The Mechanism of Airbnb

The economy based on sharing has come out as an alternate supplier of services as well as goods traditionally provided by long-term establishment industries. In this essay, the economic impact of the sharing economy will be studied with reference to Airbnb, which is a prominent platform for short-term accommodations. It enables consumers to lease or to rent short term lodging which consists of apartment rentals, hostel beds, home stays, hotel rooms or vacation rentals. The company receives a service commissions from the hosts as well as from the guests with respect to every booking (Airbnb.co.in. 2017). It is a growing company with operations in 191 countries. The essay will also throw light on the impact of the lodging website, Airbnb on the hotel industry followed by the industry`s strategy to overcome the threat.

The mechanism behind Airbnb is that it can be accessed through websites or mobile application. The registration is free of charge. The guests and the host are charged at the time of booking with a minimal rate of 6-12% for guests and 2-5% for the host. In case the host wants to offer experiences to the guests, an additional commission of 20% will be charged (Edelman and Luca 2014). The user can customize their search for lodging and book a place using their mail and number. The guests need to abide by the rules of the hosts. In some cases, a photograph of the lodging will be provided to the guest who can even ask questions with respect to the property.

The `stranger danger` obstacle has been overcome by Airbnb building a certain level of trust between guests and hosts. It enabled this by making user profiles so that both the parties can learn about one another. After stay, the guest is required to provide a feedback, which is taken seriously. The company provides insurance known as host guarantee against damage due to vandalism and theft (Einav, Farronato and Levin 2016). The company also has a 24-hour service hotline, which can be accessed in case any suspicious activity is detected. The two parties can message privately before the reservations have been made. The payments are made on online secure systems. The Airbnb account can be linked to social networking accounts such as Face book and this helps the other party to obtain relevant data.

The service has various options like Neighborhoods and wish list which take in the wishes of the guests and suggest lodgings accordingly. A group of three groups of friends, Joe Gebbia, Brian Chesky and Nathan Blecharczyk, found the company. The idea was born when Joe and Brian decided to put an air bed in their living room and changing it into a bed and breakfast to earn some extra money (Farajallah, Hammond and Pénard 2016). Nathan Blecharczyk later joined them and together they formed a new centre called Airbed and Breakfast.

Systematically, the company obtained funds to grow their business. By March 2009, the site had 2,500 listings and 10,000 users. It was in the same year, when the name of the company became Airbnb.com. The company expanded from shared spaces and airbeds to a variety of properties, which included entire homes, castles, tree houses, private islands other properties (Fradkin et al. 2014).

Airbnb’s Success and Fundings

It has received funds from various sources including Grey lock Partners and Sequoia. February 2011 marked one-millionth booking of Airbnb since its inceptions. In 2012, Airbnb declared 10 million nights booked, which was double of their business 5 months earlier. Along with the acquisitions, the company launched its international offices in Hamburg and London respectively. As the users increased, Airbnb opened offices in cities like Moscow, Milan, Paris and Sao Paulo. The Airbnb acquired London based rival called CrashPadder (Geron 2013). With this acquisition, Airbnb became the largest lodging website in the UK. To keep up with its CSR opportunities, Airbnb collaborated with New York City Mayor to offer free housing for people displaced by Hurricane Sandy.2013 marked the 9 million guest’s services for Airbnb, thereby adding 250,000 properties. 2014 saw the launch of a new logo and design revisions of mobile application and website. Airbnb became the first company to expand its operations in Cuba. As a promotional event, Airbnb sponsored the Manor F1 team in 2015. In the same year, Airbnb indulged in a partnership with Tesla Motors to provide chargers at some host houses (Guttentag 2015).

The year 2016, bought in some troubles for Airbnb. The Federal Trade Commission started an investigation with respect to Airbnb and its impact on house costs. The government of New York also signed a bill against Airbnb for violation of local housing laws.  The Luxury treats international is the company’s latest addition.

The lodging broker company has come in a long way since its foundation in 2008. The website has tried to expand its operations by collaborating with the transportation industry and taking cab services like Uber under its wing (Jefferson-Jones 2014). A SWOT (Strength, Weakness, Opportunity and Threat) Analysis has been provided in the Appendix.

 The company`s target market is every traveler who wants to adopt a cheap and cultural way of lodging. This ranges from families, students, singles, couples to large groups. It also provides and income source to hosts who rent out their places. The simple revenue model from the commissions is hassle free.

This has affected the Hotel Industry extensively worldwide (Ke 2017) This Company has turned out to be a great threat to hotels, as travelers prefer to opt for independent hosts rather than hotels.  The Hotel Association came up with a report given by the HVS Consulting and Valuation on the financial impact of the lodging website on the hotel and hospitality industry. The report focused on New York`s industry. According to the report, the hotels are losing out approximately $450 million (Zervas, Proserpio and Byers 2014). The period between September 2014 and August 2015, witnessed that around 480000 hotel room nights were booked while 2.8 million rooms per day were reserved on Airbnb. It was estimated that the bookings of Airbnb will reach the 5 million per year by 2018.

From the above it can be clearly stated that the vacational lease site has diminished the customer demand for traditional hotels. This has lead to wide scale unemployment in the industry. Over 2800 jobs directly lost to the rental company (McNamara 2015).

Airbnb’s Target Market

Apart from loss from no bookings, hotels are missing sales on the bar and restaurant counters as well approximately $88 million on food and snacks and $20 million for beverages. This also leads to loss on the government`s part due to reduced taxes received from the hotels.

It is not a hidden fact that the hotel industry has been greatly affected by the growth of Airbnb. The industry has already lost on millions of dollars and on thousands of employees (Newlands, Lutz and Fieseler 2017). To combat against this, the hotel industry must unite and strategize a plan to provide a strong competition to Airbnb. They had formulated in 2016 which was a national approach at all levels. The hotel industry has taken Airbnb as a serious threatened is ready to take stringent actions against it.

The peak event and festival time is the most profitable for hotels in general where they gain the maximum profit, which they are missing presently because of Airbnb. The hotel group is intended on short sheeting the middle-income group people to maintain price-gouging consumers. They have attained more than 250 government partnerships over the last year, and have portrayed seriousness with respect to fair rules (Seamans and. Zhu 2013).

The hotel group stated that it should focus on its key markets that include San Francisco, Washington, Miami and Los Angeles. The industry has decided to unite with neighborhood associations and affordable housing groups. The shall also intensify their relationship with the hotel labor unions who have suffered greatly because of Airbnb. It has formulated a budget of $5.6 million for the regulatory purposes. In its current report, the association stated that it had worked with Elizabeth Warren of Massachusetts, Senators Brian Schatz of Hawaii and Dianne Feinstein of California with regard to the short-term rental industry (Sheppard and Udell 2016).

They have discussed the matters with legislators as stated earlier to discuss the non-compliance of rules by Airbnb. The association so far has been able to attain victory in Chicago, Los Angeles and San Francisco where initiatives to look into the legal matters with respect to Airbnb has been taken.

This year the association plans to fund more research, which is anti-Airbnb and has launched a campaign in association with the people who were not satisfied by their home sharing experience. This effort has brought about some positive results as some Airbnb hosts had been disrupted. This is because; the politicians were successful in convincing people that renting out homes was just increasing the cost of housing (Zervas, Proserpio and Byers 2015). A TOW Strategic matrix has been provided in the appendix 1.

Therefore, from the discussion it can be said that Airbnb started its services approximately ten years back and has gained considerable market share in this time. It has given a serious competition to the hotel industry and has been successful in bringing down their revenues by millions. The hotel association has not taken this well and has invested millions in trying to get the lodging website under regulatory troubles. Thus, in order to succeed and maintain its growth, Airbnb has to strengthen its legal position and combat the attacks by the hotel industry.

Reference List:

Airbnb.co.in., 2017. Vacation Rentals, Homes, Experiences & Places – Airbnb. [online] Airbnb. Available at: https://www.airbnb.co.in/?logo=1 [Accessed 13 Nov. 2017].

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Geron, T., 2013. Airbnb and the unstoppable rise of the share economy. Forbes, Jan. 23, 2013. https://www. forbes. com/sites/tomiogeron/2013/01/23/airbnb-and-theunstoppable-rise-of-the-share-economy.

Guttentag, D., 2015. Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector. Current issues in Tourism, 18(12), pp.1192-1217.

Jefferson-Jones, J., 2014. Airbnb and the housing segment of the modern sharing economy: Are short-term rental restrictions an unconstitutional taking. Hastings Const. LQ, 42, p.557.

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McNamara, B., 2015. Airbnb: A not-so-safe resting place. J. on Telecomm. & High Tech. L., 13, p.149.

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Seamans and F. Zhu., 2013. Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers. Management Science, 60(2):476493.

Sheppard, S. and Udell, A., 2016. Do Airbnb properties affect house prices (No. 2016-03).

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Zervas, G., Proserpio, D. and Byers, J.W., 2014. The rise of the sharing economy: Estimating the impact of Airbnb on the hotel industry. Journal of Marketing Research.