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February 16, 2018

AIRBNB BUSINESS MODEL | How does Airbnb make revenue?

Airbnb is about a whole lot more than simply renting space. It is an excellent alternative to hostels and Couchsurfing, and if you are on an incredibly long trip, it may make a beautiful home away from the house for a brief while. Airbnb is a great approach to experience new places at a portion of the price of major hotels. Airbnb is not always a less expensive option. Airbnb enables you to decide on a weekly or monthly discount. Airbnb also provides a secure payment platform. Airbnb is a huge platform for an owner who has vacation rental property they would love to promote on the internet to acquire more bookings. It is an online marketplace that connects guests with hosts. It enables people to rent short-term lodging by listing their available spaces and earn from the rent.  Airbnb does not own any of the renting places, and they serve as the bridge between the guest and the host. In 191 countries and 65,000 cities, Airbnb has over 3,000,000 lodging listing. In short, Airbnb is a broker that receives a commission/percentage service fees from the guest and the host. It takes charge from both host and the traveler for using the platform. The company has the objective to provide a way to book unique homes and experience the city like a local.

 

 

How does Airbnb run his business?

 

The answer to a question that how does Airbnb works is that it operates straightforwardly: the host provides all the essential details that are required for the listing of his/her space such as price, facilities that are provided etc.  Airbnb assigns a freelance photographer to go to the property location of the host and take high-definition photographs of the provided space. The traveler is required to create an Airbnb profile before making any booking reservations. The travelers search for a suitable property in an area according to their need, and they browse all the available options. If the travelers find the appropriate places for them, they have to click the button “Book it, ” and they can simply pay the fixed amount (along with additional transaction chargers) set by the hosts through a secure payment system on Airbnb. The booking and payment are made through Airbnb.  The hosts get all the information regarding their potential guests, and after their approval, they are paid by Airbnb (commission is deducted).  Airbnb does hold the payment for 24 hours after the check-in, and they release it after one day to the host.

Both hosts and guests can rate and review each other by the whole experience.  These reviews are also checked by both host and the travelers. A host can cancel the booking even if the payment is done; the host has the freedom to decide whether it is feasible to accept the offer of the traveler or not.  The reviews can give a basic idea about how the facilities are in the space provided by the host or how the traveler is.

It is a business innovation that has given the opportunity to homeowners to earn extra money by just providing their available spaces for rent. It is best since they not only get to make extra money but also meet new people that come from all over the world.  It also is best for travelers to stay in place for cheap rates and they get to live in the home-based environment. The travelers can also meet new people and travel with a limited budget since they will not be spending too much on expensive hotels.

 

 

The Business Model Canvas of Airbnb.

 

Below you can find the Airbnb’s canvas strategy that we analyzed at vizologi within our free online business models examples collection, you can enjoy our free collection of business examples here, besides of you can download the canvas pdf template here.

 

 

Airbnb’s business model canvas consists of important segments or modules such as:

KEY PARTNERS. Who is helping Airbnb? What are the main partners of the company? Who are Airbnb key suppliers? Wich key resources are acquiring from partners? Wich key activities are do partners perfom?

 

  • The hosts who are renting their spaces.
  • The guests who are booking the spaces.
  • Insurances.
  • The people who invested in Airbnb (Business Angels like Y Combinator, Sequoia Capital, Greylock Partners, Andreessen Horowitz, Founders Fund, Tiger Global Management, or JPMorgan Chase between others).
  • Local tourism agencies and government in some cases.
  • There are huge numbers of freelance photographers present in all the cities of the world, and they are under the network of Airbnb.  They go to the assigned location and take high-definition photographs of the spaces that the hosts are providing
  • Airbnb pays freelance photographers upon receiving more responses on the high-definition pictures that they took.
  • The payment processors that are deployed in ensuring that safe payment proceeds from both ends.
  • Acquisitions like Luxury Retreats International a Canadian-based villa rental company, NabeWise a city guide that aggregates curated data for given location and also Trip4Real.
  • The company partnered with Tesla Motors to supply chargers at particular host homes.
  • Airbnb sponsored the Manor F1 Team.
  • The travel business has sponsored the New York City Marathon.

 

KEY RESOURCES. What does Airbnb need? What are the primary resources needed? What key resources do their value propositions require?

 

  • The local hosts that are renting their spaces or properties, yes you right “The world’s largest accommodation provider Airbnb owns no property.” That is the fascinating concept of the sharing economy. We can consider it as a mere broker that receives percentage service fees or commissions from both guests and hosts when the on-line transaction is done.
  • The skilled employees that make Airbnb a name to reckon in the online marketplace.
  • The technology and platform being used by Airbnb, mainly machine learning and recommendation algorithms.
  • An extraordinary footprint covering more than 65,000 cities and 191 countries.
  • Skilled Employees.
  • A good brand reputation.
  • Legal operation agreements that use third party Insurance support.
  • Available in 26 languages.
  • The host determines to price with recommendations from AirBNB as a competitive advantage.
  • Security Payments feature that procedures Payment trades 24 hours the following check-in.
  • Linking to social network accounts.
  • “Verified IDs” before booking.
  • Security deposits, and cleaning fees.

 

KEY ACTIVITIES How does Airbnb do it? What are the main activities develop in his business process?

 

  • The work on product development and management.
  • Building host networks and Managing of the hosts.
  • Building guests networks and managing of the guests.
  • Building travelers network and Managing guests requests or complaints.
  • IT Operations.
  • Marketing.
  • Product Innovation.

 

VALUE PROPOSITIONS. What’s the value proposition that Airbnb offers? Wich one of their customers’s problems are they helping to solve?

 

  • Airbnb gives an opportunity to house owners to list their space and earns extra money in the form of rents. The homeowners can receive up to 90% as a result of this opportunity (since Airbnb deducts 6-12% from the homeowners).  Airbnb also provides insurance to the listed places, and it is done to ensure that the property is covered and there are no doubts in mind of homeowners before handing their free space to someone.
  • The value propositions for the travelers are that they no longer have to pay expensive hotels for even a night-stay.  They can easily stay at a place provided by the host for a cheap rate. It is best for all the budget-minded travelers since they get to save a lot from staying at a cheap place.
  • There are the rating and review system that is provided to both hosts and the travelers.  Hosts can accept or reject booking offers after reading the reviews of their potential guest, whereas the tourist/guest can check the photographs and reviews before booking a place.
  • HOST: They can earn extra by renting their spaces, whereas Airbnb will provide insurance to all the homeowners that are renting their spaces. There will be no charges taken by Airbnb for the photo shoot. A sharing-economy pioneer shares more with hosts. Hosts can also offer “experiences” (surfing classes, organic cooking, shows, etc), for eligible hosts Airbnb offers free professional photography.
  • GUESTS: They can go to a city and instead of booking a hotel, they can book a homestay. The prices are less in comparison to hotels, most imperatively on special occasions a full online marketplace platform. Also, they can enjoy an extraordinary new experience provided by the hosts.

 

CUSTOMER RELATIONSHIPS. What kind of customer relationships have Airbnb with his clients?

 

  • Provided customer service.
  • Frequent Promotional offers.
  • They interact through social media.
  • Home insurance offer for the hosts.
  • A whole experience.
  • Registration and account creation is free.
  • Virtual identification.
  • Rating & Reviews.
  • Easy Booking.
  • Home Insurance support.
  • Online marketplace and hospitality service.
  • Speeding-up Society (24/7 access).
  • P2P (peer-to-peer).
  • All Things Digital.
  • Affiliate Model / Refer and earn offers.
  • Promotional Offers.
  • It offers free professional photography for suitable hosts.
  • Safety mechanisms based on profile rating and review system.
  • Online reputation and online payments.

 

KEY CHANNELS. How does Airbnb reach his customers? What are his channel strategies?

 

  • Mobile App for Android.
  • Mobile App for iOS.
  • Word of Mouth, in the early stages of the company the conversations between the community, triggered the first great impulse.
  • Airbnb websites or mobile applications (iOS, Apple Watch, and Android).
  • Digital Marketing including Internet ads.
  • Social Media.
  • Neighborhoods travel guide.

 

SEGMENTS FOR CUSTOMERS. Whom does Uber help? What is his customer segment?

 

  • HOSTS: People who want to earn extra money and want to meet new people. They are the people that want to rent their space and earn extra money out of it.

They can create a list of their property on Airbnb by adding information such as property detail, rent price, the timing of check-in and out.

Hosts have the freedom to accept or decline a booking after knowing about the reader’s reviews or other information.

  • GUESTS: People who love to travel around the world and want to save money by staying at the host’s place for a reasonable amount.

The platform has an extraordinary degree of adoption between Millennials public.

These are the people who book available places at reasonable rates from the hosts.

Travelers/guests can check the facilities that are provided regarding the space that the host is offering.

Airbnb portal can be used to pay the hosts for the booking.

 

COST STRUCTURE. What is Airbnb cost structure?

 

  • Technological structure and the running cost of Airbnb.
  • Monthly salaries of permanent employees.
  • Freelancer photographer getting paid.
  • Technological setup & running costs.
  • IT operation, customer support.
  • Salaries to permanent employees.
  • Payments to freelance photographers.
  • Insurance agreements.
  • Marketing expenses and campaigns.
  • Legal.
  • Airbnb has 20 offices.
  • Taxes like all mortals or maybe less than the traditional hotel industry, the fact is that when you provide a technology platform between internet users, you can pay your taxes anywhere.

 

REVENUE MODEL. How is revenue Generated By Airbnb?

How much revenue does it take? What are the primary income sources?

 

  • As a brokerage and intermediary, It takes a commission from the host upon every single booking.
  • As a brokerage and intermediary, It takes a commission from the guest upon every single booking.
  • The company charges guests a 6%-12% guest services fee, and charges host a 3%-5% host service fee.
  • Hosts can also offer “experiences” to guests for an additional charge of which Airbnb takes 20% as a commission.
  • We can sum-up that Airbnb in spite of being a pure technology company, his business model, and strategy market follow the same rules to act as an intermediary. UBER, Deliveroo, etc all of them are the new actors.
  • Airbnb works by sharing economy, and it is in the best interest of everyone that is a part of it.  The company earns its revenue from two sources, the hosts, and the guests. The commission taken by Airbnb from the hosts is 10% on every booking that is done through their platform. This means that the hosts get to use Airbnb platform to get a customer and earn 90% from it.  Airbnb charges 3% from the guests in the form of transaction fee, and this fee is deducted upon every confirmed booking.  It is a win-win scenario for Airbnb, hosts and the guests.

 

The Online Auctions.

 

There can be seasonal online rental auctions made, and the best thing about these online auctions is that they maximize the profitability of any house. The hosts are given the best prices for the space that they are providing and they decide which price is suitable or more profitable for them. There is the potential for hosts to earn a bit more than the little extra amount. If the provided place by the host has good reviews and the accommodations are remarkable, then it can be expected that the bids will go higher at the online auction.

How many different business types has Airbnb?

 

Around the company strategy business, we identified at least six different business model patterns.

  • Sharing economy: We can consider Airbnb as one of the primary pioneers that disturbed the traditional hotel industry. Sharing economy diminishes the requirement for resource proprietorship. Sharing economy is an umbrella term with a scope of implications, regularly used to depict financial and social action including on the web exchanges.
  • Peer to Peer: A Peer-to-Peer commonly referred as P2P, is a decentralized stage whereby two people interface correctly with each other, without intermediation by an outsider, or without the utilization of an organization of business offering an item or administration.
  • On-Demand Economy: The On-Demand Economy is characterized as the financial movement made by advanced commercial centers that satisfy buyer request through quick access to and efficient provisioning of products and ventures. Supply is driven using a productive, instinctive advanced work layered over existing foundation systems.
  • Online marketplace: An online marketplace is a sort of web-based business website where the item or administration data is given by numerous outsiders or in different cases by the brand, through the commercial center administrator handles exchanges.
  • Brokerage: A financier organization’s primary obligation is to be a go-between that interfaces purchasers and merchants to encourage an exchange.
  • Two-sided market: Two-sided markets, usually named two-sided networks, are monetary stages having two unmistakable client bunches that give each other system benefits. The association that makes esteem mostly by empowering direct cooperation between (at least two) particular sorts of partnered clients is known as a multi-sided stage (MSP).

 

The Potential of Airbnb

 

Airbnb is a business innovation that has changed the online marketplace by bringing innovation to something that was only limited to online hotel booking.  The business model of Airbnb emphasis on three crucial elements and the thing to notice is that Airbnb has tried to satisfy all three aspects of its unique business model.  It is a clear indication that they want to take all three parties with them and they know how important they are.

All in all, Airbnb is truly an innovation that has changed the online market drastically. There are pros and cons of Airbnb, but mostly there are pros, and this is what makes Airbnb a good option. Who knows what will happen if blockchain technologies go forward, in this scenario with a pure P2P, the intermediaries may be others.

If you want to visit all the travel canvases available at vizologi, here you have the companies related, TRVL, Lastminute.com, Viajar barato, and so on.

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