We are in the digital age, and everything is now happening in a faster and more efficient way. People now shop in their homes and even perform banking transactions on the go. As we know, our lives have been changing, improving, and evolving due to technology. Apart from shopping, you can do a lot over the internet due to the creation of different online marketplaces that cater to different needs. You can book your flight and pay your tuition and even rent temporary accommodation like the Airbnb business model offers.
In this article, we’re going to dig deep into the Airbnb business concept.
We’ll discuss everything about it, how it works, and how the company makes money.
RELATED: TOP 50 WAYS TO MAKE MONEY WITH LAND
After reading this article, you’ll get the necessary information about Airbnb and explore the opportunities it offers.
Let’s do it!
Airbnb business concept
Airbnb is an online platform where homeowners and travelers meet to make transactions about local lodging.
On the Airbnb marketplace, locals in different countries list their spaces for travelers to book and pay rent.
Travelers, on the other hand, go to the platform to search for comfortable and affordable rentable spaces in any country they’re visiting.
This online marketplace focuses mainly on hospitality services.
It makes it easy for tourists to book comfortable accommodations before they get to their target destination.
Airbnb also helps private property owners to make money from renting their properties to guests from any part of the world.
Airbnb is presently catering to 191 countries, has more than 2 million active users with up to 4 million listings.
The individuals who use the platform target rental property ideas and leasing.
Also, there are close to 650,000 hosts on the platform who are in charge of posting & providing properties.
These host members also host events, and they are the main people who generate revenue for Airbnb.
They make a lot of money from travelers, and Airbnb takes a commission from every completed booking on the platform.
When it comes to the success of Airbnb, 3 key players keep the marketplace running.
- The Hosts
- The travellers
- The freelance photographers
The hosts are those players on Airbnb that owns a rental property.
They are the people who want to give out their available space to travelers and make money from rents.
The hosts are allowed to list their property on Airbnb to ensure that travelers know they have a space for them.
While creating the listing, the hosts must provide comprehensive detail about their property and set the rent they want.
Hosts are also responsible for specifying the check-in and check-out time for their guests.
When it comes to bookings, Airbnb hosts reserves the right to reject any booking that doesn’t suit them.
It doesn’t matter who the traveler is; once he/she has a bad review in the marketplace, an Airbnb host may decide not to accommodate him.
Apart from the reviews from other hosts, if a traveler’s social profile is not trustworthy, a host can reject the bookings.
The second category of Airbnb facilitator is travelers.
They are the customers that need the rental properties which the hosts list on the marketplace.
Travelers hire temporary spaces from the local hosts in their target country but not without careful considerations.
Before a traveler decides on the property to rent, he/she must first search for a suitable one by going through the listing on Airbnb.
During their search, the travelers compare rent, location, available amenities, security, etc., before picking a space to rent.
Once the traveler decides on the perfect property, he/she can pay and complete the booking right there on the Airbnb platform.
3. Freelance photographers
One way to attract travelers to a particular property is through the visual presentation of the place.
Ordinarily, without seeing what you want to use, it may not be easy to convince you that it is the best for you.
That’s why Airbnb has a large number of photographers in all the cities where they operate.
These freelance photographers are responsible for taking high-definition photographs of every property listed in their city.
The reason behind this picture-taking operation is due to what we said earlier.
The easiest way to convince a traveler to book a particular property is by showing him/her what it looks like.
That’s why Airbnb pays these photographers directly to get quality photographs of listed properties.
Airbnb business model Canvas
Airbnb’s business model is very comprehensive and cuts across all the activities and strategies which the company has employed to be successful.
The key section in the business model canvas includes:
- Airbnb Value proposition
- Key Partners
- Key activities
- Resources or assets of Airbnb
- Customers segments of Airbnb
- Airbnb channels
- Customer relationships
- Airbnb revenue
- Cost structure.
Airbnb Value proposition
The main Airbnb value proposition is to ensure the satisfaction of both the hosts and the guests.
So, the company focuses on making sure that both participants on the platform get the best of what they hope for from it.
The value proposition for Airbnb Guest
So for the guests, Airbnb satisfies them through the following ways:
– A large number of choice and variety of properties
Guests on Airbnb platforms are usually offered the chance of picking the perfect property amidst the numerous listings.
Airbnb makes sure that every person will get to see many properties to check and get them in different styles, exterior, interior designs, and diverse amenities.
So, no matter what the guest has in mind or doesn’t have in mind, he/she will find an amazing space to rent.
– Cheaper option
Another value that Airbnb offers to guests is paying cheaper rent for a comfortable space.
You can’t compare hotels with Airbnb homes.
The former bills according to the services or the amenities, but when it comes to Airbnb, guests usually get more than they expect.
A home you rent from Airbnb may have all the amenities you can need, such as a washing machine, kitchen, coffee machine, etc.
These provisions can save lots of money for you, such as paying for breakfast, buying meals, etc.
– Authentic stays and local experience
If you’re traveling to a place for the first time, Airbnb allows you to enjoy the experience from the grassroots.
Instead of staying in a hotel room where you only meet the services employees, you can now meet and interact with the locals through your host.
Also, you can experience the place authentically, not casually as you would in your hotel room.
The value proposition for Airbnb Host
For the hosts, Airbnb satisfies them through the following ways:
– They generate income from the platform
The value that Airbnb offers to the hosts is the opportunity to generate income from their properties.
Many people list their empty spaces, while others suffer some inconveniences to make money with their properties.
– Airbnb ensures that they can start easily
Airbnb makes it easy for hosts to join the marketplace.
The team guides them on what to do, provides support through email, phone, live chat, and provides resources and even case studies.
– Risk minimization
Hosts are given a chance to protect their properties from damages through insurance and the power to set house rules for the guests.
Also, Airbnb has mitigators and outlined solutions to the risks and concerns which the hosts may have concerning their properties.
– Provision of screened and good guests
Airbnb usually verifies the identity of every guest during the booking process.
The guest must present a valid identity, and if anything goes wrong during the stay, the Airbnb staff can locate them easily through their ID verified badge.
– Provision of management tools
Hosts get lots of management tools from Airbnb through a management system.
This management system offers different features such as price setting, listing details, amenities, photos, etc.
It also has an availability calendar plus other tools, which makes everything easy for the hosts.
Airbnb Key Partners:
These are the partners who contribute one way or the other to move the platform forward. These partners consist of:
– The hosts
These are the people who provide the properties or the services which the guests utilize.
Without the hosts, the Airbnb business model will not work because guests need variety and a huge amount of choice to get satisfaction in the platform.
Some hosts only offer their experiences and not properties.
These partners are responsible for arranging tickets for cooking classes, kayak tours, hiking, wine tasting, etc.
So for there to be a booking on Airbnb, the hosts must list their properties.
– Communities and tourism partners
Airbnb needs tourism bodies & communities to ensure a continuous flow of business.
Through tourism bodies, Airbnb can stimulate demand through collaborative marketing.
– Investors or venture capitalists
Airbnb has many investors from all works of life. These partners help to formulate & shape the Airbnb business model structure.
Through these partners, Airbnb can allocate enough funds for research to ensure that the platforms perform their best through innovations and state-of-the-art applications.
Some of Airbnb investors include Tiger management, Y Combinators, Google Capital, Sequoia Capital, etc.
– Professional freelance photographers
The work of these Airbnb partners is to take high-resolution pictures of rental properties to attract bookings from guests.
– Insurance companies
The main work of insurance companies who work with Airbnb is to secure the hosts’ rental properties to guests.
The companies make sure that they can take care of damages and accidents during an active renting period.
– Corporate managers
These partners are responsible for maintaining and executing the daily operations of the company to ensure the achievement of objectives.
– Tech partners
Tech partners provide Airbnb with all the technology that facilitates the operations of a travel marketplace.
However, they are not exclusive to Airbnb, as other travel agencies operating on the internet use them.
Airbnb key activities:
This is another important section of the Airbnb business model.
It answers the question about what Airbnb does as a business entity.
1) platform development
There are developers amongst the staff of Airbnb whose job is to prevent technical issues on the platform.
They make sure that all the customers can access the platform whenever they want.
2) sales & marketing activities
Without marketing, even a popular company like Airbnb won’t survive the tough competition in its industry.
So, the company engages actively in sales and marketing to achieve expansion for both the guests and the hosts.
3) behavior management
Humans are the most complex people to manage.
Airbnb must ensure that the rules are continually improved to guide the behavior of their customers.
Also, they do everything in their power to ensure positive behavior with travelers and hosts.
4) customer service maintenance
Airbnb can’t afford to disappoint their customers, thereby losing their goodwill and brand recognition.
So, they must work to deliver everything they promise in their value proposition.
5) hiring and retaining employees
Airbnb is responsible for hiring and retaining their employees by doing everything possible to prevent employee turnover.
6) managing agreements
Airbnb aligns contractual agreements with countries where they want to list their services.
By so doing, they automatically improve the brand image and recognition, which will drive more hosts into the network.
7) protecting customers’ sensitive information
Every member’s information on Airbnb must be secured and protected from cybercriminals.
So, the company makes sure that nothing compromises these sensitive details but provides only the ones approved by the owners, such as details of a rental property, a specification of an event, etc.
8) developing strategic partnerships
Airbnb ensures that they develop partnerships that’ll improve their value proposition.
For instance, the company has partnered earlier with the Fisher House Foundation and Make-A-Wish to offer free medicals to children and veterans who need medical treatment.
Key resources or assets of Airbnb:
Without the resources and assets, the Airbnb business model will not work.
The following are the resources & assets of the company that drives its growth.
- Hosts and guests
Without these assets, Airbnb will not survive.
The company can boast of 7 million-plus listing in more than 100 cities of 220 plus countries through them.
Also, platforms have more than 400,000 super hosts, record more than 2 million stays every night and more than 50,000 experiences in 10,000 + cities.
- Airbnb online platform & mobile app
This is the platform where hosts and guests meet, interact, and complete transactions easily.
Without these resources, the business model will flop.
The employees are also part of what keeps the business going.
Airbnb has analytic & data scientists who work daily to help the company maximize the data they accumulate on the platform.
There are software engineers on the platform who develop and maintain Airbnb applications.
- Data assets and algorithm systems
Every company needs big data to succeed in this digital age, and Airbnb is not left out in the race to acquire all kinds of user data and other external data.
They also use industry-standard algorithms to analyze these data for effective use.
- Venture capital
Without the investments from venture capitalists, Airbnb may not achieve all its growth and expansion potentials.
But with the venture capital, it can grow to any height possible in the industry.
Customers segments of Airbnb
Airbnb doesn’t have one type of customer.
Both the hosts and the guests make up the total customers of the company.
So, the customer segment includes the
- The guests
- The hosts
Each of these customers is further segmented in different ways.
For instance, the guests are segmented under:
- Behavioral – such as trip type, rental type, and accompanying guests
- Reasons (why they use Airbnb, motivation
- Interests (activities they engage in)
Hosts, on the other hand, are further segmented by:
- Rental type (entire room, house, private room, unit/condo
- Accommodation type (Luxe, Tier, for work, Plus)
- Experiences provided to guests (nature, food, craft, activity, etc.)
- Location (urban, rural, suburban, etc.)
- Characteristics (closeness to amenities)
Airbnb has different channels that facilitate its operations. The critical ones include:
- Transaction Channels
These include the Airbnb App and the Website, which facilitates the transactions between the hosts and the guests.
These channels are the platforms where the hosts and the guests can communicate, complete bookings, make payments, etc.
Also, the hosts can easily manage everything about their businesses through the site or app.
- Marketing and Sales channel
These are the channels through which Airbnb drives business growth and expansion. These channels include:
- Social media
- Ad campaigns
- Word-of-mouth advertisement
Every player involved in the Airbnb business model canvas benefits from the great customer relationship approaches of the company.
The important thing is how the company is ensuring a smooth relationship with the players.
For instance, to the hosts and guests, the company does the following:
- Ensuring safety for the guests and security for host properties
- Ensuring that these players get the best out of Airbnb value proposition
- Respecting the house rules which hosts set for their guest
- Provision of self-platform through which the players can access the platform
- Ensuring a 24/7 support service for the hosts and the guests
Other customers with which Airbnb strives to relate with cordially include the cities, the regulators, the communities, and legislators in their host countries.
No matter what, the business is not operating in a vacuum.
As such, Airbnb must make sure that their customers abide by the legislations guiding each location.
For instance, an angry neighbor may report a host for holding parties in their neighborhood.
Last year, an incident that led to a shooting at a party caused Airbnb to ban any form of party in their listings.
Apart from neighbors, some communities may not accept short-term tenancy due to the perceived misbehavior of such temporary tenants.
So, Airbnb tries hard to maintain a good relationship with these groups by removing any policy or strategy that may raise concerns from any of them.
How does Airbnb make money? Airbnb follows after the sharing economy commercial model in its business structure.
The sharing economy is a model that allows sellers and buyers to share both physical and human resources to facilitate their business operations.
Sharing economy or peer-to-peer economy makes it easy for the players to utilize goods & services which they have shared ownership.
The companies that are operating under the sharing economy don’t offer goods or services directly to individuals.
They make money by providing a connection between sellers and buyers, just as Airbnb does.
Apart from Airbnb, other popular companies in the sharing economy model include Craigslist and eBay.
These companies have been operating under this model for many years now.
Other new companies that have joined the sharing economy include Airbnb, Uber, Lyft, etc.
There are two ways through which Airbnb makes its money under the sharing economy; they are:
- The host fees
- The travelers’ Fees
The host fees
Airbnb charges 3%-5% of host fees on its platform.
Every host with a rental property must pay the fee to list their properties or event on Airbnb.
But Airbnb will deduct the money after they have completed the listing.
For hosts who offer experience such as cooking, kayak tour, etc.
Airbnb charges a 20% service fee from them.
Travelers fees range from 0% to 20%. The travelers pay this fee because they’re using the platforms, and they include:
- Cleaning fees
- Reservation fees (charged per room)
- Service fees
- VAT or local taxes
- Fees for extra guest
- Fees for currency exchange
Airbnb cost structure
Everything about what Airbnb spends is categorized and clarified in a simple and easy to understand manner.
Some of the key cost categories might include the following:
- Costs of sales & marketing; to attract new hosts and guests, Airbnb must spend money on advertisement. They may likely use discounts, refunds, promotions, referral fees, etc., to enhance their ad campaign.
- Costs of research and development; a large company like Airbnb must spend money on research and development items such as design, engineering costs, product development costs, platform improvement costs, etc.
- Employee salaries; Airbnb doesn’t operate automatically. So it means that the company has many employees that it pays monthly.
- Admin and general costs; the items under this category may include legal fees, general management costs, admin employees cost, professional services costs, etc.
- Cost of revenue; some of the expenses under this category will include recurring IT costs, insurance premiums, payment fees, etc.
Other costs include:
- Interest expense
- Cost of infrastructure
- Fees for credit card processing
- Development costs
- Maintenance costs
- Regulatory costs
- Depreciation & amortization costs
How does Airbnb business work?
Airbnb functions straightforwardly.
The main function of Airbnb is to connect hosts and travelers following a sharing economy business model.
But how does it all work?
The process starts with the hosts who list their available space and important details on the Airbnb platform.
The host must specify details such as amenities, pricing, etc.
After the listing, Airbnb will send one of its freelance photographers to visit the location of the property and take high-resolution photographs of it.
Afterward, Airbnb attaches the pictures to the listing to attract potential travelers.
Travelers often search through the listing on Airbnb to find a property suitable for their needs and also budget.
Once they get what they want, they proceed to booking the property on the platform and paying the amount which the host specified.
The travelers also pay other transaction charges on the platform during the booking process.
After the payment, the host who listed the property will approve or disapprove the hosting.
If he/she approves, the traveler goes ahead to locate the property and stay.
Afterward, Airbnb will then pay the host the balance after removing the commission, which we discussed above.
Airbnb’s business model is a very profitable one for anyone in the hospitality industry to utilize.
The company structured it in a way that all its customers get value from them.
Airbnb protects both the hosts’ and the guests’ interest on their platform and ensures that they provide every support necessary for smooth transactions.
The company makes its money from the hosts as well as the guests who use the platform.
We took our time to enumerate the business’s cost structure, its resources and assets, customers, key activities, channels, etc.
So if you’re interested in becoming a host on the platform, we believe you have the information you need to start.
But every business needs a plan, and that’s why we recommend that you write an Airbnb business plan so that you don’t operate blindly.
Your business plan must consist of the usual sections, including the executive summary, company overview, industry analysis, customer analysis, competitive analysis.
It must also outline your marketing plan, operations plan, financial plan, and management team.
We have also stated that Airbnb is under the sharing economy, and as such, the company makes its money through fees.
So, as a host or guest on Airbnb, you should expect to pay these fees to enable a smooth transaction on Airbnb.