.

Host:

A person who is willing to list his property for rentals. The property could be an apartment or a bungalow, and the rentals are decided accordingly. Also, Airbnb has certain protocols in place before they decide to list the property on the platform, 

It needs to be approved from their end. The approval generally is needed to maintain certain quality standards and personalization of the property. Airbnb also classifies the hosts and properties in various categories based on the property's location.

Airbnb offers three options to its users when it comes to rental listings:

  1. A traditional host in a city who has a spare room in their home can decide if they want to rent it out on a nightly or weekly basis.
  2. A traditional host outside of a city who has extra space and wants to list it for rent by night, week, or month
  3. A property manager who wants to manage several properties for short-term rentals

Customer/User

 Any user looking to rent the property for any number of days and willing to pay the rent as well as the service fee charged by Airbnb.

Airbnb Revenue sources

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There are multiple sources from which Airbnb generates revenue. The primary ones are mentioned below.

Airbnb generates revenue from three sources:

Booking Fee

Airbnb charges a flat 8% transaction fee on each completed booking from the host.

Marketing Assistance

Hosts who can provide quality experiences can opt for marketing assistance, which helps advertise their Airbnb profile and listings. Airbnb charges a fee to market their listings on the platform for assistance. Hosts who choose this option get to list their properties above those who do not choose to take assistance from Airbnb.

Guest service fee

A guest service fee of 3% is applied to guests for any bookings made through the platform, which provides them with support and assistance during their stay. It can also be termed a convenience fee, and Airbnb does a great job at providing real-time assistance to guests at any point of their stay on the property.

Reasons for the success of Airbnb's business model

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Airbnb has achieved a great deal of success, as it has a very simple business model. Furthermore, the company has expanded its reach by partnering with other companies, such as Virgin America and TripAdvisor. These partnerships have allowed Airbnb to become even more well-known and accessible to other users. The company has also developed a mobile app that makes it even easier for people to search for available rooms and allows hosts to keep track of their bookings.

There are numerous reasons why Airbnb has expanded and has listings in more than 220 countries and regions. There are certain elements in Airbnb's business model to which the success can be attributed. Following are some of them:

Focus on user experience

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Airbnb keeps the user experience as the central theme to guide them to curate great stays and experiences. Professional photographs of the properties and truly local listings are a couple of ingredients that help them develop great user experiences. 

Element of fun and personality

With the key stakeholders being the traveler and the property owner, it becomes inevitable that both parties like each other, and a bond forms between them. Hence, the properties are redone, or the owners are advised to redo/rearrange interiors to convey the owner's personality and the brand message of complete comfort and user first. It is such an important aspect of Airbnb's business model that it alone has the potential to differentiate it from hotels and inns.

Dynamic offerings

Airbnb understands the customer demands very well and regularly updates its business model. It entails coming up with new products and offerings. Recently Airbnb came with the new 'flexible search' that lets the users search properties and listings for a weekend, a week, or a month without asking for exact dates. 

Another offering that Airbnb has included is the 'Offline experiences' package. It lets users have local experiences in the place they are staying, such as city-guided tours, local festivals, or events, all clubbed in with a package. It will enhance the user experience and help many more local hosts onboard with Airbnb.

Conclusion

Airbnb's business model is quite simple, as priced rentals are the only activity on the site. Furthermore, revenue is generated from transaction fees and guest service fees. Airbnb has also expanded its reach by partnering with other companies, such as Virgin America and TripAdvisor. These partnerships have allowed Airbnb to become even more well-known and accessible to other users. The company has also developed a mobile app that makes it even easier for people to search for available rooms and allows hosts to keep track of their bookings. As a result, Airbnb has been quite successful, as it offers a great product that is easy to use. Furthermore, the company is constantly expanding and improving its services, which will attract even more users in the future.