What is Airbnb’s Business Model?

In this edition of the business models of technology companies, I’m talking about Airbnb’s business model using the business model canvas.

In the video, I use the Airbnb business model canvas to show who it’s key customers are and the value proposition it offers them. I describe how Airbnb communicates with its customers and its key marketing and distribution channels. Finally, I cover how Airbnb monetises its business model.

How does Airbnb deliver value to customers? I then look at the infrastructure side of the Airbnb Business Model Canvas to show how it uses key resources to deliver the key activities that are required to create a marketplace between hosts and guest and the partnerships that it needs to do this. Finally, I look at how much this all costs.

Airbnb, as we all know it is a marketplace that connects guests and travelers with property owners who want to rent out their property or spaces usually on a short-term basis. 

The company utilizes the sharing economy ― an economic model ― otherwise known as the peer-to-peer economy. This model allows buyers and sellers to conduct business together ― such as the selling and buying of goods and services ―  while the platform may, or may not facilitate transactions between both parties.

The company, even in the midst of fierce competition from its competitors, has managed to disrupt the hospitality industry and now remains the most valuable hospitality company in the world with a market cap of $118 billion.

Key partners

Airbnb’s key partners include lobbyists, this is due to the fact that there are laws and regulations affecting short-term rentals and home-sharing in some countries.

These laws prevent some hosts in certain countries from listing their spaces on Airbnb’s platform, not to mention, hosts which list their spaces or properties on Airbnb may also get penalized by these laws and regulations.

This, in turn, has continued to have material adverse effects on Airbnb’s business, results of operation, and financial condition.

Hence, the reason why Airbnb has lobbyists as key partners so they can help convince politicians to ease up the laws and the regulations so it’ll be more favorable for hosts, which in turn, will bring positive impacts upon Airbnb’s business and operations.

Corporate travel companies also constitute Airbnb’s key partners, as well as corporate travel managers.

Channels

Airbnb runs display ads as a means of reaching its customers. Here, it runs ads on platforms such as Google ads network and Facebook which targets both hosts and guests in order to increase the number of properties and spaces listed on its platform and also to increase the number of bookings that take place on its platform.

The company also engages in search engine marketing as a channel of reaching its customers. 

It runs ads on Google as a means of traffic and customer acquisition. The company also utilizes unpaid marketing tactics such as search engine optimization (SEO), where their content appears on Google search results pages, as a means of attracting traffic to their site.

Other channels Airbnb utilizes include host advertising and referrals where users refer other people to the platform and earn some form of reward.

Value propositions

Airbnb has value propositions for both of its customer segments which include guests and hosts.

For the guests, it gives them the opportunity to book unique accommodations all across the world.

These unique accommodations which it offers include cabin stays, treehouse stays, tent stays, cottages, full apartments, luxury houses, or even spaces within a house such as single rooms.

These choices provide variety and satisfaction for its hosts, as these are options which are not typically available with hotels.’

On the other hand, value propositions that it provides for its hosts include the opportunity for them to let a unit or space in their property on a short-term basis.

This makes it possible for property owners to earn extra income from their property, not to mention, it is also ideal for property owners who would not be able to rent or lease out their places on a long-term basis.

As we can see on its landing page below, its value proposition is well highlighted.

Customer segments

Guests and hosts are Airbnb’s two major customer segments.

The company, utilizing the third-party marketplace business model, provides a platform where hosts can list their property and guests can look for one of these properties to book and stay whenever they wish to travel or go on vacation.

This is akin to Alibaba’s marketplace business model, where it brings both sellers and buyers together through its platform ― in order for them to exchange value, services, and goods on the platform ― while facilitating the transactions between both parties.

Cost structure

Airbnb’s cost structure includes the expenses involved in building, designing, and maintaining its platform.

The cost of Airbnb’s product development, which also encompasses its platform build, design, and maintenance, stood at around $2.7 billion as stated in its 2020 annual report.

The company also noted that they currently rely on Amazon Web Services for cloud computing services, which also adds up to its cost structure.

Their marketing costs stood at a whopping $1.7 billion

With all the aforementioned facts, it is safe to say that their platform builds, design and maintenance costs them a huge chunk of money.

Key activities

Airbnb’s major activities include the optimizations which it makes to its platform. 

According to their 2020 official annual report, it was stated that the company has 1,480 engineers currently working on building and developing their platform. It was also stated that their platform has the following broad and complex requirements:

• Global payment capabilities, anti-fraud measures, city-specific product requirements, and multilingual real-time community support
• Delivery of business intelligence insights to manage their marketplace, as well as pricing insights and optimization of occupancy for hosts.
• Incorporation of machine learning to power key areas such as fraud detection.

According to the same report, they also noted that they’re pivoting their platform to a service-oriented architecture to make their core business capabilities available as granular services that will help them accelerate the creation of new products and services. The new service-based architecture being built by Airbnb was noted to provide the following capabilities:

• Data management systems that will continue to support user privacy, machine learning, business insights, and analytics.
• Service reliability that will lead to best-in-class centered on availability, disaster recovery, latency and business continuity, security, testability, observability, operability, and agility.
• Cloud support that will focus on robust capabilities for granular attribution and usage patterns to realize efficiency gains.

With the aforementioned facts, it is evident that optimizing and developing its platform is a key activity of Airbnb.

Key resources

Some of the major resources which reinforce the business model of Airbnb include its platform, as well as its huge library of over 4 million listings from which its guests can book from.

Customer relationships

Airbnb bolsters its customer relationships by interacting with its customers through its self-service platforms.

The company has tightened its relationship with its customers by offering refunds to its customers, wherein they evaluate whether the cumulative amount of payments made to customers that are not in exchange for a distinct good or services received from customers exceeds the cumulative revenue earned.

Furthermore, as stated in the company’s 2020 annual report, they offer a host protection program dubbed; Host Protection Insurance and Experience Protection Insurance. Here they offer payments of up to $1 million to hosts in the event of a third-party claim or a bodily injury related to a stay or experience.

They also have a program called the Host Guarantee Program, where they provide a reimbursement of up to $1 million to hosts should a visitor damage or destroy their property during a stay.

They do all this to tighten and increase their customer relationships as well as to ensure customer satisfaction.

Revenue streams

Airbnb makes money from commissions charged to both its hosts and guests when a reservation is made.

The company charges hosts commissions usually under 14.2%.

Guests, on the other hand, are charged service fee commissions of 3%.

The company made a revenue of $3.37 billion in 2020, a huge decline from its 2019 revenue of $4.81 billion, due to the covid-19 pandemic which disrupted the global travel industry.