Airbnb Business Model | How does Airbnb make money?

Company: Airbnb
Founder(s): Brian Chesky, Nathan Blecharczyk, Joe Gebbia
Year founded: 2008
CEO(s): Brian Chesky
Headquarter: San Francisco, California
Number of Employees (2020): 6,000
Type: Public
Market Cap (2020): $18 Billion
Annual Revenue (2020): $4.8 Billion
Profit | Net Income (2020): -$400 Million

Table of Contents

Introduction to Airbnb

Airbnb is a private, global company that offers an online marketplace platform for hospitality services. Airbnb is accessible through its official website or by an app. Members of Airbnb can use the platform to arrange or offer to lodge for homestays or tourism experiences.

The following compilation is a business model of Airbnb, providing full insights into the business’s structure and its essence that helps to generate income for the company.

Airbnb’s platform is designed for individuals that are private owners of any listed properties within the 191 countries that it caters. The platform works through a total of 4 million Airbnb listings over the 191 countries, and over 2 million individuals use the Airbnb to gain access to leasing, rental property insights.

The number of listings on Airbnb worldwide increased to over 7 million in 2020, spread across 100,000 cities. Airbnb listings are available in 220 countries and regions. The US has the highest number of Airbnb listings, followed by France and Italy in third place. [1]

The Airbnb platform allows individuals such as “host members’” to host any events as well. Airbnb’s majority of revenue is generated from Host members. Host members are responsible for posting and providing properties/events with specifications. The traveler would be able to utilize the Airbnb platform to view the vast house listings. Majority of the members can book a trip to almost anywhere around the world.

There are approx. 650,000 hosts on Airbnb. According to Priceonomics, Airbnb host makes an average of $924 per month and in some case as high as $10,000 a month.

Currently, Airbnb has hosted over half a billion guests and has more listings globally than the top five hotel chains combined, which has earned the hosts over of $65 billion. On average, American Airbnb hosts earn up to $102 per booked night. [2]

In 2020, the number of hosts on Airbnb worldwide increased to 2.9 million, with 14,000 new hosts joining the platform per month. [3]

Airbnb makes a commission from every booking that is completed. There are approx. 28,571,438 bookings a year, which is approx. 23,810 booking per month.

Airbnb’s IPO listing was scheduled for 2020 and will be one of the largest US stock market listings of 2020. The company seeks to raise around $3 billion from the IPO. [4]

Business Model Canvas Airbnb

1. Customer Segments of Airbnb

The customer segments at Airbnb are wide and categorized in the following;

Hosts – Property owners who offer accommodation and welcome the guest on their property.
Guests – Travelers who are looking for lodging and a great experience while traveling.

And they are further categorized based on preferences such as:

By Type: Individuals, Couples, Family, Business travelers
By Location: City, Sub-urban, Rural
By Price: Inexpensive to Ultra high end
By Space: Studio, Apartment, Condo, House, Cottage, Farm
By Amenities: – Self Check-in, Wi-Fi, TV, Kitchen, Pool, Parking, Iron, Hair Dryer, washer, dryer.
By experience: – Unique, cozy, personable, Scenic view, Cooking class, Hike, Wine tasting, walkable distance to restaurants, city attractions, beach, etc. In 2020, it introduced the new Airbnb Online Experiences that offers activities like virtual bike tours, bartending classes, Korean makeup tutorials, fortune reading, and drawing lessons. All these experiences are conducted virtually via online platforms. [5]

2. Value Propositions of Airbnb

The following are propositions that helped to add value to its members’ (hosts and guests) and the overall company.

For Host:

Simple and secure to publish property listing – Hosts can list any property (commercial/private), as long as it complies with Airbnb policy.
Make extra money by renting out their space to travelers.
Full control of availability of dates, pricing and property rules.
Airbnb provides $1 M home insurance to cover damage or accidents.
Professional Services– Hosts can request a professional photographer for high-quality photographs for their property.
Communication – it’s easy to communication with guest, and there are two – way reviews
Self-check-In: Host can send instructions on “how to enter” and an entry code to the guest via a simple text message or email.
24 * 7 customer support via phone, email and live chat.
Host Airbnb Experiences – Virtual hosts of Airbnb Experiences have been making a lot of money since April 2020, with some earning over $150,000 in one month alone. [6]

For Guest:

Save money – Airbnb is great value for money.
Easy to browse and easy to book – Guests can find and book from over 7 million listings in 100,000 cities from 200 countries. On July 8, 2020, guests booked more than 1 million nights for their stay in the future in a single day. [7]
Get spacious property – which is excellent with a big groups.
Can choose amenities based on their preferences such as kitchen, Pool, washer, etc.
Provides Unique experience for guest instead of staying in the same old hotel rooms.
Airbnb performs a background check on all members (hosts & guests)
Self-check-In option, which makes it easy for guest to check in any time at their convenience.
Secure payment
Use Airbnb’s virtual travel platform called Online Experiences to explore far-flung places, learn about other cultures, and make new friends across the world from the safety of their own home. [8]

3. Key Partners of Airbnb

Airbnb strength comes from a collection of strategic forces that helped Airbnb build its foundation till this very day. Together, the key partners innovate and build brighter future endeavors. One of the most crucial parts of Airbnb starting phases was the number of subscribers that it first got and the type of platform that it provided for both guests and hosts alike.

Hosts – provide travelers with property information and specifications that help travelers make the right decision.
Hosts who offer experiences – provides information and arrange tickets for special events such as kayak tour, cooking classes, wine tasting, hiking, etc.
Investors/ venture capitalists – The investors at Airbnb helped to formulate and shape the structures of the business. Large amounts of research funds and budget are spent on innovating the online platforms and applications to better enhance user experience. Examples of some Investors that have invested in Airbnb are Y Combinators, Sequoia Capital, Google capital, Tiger management, etc.
Corporate Travel partners & Managers – Corporate managers helped to maintain and execute day to day operations and help meet company objectives.
Insurance companies work with Airbnb to secure rental properties for damages and accidents.
Professional Photographer Services – Freelance photographers that make the rental property look amazing with their high-quality pictures.
Governments and Tourism Agencies – Airbnb unveiled a new partnership program in 2020 that will enable the company to work with local authorities, tourism agencies, and NGOs to promote tourism and economic growth in domestic markets. Under the program, it has already partnered with Discover Puerto Rico, Bermuda Tourism Authority, Bahamas Ministry of Tourism, US National Park Foundation, Visit Florida, Visit Denmark, French Rural Mayors, South Korea’s Hadong-gun, and Department of Culture and Tourism in China’s Zhejiang Province. [9]

4. Key Activities of Airbnb

Platform development – Airbnb developers work to ensure that the member can access the platform without experiencing any technical issues.
Engage in Sales and marketing activities to expand the network of Host and Guests
Set up the process to screen the members
Managing bad behaviors and risks – continuously improving rules, improving customer’s soft-skills and influencing positive behavior with hosts and travelers alike.
Protect sensitive information of their members – All information is kept private, and only information that is disclosed is the information member agree to disclose. An example of such could be the specifications of an event or a location for rental.
Maintain Customer Service – Fulfillment and deliverance of what is promised are vitally important, especially for the traveler. To avoid bad reviews and any other negative impression from social media, fulfilling an order is essentially important for Airbnb.
Develop a strategic partnership – for example, Airbnb has partnered with Make-A-Wish and Fisher House Foundation to provide free medical stay to children with critical illness and veterans seeking medical treatment.
Manage Agreements – Aligning contractual agreements to list services in such country helps to promote Airbnb company image and awareness, thus attracting more potential future hosts to be added to the network of Airbnb.
Build Local Economies – Airbnb recently launched the “Go Near” campaign to highlight and direct customers to destinations near them and help build their communities. It has also unveiled new alliances with local governments to contribute to local development. [10]
The value proposition is an element that should be important for every business. Airbnb continuously works to innovate new value propositions to expand its customer base.
Hire and retain employees

5. Customer Relationship of Airbnb

Every member of the Airbnb has access to the following:

Self-Serve Platform – Airbnb’s website and App is the primary tool to access Airbnb services.
Personalized Recommendations – Provides relevant and preferred listings for guests and removes those listings that you may not be interested in. Through simple algorithms and filter preference systems, the platform can generate those listings that travels would be most likely to be interested in.
Customer Service Support – Airbnb ensures to provide exceptional customer services and support, as it is fundamentally vital for travelers.
- Provides essential on-boarding processing assistance
- Acknowledged and manages issues that are related to any accidents, damages, complaints, etc.
- Deploy steps to help resolve customer issues quickly and promptly
- Provides essentials for hosts to succeed – (assistance on “how to”)
- Provides essentials tools and rewards for super hosts. (super hosts are members that host more than five properties or events)
- City Portal – The portal enables local governments and tourism organizations to understand how Airbnb works and support hosts to ensure they keep hosting. [11]

6. Key Resources of Airbnb

The following are the essential resources that helped to formulate and actualize the platform to what it is today:

Airbnb platform and mobile App
Employees – Software engineers, analytic and data scientists
Millions of properties listed on their platform
User-generated content on the webpages including reviews
Captured data and algorithmic systems
Access to venture capital to keep the business excelling and growing
Strategic alliances with local governments, tourism bodies, and NGOs.

7. Channels of Airbnb

Airbnb platform (website and app) is the primary channel through which Airbnb delivers its services to its members.
Platforms like content marketing, media coverage, digital ad campaigns all help to drive the force of interested hosts and travelers alike to Airbnb platform.

8. Cost Structure of Airbnb

The following listed below are cost structure factors:

Platform development and maintenance cost
Infrastructure Cost
Sales and marketing cost
Customer Acquisition Cost
Employee salaries
Cost of capital
Development and maintenance
Credit card processing fees
Insurance cost
Legal and administrative cost
Regulatory cost

9. Revenue of Airbnb

How Does Airbnb Make Money?

The revenue of Airbnb come from two main sources; they are:

Host Fee (Ranges from 3-5%) – Airbnb charges the Host-member a fee for listing a property or event. Such commission is deducted once the listing is completed. And there is a 20% service fee on hosts that offer experience.
Travelers Fees (Ranges from 0-20%) – This is the fee in which a traveler is required to pay for using the Airbnb platform. This includes
- Reservation fees (per room charges)
- Cleaning fees
- Service Fees
- Occupancy
- Extra guest fees
- Currency exchange fees
- VAT / Local Taxes and more
- Online Experiences Platform – Customers pay $19 to join virtual experience sessions like magic shows that last for 90 minutes. Airbnb and virtual hosts of the sessions share the $19. [12]

Conclusion

Airbnb went public in 2020 IPO’s. Airbnb is determined to grow exponentially in the 2021 and beyond after the pandemic. One of the most crucial tactics for Airbnb’s success rate is its ability to provide home listings at a global scale, capturing populations from over 220 countries.

To conclude, Airbnb is one of the most successful platforms for hosting opportunities, in the same aspect, it provides high-quality listings of locations and events for those who are looking to book a getaway.

References & more information