Airbnb Case Study

Summary

Airbnb, the hospitality giant, started with a simple air mattress in 2007 and has since grown into a platform with over 7 million listings worldwide. The company primarily earns revenue from service fees charged to both guests and hosts. Despite the pandemic's impact, Airbnb's variable cost model and focus on booking volume could lead to a strong recovery. The company's success hinges on maintaining pricing power and avoiding trust issues that could drive users to competitors.

Takeaways

• 🛏️ Airbnb started in 2007 when two roommates, Brian and Joe, offered an air mattress in their living room during a conference season in San Francisco.
• 💡 The founders recognized a need for travelers seeking unique and affordable accommodations, leading to the creation of Airbnb as a platform for home sharing.
• 💼 Airbnb's primary revenue comes from service fees charged to both guests and hosts on bookings, with an average fee of around 14.2%.
• 🏨 The company differentiates itself from traditional hotels by not residing on third-party booking platforms and serving its own ecosystem.
• 🌍 As of spring 2021, Airbnb boasts more than 7 million listings across over 200 countries and has over 150 million active users.
• 📊 The company's gross booking value peaked at about $38 billion in 2019 but dropped to $24 billion in 2020 due to the pandemic.
• 📉 Nights booked on Airbnb saw a significant drop in 2020, reverting to levels similar to those of 2017, with approximately 193 million nights booked.
• 💰 Airbnb's revenue is not based on the gross bookings but on the service fees they collect, making it a variable cost business model.
• 🏢 The pandemic led to significant challenges for Airbnb, including a major layoff to manage fixed costs such as marketing, legal, and platform management.
• 💹 Despite the challenges, Airbnb has pricing power and aims to focus on driving volume in bookings, nights, and users to sustain growth.
• 🔮 The company's future success hinges on maintaining pricing power, warding off competitors, and ensuring a high-quality user experience to avoid attrition.

Q & A

What was the initial concept behind Airbnb's creation in 2007?

The initial concept behind Airbnb was to provide a makeshift bed and breakfast during a conference season in San Francisco when all hotels were booked. Two roommates, Brian and Joe, put an air mattress in their living room and recognized the demand for travelers searching for something unusual and cheap.

How does Airbnb primarily generate its revenue?

Airbnb primarily generates its revenue from service fees charged to both guests and hosts on bookings. The fees are non-refundable for guests and usually amount to about 14-14.2% on average, while hosts are charged a fee not more than 3% of each completed booking.

What is the significance of Airbnb's IPO in December 2020?

Airbnb's IPO in December 2020 is significant as it marked the company's transition from a startup to a publicly traded entity, reflecting its growth and success as one of the world's largest hospitality companies.

How does Airbnb differentiate itself from traditional hotel companies?

Airbnb differentiates itself by not residing on third-party booking platforms and by serving its own ecosystem with unique accommodations, experiences, and a variable cost business model where it only makes money when a booking occurs.

What was the impact of the pandemic on Airbnb's operations and numbers?

The pandemic significantly impacted Airbnb's operations, leading to a major layoff and a decrease in the number of nights booked, which reverted back to 2017 levels. However, the average room rate per night increased, suggesting people were opting for nicer homes or more expensive locations.

How many listings and active users does Airbnb have as of spring 2021?

As of spring 2021, Airbnb has more than 7 million listings in over 200 countries and serves over 150 million active users.

What was Airbnb's gross booking value at its peak and during the pandemic?

At its peak, Airbnb's gross booking value was about 38 billion dollars. However, during the pandemic in 2020, it reverted back to about 24 billion dollars.

What is the average service fee Airbnb charges for a booking?

The average service fee Airbnb charges for a booking is about 14-14.2% for guests, and hosts are charged a fee not more than 3% of each completed booking.

How does Airbnb's business model compare to that of Uber in terms of cost structure?

While both Airbnb and Uber have variable cost structures where they only make money when a booking occurs, Airbnb has more pricing power due to the differentiation in its offerings compared to Uber, where switching costs are low and the service is more homogeneous.

What are some potential risks or challenges that Airbnb faces?

Potential risks for Airbnb include lawsuits, loss of trust, or competition from other platforms that could capitalize on consumer trust and offer lower fees or better experiences.

What is Airbnb's focus in terms of business strategy moving forward?

Airbnb's focus is on driving volume, which includes increasing the number of nights booked, the number of people booking, and the overall number of bookings, rather than solely focusing on pricing growth.