PROJECT REPORT ON INDUSTRY

ANALYSIS OF Airbnb

A structural analysis of Marketing in Tourism Industry – Airbnb

Submitted by
Jahnavi S
21080
PGDM, 1ST Term

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 INDEX

S. no TOPICS Page no

1 Introduction of the Company

2 Company trend in the market – Past, Present and future

3 Porter’s Five forces model analysis

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Introduction to the company
On 1st of December 2008, the National Bureau of Economic Research officially declared that the
United States entered a recession in December 2007. And by this time, the tremors of the economic
nightmare were already being witnessed not just by the United States but by countries all across the
world. 2.6 million jobs were lost, several billion-dollar companies filed for bankruptcy and it costed
the global economy more than $2 trillion. This financial crisis of 2008 was so bad that it was known
to be the biggest economic meltdown in the US since the great depression. And it lasted for about
18 months.

Now, during such a terrible time, If I asked you

'Would you like to start a business? What would your answer be?

That would be a ludicrous question, right?

Well, guess what?

Airbnb was one of the few companies that were not just built during the times of recession

but also became a billion-dollar company because of the paradigm shift brought along by the
recession itself.

So, the question is- What is so special about Airbnb?

How did they succeed because of the recession?

The answer to this question lies in the teachings of the deep-rooted American culture. People, ever
since childhood, children in America and even in India for that matter are taught that we should not
talk to a stranger, we should not take chocolates from a stranger and in fact any stranger who talks
to you sweetly is a creep. And since childhood we have always had a problem breaking ice with a
stranger. This is the reason why Americans back then or even present-day Indians for that matter
would never let a stranger live in their bedroom no matter how much they are willing to pay.
Similarly, from a guest standpoint, if I asked you to stay in a stranger's bedroom, even you would
hesitate, right? Well, this is the reason why multiple start-ups that had the exact same model as
Airbnb failed because people just wouldn't let a stranger live in their house. Then the question is

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When these people failed, what was so special about Airbnb that it became such a massive success?
And here's where you need to know about a timeless business lesson. People always remember that
every time there is a crisis of any kind whether that's a political crisis whether it's an economic crisis
or even something like the pandemic it always leads to paradigm shift in social behaviour. In this
case, when recession hit America millions of people were left jobless and they desperately needed
money. Now, this money that they needed was not to buy a fancy car or a house but to feed their
family 3 times a day. Therefore, it was a question of survival. In fact, the idea of Airbnb itself was
born because the founders Brian, Nathan and Joe couldn't pay their rent and as a result of which
they actually started hosting strangers in their house in exchange for a rent and at the same time
people who were travelling also needed an affordable option because even they did not have a lot of
money. And that's when Airbnb connected the host with the guest and built their business model in
such a way that they could generate a passive income for the host and provide a cheaper and a better
alternative to the guest as compared to the hotels. This is the reason why the concept of Airbnb
became a game changer and what followed next was the origin of a billion-dollar industry that
redefined travel for millennials and this paradigm shift in the behaviour is what is known as
collaborative consumption movement wherein the society believes in sharing the ownership of
resources rather than keeping it to themselves. And the economy that emerges out of it is what we
call as 'The Sharing Economy'. And as we move on to the 21st Century the society is becoming
more and more conducive for these kinds of businesses. This is the first and the primary reason why
Airbnb was a super success. Now, the question is-Airbnb wasn't the only start-up during that time,
right? In fact, their idea was not even new. Then the question is Why did Airbnb specifically
succeed? And this brings me to the second element of Airbnb and that is designing for trust. People,
back then when people were actually renting out places out of necessity in the initial days’ things
were not very comfortable because the speed of trust couldn't be established between the host and
the guest. But thankfully, Joe and Brian were design students and they understood the importance of
design in building human relationships. And they also did a joint study with Stanford to find out
exactly what are the factors that built trust between people. And that's when they found out the more
different two people were, the more difficult it became to establish trust. But they found out that if
you add social reputation to a person regardless of how diverse their backgrounds are, the speed of
trust increases by a large extent. In this case the social reputation was nothing but the reviews. And
they found out that if the host had more than 3 reviews the guest was very easily able to trust her.

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And for the guest they designed a small questionnaire that could help them introduce themselves
very easily and in a way that is neither creepy nor cold. Therefore, this factor of the speed of trust
separated Airbnb from the rest of the competition. Now the question is- How are these guys so
sharp? I mean, how are they able to get such a deep understanding about their customers? and this is
what brings me to the third and perhaps the most important element that separated Airbnb from the
rest of the competition and that is their ability to build a system based on empathy. And this actually
came from one of their investors named Paul Graham who is the co-founder of Y combinator. Paul
Graham specifically asked the Airbnb boys to go and visit every single one of their users at their
most popular location which was back then- New York. This is how by turning hosts into brand
ambassadors. Airbnb laid a solid foundation for the most powerful method of marketing and that is
word of mouth. This is how, timing, design for trust and empathy became the perfect recipe for
Airbnb's success. Today Airbnb is so huge that they've got 7 million listings in 191 countries and
generated a revenue of $4.7 billion in 2019.

MISSION & VISION OF AIRBNB

Mission Statement

Airbnb's mission is to help create a world where you can belong anywhere and where people can
live in a place, instead of just traveling to it.

Vision Statement

Belong Anywhere

Values

 Champion the Mission

 Be a Host
 Simplify
 Every Frame Matters
 Be a Cereal Entrepreneur
 Embrace the adventure

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Company Trend in the market – Past, Present and Future

Fig 1 Traditional hotel industry’s response: classic pattern of disruption

Before going to the company trend in the market, lets dive into the details of its business model.

Business Model of Airbnb

Value Propositions:

As discussed before Airbnb’s had an edge over other online lodging platforms such as Craigslist
because of its focused more on value than on profits. It is a community-based, two-sided online

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platform that facilitates the process of booking private living space for travellers. On the one side it
promoted Sharing economy and the other side it provided travellers easy access to renting private
homes. Personal profiles as well as a rating and reviewing system provide information about the
host and what is on offer. Vice versa, hosts can choose on their own who to rent out their space to.
Therefore, the value proposition solely stands on Trust, Lower prices, offer varieties and the idea
of sharing economy.

Value Formation & Core Activities

Airbnb operates as a transaction facilitator between hosts and travellers who are looking for
comfortable accommodation at a cheap price. By providing host protection insurance, as well as a
rating and review system, the platform builds trust within the community of users and lowers
transaction costs. Profiles and user reviews help to create reputation and trust among participants of
the marketplace.

Revenue Model

Airbnb receives commissions from two sources upon every booking, namely from the hosts and
guests. For every booking Airbnb charges the guest 6-12% of the booking fee. Moreover, Airbnb
charges the host 3% for every successful transaction.

COMPANY TREND – IN PAST, PRESENT AND FORECASTING FOR

FUTURE

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 The Past: Airbnb’s unanticipated full fledge supply and demand made a
adverse impact on hotel industry

Airbnb’s disruption of the hotel industry is significant, both existentially and economically. A recent
study by Dogru, Mody, and Suess (2018) found that a 1% growth in Airbnb supply across 10 key
hotel markets in the U.S. between 2008 and 2017 caused hotel RevPAR to decease 0.02% across all
segments. While these numbers may not appear substantial at first, given that Airbnb supply grew
by over 100% year-on-year over this ten-year period means that the “real” decrease in
RevPAR was 2%, across hotel segments. Surprisingly, it was not just the economy but also the
luxury hotel segment that was hard hit by Airbnb supply increases, experiencing a 4% real decline
in RevPAR.

The Present: An arduous journey for Airbnb in times of crisis

 Coronavirus Concerns: As the coronavirus continues to spread, Airbnb will be

challenged to convince consumers that its rentals are safe. And also, due to travelling
restriction the supply in Airbnb stumbled to stay consistent. According to the analysis,
Airbnb – which saw its supply more than double over the past four years, up to 5.4
million active listings compared to 2.3 million at the beginning of 2017 – lost 5% of
its total listings from January through June of 2020. Growing supply in
destination/resort areas has primarily benefited larger property managers, who tend to

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 manage a high percentage of units in those locations. Globally, large operators – those
with 21-plus units – increased both their available unit counts by more than 14% over
the past year, while available listings declined by 9% for hosts with just one unit,
which tend to be located in large urban markets. Both large and mid-size U.S. cities
saw a decline in available listings, while urban areas were the only location type to
also register a decline in active listings. Currently, urban areas make up just 20% of
Airbnb supply in the U.S., compared to 40% in 2016.

 Profits: After posting multimillion-dollar losses in 2019, Airbnb will have to show that
it makes money even as the coronavirus decimates the travel industry.
During the first nine months of 2019, Airbnb reportedly lost $322 million, compared
to a $200 million profit a year prior, according to the Wall Street Journal. Meanwhile,
people are traveling less to avoid contracting the virus. In July, the company said that
rentals in rural areas jumped 25% year-over-year during the previous month. And on
July 8, guests booked more than 1 million nights of future stays worldwide—the first
time that had happened since March.

 Rebuilding Trust: The company has struggled to control unauthorized parties, at least
two of which have led to shootings. It also allowed fraudulent listings that led to
guests being scammed out of their deposits. And after recently opting to fully refund
guests who needed to cancel their rentals because of the coronavirus, it ended up
upsetting both hosts and guests in the process.

The Future: Does Travel Giant has an effulgent future post-pandemic world

According to BusinessWire, the sector is expected to provide a compound annual growth rate
(CAGR) of 19.1% in 2021, when compared to 2020 with the global market forecast for revenues of
$801.9 billion, up from $673 billion. This growth is expected to continue onwards to 2025, albeit at
a slower rate of 7% for a total global revenue figure of approximately $1.052.84 billion. While this
strong market growth provides a great foundation for company growth, key to Airbnb's success over
the next 3-5 years will be their ability to continue their trend since inception of increasing top-line
revenue growth via greater market penetration.

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MICHAEL PORTER’S FIVE FORCES MODEL

Coming to the basic definition of Porter's Five Forces Framework is a method for analysing
competition of a business. It draws from industrial organization economics to derive five forces that
determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its
profitability.

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Airbnb has significant growth potential and is a valid threat to the hotel industry in America.
Rivalry within the hotel industry is high overall but currently Airbnb does not face high direct
competition because it offers different services than a traditional hotel. Competition is expected to
strengthen as Airbnb encounters more direct competitors or captures more revenue away from
traditional hotels. Overall, our analysis of the five forces impact on the lodging industry shows that
its highly competitive in nature. Hotels are already competed on a price and quality basis before
Airbnb came into the scene but rise in the shared economy service shifted the hotel market to give
more power to buyers and to reflect buyers tastes more accurately the nature of competition will
continue to grow stronger until hotels can outperform the unique qualities of an Airbnb experience.

Threat of new entrants:

Threat of new entrants is moderate for Airbnb. On the surface it seems like there aren't many
barriers to entry and that any website could pop up to compete. But Airbnb is well funded and
operating in nearly 200 countries. To pose a threat new entrants will need access to millions in
capital and they will need to compete with Airbnb's brand equity.

Threat of substitutes:

The threat of substitutes is quite high in my opinion, because the switching costs are non-existent.
Customers can very easily choose a traditional hotel, hostel, couch surfing, etc. as an alternative in
the future.

Supplier bargaining power- (generally favourable):

People’s desire for more income and excess residential capacity with few other alternatives to drive
income with vacant residential space provides Airbnb favourable bargaining power.

Supplier bargaining power Post pandemic- (reasonably immaterially

altered):

Downturn has potentially resulted in increased supply of residential real estate. Some people might
fear renting out to travellers.

Customer bargaining power- (generally favourable):

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People’s desire for a more affordable temporary shelter with basic conveniences, such as shower,
privacy, laundry and ability to cook leaves them with few alternatives for the price.

Customer bargaining power given Post Pandemic- (unfavourable):

Temporary shelter is more of a buyers’ market due to the reduced demand and associated glut of
available rentable residential space/hotels with reduction in travel.

Industry Rivalry- (generally favourable):

Hotels are more expensive due to capital intensive nature while camp grounds and the house rentals
go with lesser profits as there are no initial infrastructural investment and wages as liability.

Industry Rivalry given Post Pandemic- (less favourable):

-Hotels reasonably have excess capacity given the reduced demand, and due to the lower variable
costs for renting an additional room following initial investment in infrastructure, the hotel industry
reasonably has grown a fiercer competitor in the short run.

Competitive Advantages:

Airbnb revenue and cost structure its ability to scale its use of network effects the sharing economy
and Big data its trusted review system among peers to provide the company a competitive advantage
when compared to other members of the hospitality industry. Airbnb’s revenue and cost structure
provides it with a competitive advantage because Airbnb has almost no incremental costs because
Airbnb does not own any of the actual combinations that guestbook Airbnb has lower fixed costs
when compared to competitors Airbnb ability to scale with relative ease compared to competitors
has become an advantage. Airbnb is a peer-to-peer platform which enables individuals to buy or sell
services directly from one another. Airbnb is able to scale and supply of available accommodations
almost instantaneously the company has a competitive advantage because of the network effect
which describes an economic scenario in which the higher the usage of a product or service the
higher its value becomes for other users and consumers of the product the company experiences

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network effect by listing the widest selection of salaries and attracting the most customers for the
sellers becoming a facilitator in the sharing economy has provided Airbnb with competitive
advantage because the sharing economy helps parties make use of idle inventory through sharing the
use of Big data provides Airbnb with a competitive advantage because hotels don’t have data on
guest feature travel plans and accommodation preferences and because hotels provide a modulus
product it will be harder for hotels to take advantage of big data in the way that Airbnb take. And it
has an edge over other hotels because of its trusted review system.

Competitive Disadvantages:

 Uncertainty of service offering

 Undefined Business environment

Competitive Advantage Competitive Disadvantage

Revenue and Cost Structure Uncertainty of Service Offering

Ability to Scale Undefined Business environment

Use of the Network effect

Facilitating the Sharing economy

Use of Big Data

Trusted Review System

SWOT ANALYSIS

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 Large number of listings Airbnb can expand its product mix
Well recognized Global brand Increase in sales post-pandemic
Loyalty in the brand Better chance of property acquistion
Operates worldwide
Shared economy
Helps in converting mass tourism to
inclusive.
Strength Weakness

Easy to imitate Business model provides a high

Opportunit bargaining power to people selling
Dependency on host is high Threats
Only available in bigger cities
ies their space
Low profit margin
Lower sales in crisis

PRODUCT LIFE CYCLE

 Tourism Marketing: As Tourism is a service industry, products in this sector can be

both tangible and intangible in nature. But most of the attributes taken into consideration are
intangible such as comfortability of the travel medium, food service and ambience,
hospitality offered by the hotels or rentals. So, we can say that in almost all the cases, the
tourism product is a mix or blend of both intangible and tangible items. This combination of
different components results in giving the tourist the total travel experience and satisfaction.
A product in tourism can be defined by its three unique features:
1. Products must be offered
2. It should satisfy the needs of the customer
3. It should be exchanged for value.

Fig: Product life cycle of Tourism

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 Stages of Product life cycle in Tourism Marketing
I. Exploration Stage
II. Involvement Stage
III. Development Stage
IV. Consolidation Stage
V. Stagnation Stage
VI. Decline or Rejuvenation Stage
Exploration stage: As the name tells its an exploratory stage where small crowd of visitors start
coming to the newly discovered destination, where initially there will lesser social and economic
impact on tourism
Involvement stage: Host community and the travellers will start interacting with eventually
contribute in gradual increase of both travellers and service bodies. Involvement in these tourist
activities also laterally improve the quality of life for the locals by creating job opportunities

Development stage: And at this point foreign investment is attracted to the destination due to
commencement of a well-defined tourism market. Therefore, international hotel chains, food units
and entertainment facilities start taking interest in the destination and set up their business with the
aim of providing world class facilities and earn profits out of the destination.
Consolidation stage: High Dependency of local economy on tourism
Stagnation stage: In this stage saturation will be achieved and the carrying capacity of the
destination reaches to its last limit or is exceeded. Artificial attractions start to replace the natural or
cultural Attractions and the destination becomes more fashionable. This will result in loss of
original features of the destination which means that the Destination has started losing its charm and
USPs.
Decline or Rejuvenation stage: After stagnation there are two possibilities to happen either decline
in tourist movement or rejuvenation of the destination with new set of other tourist attractions.

 Product life cycle of Airbnb:

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As we have discussed the take-off phase happened in the middle of the economic crisis, there was
paradigm shift in consumer behaviour and its value proposition of trust and shared economy helped
in making Airbnb to be the benchmark in hospitality industry.
Marketing Mix is a marketing model used by Airbnb. The essential idea behind the marketing mix
model is to release a product or service in the right manner, with the right price, and at just the right
place by using the right promotion tools. That is Product, Price, Promotion and Place
Product Strategy: The Main aim of its product strategy is to connect travellers with hosts who
provide accommodation through its online platform. And to promote shared economy. Its website
and application UI gives a variety of options to choose from, right from choosing just one person
room to booking an entire place. With all the necessary filters in place, it helps travellers to
conveniently find a stay.
Price Strategy: Their prices are very reasonable and inexpensive compared to the hotel pricing, and
they knew that people were willing to pay more for hotel rooms, so instead of competing on price,
they competed on hospitality. Their main objective was to provide a sense of familiarity, providing
a type of home experience for their guests.
Place Strategy: No traveller would want to book a place out of the town. No traveller would like to
book a place far away from the Airport nor book a place where the conditions are unpleasant. So,
place parameters play a vital role. Talking about Airbnb’s place strategy, it has over the years gone
on to aggressively expand its marketplace listing portfolio. Not just that, it also made sure that the
quality of its offerings remains as same as they offered since day 1.
Promotion Strategy: Airbnb effectively utilized both online and offline channels. They mainly
targeted at local customers to make them aware of Airbnb through city guides and unique
experience through its websites and social media. Airbnb is looking at alternatives to market itself
locally instead of globally.
Airbnb has been a part of countless people’s travel experience. Founded in 2008, Airbnb has
revolutionized the way people travel, as well as how trust and authentication are created between
two parties. Its exponential growth has made a booming business with a $35 billion valuation.
Despite the steep price tag that it offers to its customers, Airbnb has well-positioned its marketing
strategies in place to attract future expansions in the years to come.
But considering, that the company announced its IPO plans, Airbnb still sits at the maturity stage.
We can simply predict that over time, customer expectations for hospitality solutions will change
and more relevant and innovative start-ups will overshadow Airbnb.

PESTEL ANALYSIS
 Political Factors
i. As it is a unique business model of sharing home of short term for travellers, the
primary political aspect that disrupts the model is housing laws and regulation.
ii. Taxation varies geographically and as Airbnb has a great network around 150+
countries, taxes keep changing & it has to be monitored carefully.

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 iii. There is no protection mechanism for their customers in conflict zones.
iv. There were court proceedings recently because of house party and mass
shooting that happened in Sunnyvale

 Economic Factors
i. Airbnb is a good example of shared economy also collaborative consumption
where people share their resources with those who need it for a short period of
time.
ii. Airbnb backlashed mainstream hotel industry due to its competitive edge
iii. Airbnb is a saviour for many working class individuals as they have obtained a
new scope for them to pay their bills and respite their burden of home loan
repayments if any
iv. Overall, economic effect has been positive

 Social Factors
i. It blends cultures from different parts of the globe.
ii. Airbnb has Community Centre and discussion rooms like “Help” “Hosting”
where hosts and tenants share their experiences, ask questions. They are
different webinars to educate and help the community.

 Technological Factors
i. Widespread use of social media for marketing
ii. Their website and application are user friendly and aesthetic by looks
iii. Big data of preferences and other information of travellers helps Airbnb in
recommendation feature, also it is a competitive edge over their hotel
competitors
iv. Seamless booking, cancellation and payment verification system
v. As trust is the main value proposition of Airbnb, review system is helping in
transparency of the business

 Legal Factors
i. Its operational in 193 and 3000+ cities which have unique set of house
regulations, taxation laws.
ii. Facing lawsuits and court proceedings due to violation of house regulation and
eventually leading to mass shootings in Sunnyvale.

 Environmental Factors

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 i. Home-sharing model has reduced waste usage, energy and wastes.

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