Airbnb was the #1 company on the 2017 CNBC “Disruptor 50 List.” It had its IPO in December 2020. It suffered from COVID-19, and about six months later, had largely recovered. So what’s not to love about this innovative company started by guys trying to pay their high San Francisco rent?
Let’s look at the strengths, weaknesses, opportunities, and threats to the company that is redefining the hospitality industry.
1. It has unmatched brand strength in the vacation rental industry.
“Airbnb” is not just a brand name, but a noun like using a “Kleenex” or “Scotch tape.” This kind of brand recognition is priceless in the competitive travel industry. It virtually transcends the branding thought process like with traditional hotels. To find an “Airbnb” is synonymous with finding alternative lodgings during your next vacation. It has eclipsed the notion of being trendy and now is a mainstay in its own right.
2. It has a leadership position in its service category.
What’s more, while there are other imitators, Airbnb is the leader of its category. In an industry where every traveler is looking for the best deal and the most consistent service and experience, Airbnb stands out due to its dominance in the market. For those that don’t want to be tied down to the hotel reservation experience with a largely standardized room, Airbnb has emerged as the popular alternative for those who want a unique space when they travel.
3. It offers a cheaper alternative to hotels.
Reserving an Airbnb is usually cheaper than reserving a hotel room. Prices are already much lower than hotels, owing to its primary business model of undercutting those kinds of accommodations. Airbnb hosts also do not have to charge as much since there is far less overhead – hotels need to pay for staff, supplies and materials for all rooms, and maintenance, whereas Airbnb hosts need only cover a few ancillary costs. Customers also save money because there are no resort fees or amped-up hotel taxes.
4. It gives travelers choices of places to stay across the globe.
Airbnb hosts can post their available rooms from anywhere in the world; there are no geographic limitations on where an available room may be found outside of a willing host. Hotels are limited in their capacity by the physical locations of their buildings and can only choose certain markets based on saturation from competitors and proximity to existing locations. With Airbnb, travelers can easily choose a host location no matter where they are going to or from.
5. Airbnb offers travelers unique travel experiences.
Most hotels offer the same kind of experience: check-in at the front desk, roll up to a standardized room with uniform décor, maybe visit the hotel bar or restaurant, then check out at the end of the stay. The hotel is not the destination, but merely a place to sleep. With Airbnb, travelers can choose where to stay based on the appeal of the location, making it an essential part of the journey and a major element of the fun of travel.
6. It has a new hospitality cash collection model that is lucrative.
Airbnb’s payment model is different from hotels, which typically require full payment upfront. With an Airbnb reservation, booking fees are paid upon making the reservation, then the additional fees are deferred until the stay is complete. Additionally, service fees are distributed between the traveler and host, as opposed to forcing the host to pay for everything like with a traditional hotel. This makes hosting more appealing and is an equitable arrangement for both parties.
7. It has a strong and consistent core executive team.
Airbnb has been fortunate from the beginning to have its three founders as part of the leadership team, and one that is building for the long-term. Having this stable core leadership team remain the same over time ensures that Airbnb will stay true to its original vision, which has already resonated with travelers and has proven itself to be a viable business model while allowing for expansion in other ways.
8. People want to work there because it fosters a “commitment” culture of belonging and love among its employees.
The culture at Airbnb has a reputation for being like a family. It is known to be the opposite of the ruthlessly competitive culture at Uber or the partying culture at WeWork. When one of the founders had to announce a 25% workforce reduction due to COVID-19 in May 2020, his voice cracked when he told the employees that “I have a deep feeling of love for all of you. What we are about is belongs, and at the center of belonging is love.”
9. It is now a public company with access to cheaper funding for expansion.
Airbnb went public in December 2020, giving it access to a lower cost of capital from the public markets to fund its growth initiatives. This makes it less reliant on private investors, which also allows it to operate more independently and focus on its customers instead of pleasing bossy private equity bankers focused on their own ROI. Going public has also given Airbnb credibility and an enhanced public image with the public.
10. It has a strong gross margin for a young company still investing in product development, sales and marketing.
Hotels typically have much smaller profit margins than Airbnb because they carry the burden of the operating costs all by themselves. For example, the hotel building itself, all the supplies and materials, consumable costs like food and utilities, and staff. With Airbnb, the costs are carried by the hosts, with very little “inventory” attributed directly to the company. This allows the company to focus more heavily on its marketing and operational model, which can create faster avenues for growth.
11. It offers a venue for more than just vacation stays.
People travel for more than just vacation as an individual or family. Travelers can also book larger gatherings on the platform, or make longer reservations if they need to travel for work. It can also be ideal for those looking for an extended stay, particularly those that are traveling across the state or even international lines.
12. It makes the most of its marketing presence.
While most companies rely on marketing strictly to target the end-user, Airbnb targets both the host and the traveler. Some of its channels create the same type of travel inspiration as other sites, promoting the benefits of using an Airbnb host instead of a hotel. On the flip side, it also targets potential hosts by promoting the benefits and potential for those that have space to open for travelers. Each channel is connected to others with strong success in driving clicks and calls to action.
13. It offers customer rewards and specials.
Loyal veteran customers can take advantage of higher tiers of service. For example, Airbnb Plus locations have been checked and verified to offer premium features like larger bathrooms, kitchen spaces, and increased luxury. Travelers can take advantage of dedicated customer service representatives for these stays, and hosts can apply to be listed as Plus sites for a nominal fee in order to gain this exposure.
Airbnb Collections are another listing option that allows users to search by the type of travel they want to engage in, such as vacation, work, family, or the event they will host (weddings, dinner parties, etc.). Another option is Experiences, which pair your accommodation with outings, attractions, and more.
1. Airbnb faces developing regulations and legal issues as the law catches up to its platform.
A lack of clear regulations regarding home stays helped Airbnb expand rapidly when it first started. Now, however, legal requirements for opening homes and privately-owned property for commercial gain have created some issues for hosts and travelers alike.
Many local and state ordinances can mirror those required of hotels and motels, preventing more casual hosts from simply opening their doors to anyone. Some of these requirements can be quite strict, preventing some potential hosts from applying.
2. Lack of quality control for hosts
Part of the draw for Airbnb is that travelers can find accommodations nearly anywhere, but with no standards for quality control, the level of comfort or cleanliness can vary wildly. Hotels at least have some corporate standards to follow, which creates a uniform experience no matter the destination. With Airbnb, hosts are not required to meet any “brand” standards, meaning that unique experiences can also suffer from a less-than-optimal host environment.
3. Simplicity of business model makes it easy for other market entrants to copy.
The beauty of the business model’s simplicity can also be its downfall. It’s a simple format: anyone can post their space as available, and travelers can choose from any location. The ease of entry opens this model to imitation, and since there aren’t as many regulations on the corporate entity, it is not difficult to open a new crowdsourced platform.
4. Some hosts charge high prices.
Pricing is, in most cases, dictated by the host. While some charge just enough to cover the costs of utilities and other basic needs, other hosts who consider their space a “premium” destination may charge more than their space is truly worth. And when pricing is inflated to be comparable to hotels, Airbnb loses one of its major competitive advantages.
5. There is a lack of a cohesive marketing plan.
Due to the crowdsourced nature of the business model, Airbnb lacks a cohesive marketing strategy. It is largely based on destinations where hosts are clustered, and it also tries to appeal to both hosts and travelers alike. This can split the effort required to make a larger impact.
6. Searching online for accommodations will usually not bring up Airbnb as an option.
Another way the marketing strategy struggles to make a maximum impact is through search engine optimization (SEO). Users will only get Airbnb in their top search results if they search for Airbnb directly, as opposed to the destination or accommodation type. Many of the top slots are taken by hotels and travel agencies that have invested in SEO so they can rank on the first page of Google.
1. Continue upselling the travel experience.
Airbnb’s main appeal is in making the accommodation part of the experience, not just a necessity because the traveler needs a place to sleep. Appealing to the uniqueness of a person’s stay will be critical to maintaining Airbnb’s allure, beyond the simple cost savings.
2. Expansion of its services.
While the current business model focuses strictly on accommodations, Airbnb could expand its offerings to include other compatible options like air travel, car rental, tickets for attractions or activities, and more. This would allow it to create a full destination package, which could be the next step in its evolution.
3. More people working from home post-COVID-19 presents long-term apartment-like rental opportunities.
While this may seem like a short-term opportunity, it does present a wider avenue for growth. Since many people may now shift to a more permanent work-from-home structure, travelers may be open to spending extended periods at other destinations and working remotely from that new destination.
Airbnb could begin appealing to hosts who offer longer-term rentals to meet this demand, in addition to its more traditional vacation-style stays. This provides a getaway experience for someone who is working remotely and offers increased income potential for hosts.
4. Continued global expansion.
Airbnb has yet to expand in some worldwide markets, especially emerging markets. Taking advantage of the opportunities across the globe as an early entrant into the travel segment can be a powerful opportunity for growth.
5. It could increase the power of its mobile app.
Like many modern services, Airbnb offers a mobile app for travelers to make reservations from anywhere, even in the midst of their travel experience. Investing heavily in a seamless mobile experience will make its product more accessible to more travelers.
6. It can tailor its marketing to increase its market penetration.
Much of Airbnb’s uniqueness comes from the eclectic nature of the spaces it offers. It can further take advantage of what sets it apart by engaging in niche marketing campaigns targeted toward particular segments of travelers. This can make them feel like they are engaging in a catered experience, creating an air of exclusivity.
1. There is uncertainty regarding the current and future legal framework.
Local and state governments continue to shift the goalposts on what is required for a private property owner to rent out their space. The changing nature of legal requirements can make it difficult to put a space up for rent on Airbnb, and potential hosts need to do their homework if they plan on hosting.
2. The list of competitors is notable.
Competitors like Vrbo, FlipKey, TurnKey, Plum Guide, and others compete directly with Airbnb’s business model of offering unique spaces directly to travelers. Additionally, sites like Booking.com and Hotels.com offer deeper hotel discounts than are available to travelers who book directly with hotel chains. These two segments can undermine Airbnb’s chief advantages of cost and uniqueness.
3. It faces lawsuits (welcome to the business world).
Airbnb is vulnerable to lawsuits from hosts who use its platform. For example, some hosts have sued Airbnb because it did not repay cancellation fees, and county governments have attempted to garner tourism taxes from Airbnb like it would a typical hotel. Other typical issues like discrimination against hosts and travelers may also arise.
4. Airbnb has inherent physical safety issues with its business model, which increase its legal exposure.
Though Airbnb has added new rules to improve safety after a shooting at an Airbnb Halloween party that left five partygoers dead, the company is under the constant possibility of its travelers being harmed. Even if violent parties are not the culprit, there may be other issues. For example, Time magazine reported that many Airbnb properties do not contain smoke detectors, carbon monoxide detectors, fire extinguishers and first aid kits.
5. Hotels are catching up to Airbnb’s millennial appeal.
Hotel chains are also becoming better attuned to what travelers are looking for. They have begun listing certain properties as extended stay locations on platforms similar to Airbnb, and are looking for other creative solutions to a grassroots competitor that is more nimble.
Airbnb has many advantages, particularly its appeal to cost-conscious and location-savvy travelers who are looking for unique accommodations to complement their destination travel. It also offers revenue options for hosts, although it can be difficult to legally set up a destination space due to the local requirements. All this being said, Airbnb has still seen an explosion of growth over the past few years, and has the potential to continue its upward climb toward the success typically reserved for larger hotel chains and other more established brands.
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