Airbnb Business Model : How Does Airbnb Make Money?
The Airbnb business model is based on connecting travelers and hosts across the world. It builds trust between property owners and short-term renters. If you are a traveler you must heard about Airbnb or even used its services. With time Airbnb has developed itself as an online marketplace where owners of space can list their property (even a single room in the house) to rent and find people who need a place to stay.
The story of Airbnb starts in 2008 when two friends put together three air mattresses and put them up for rent. They put together three air mattresses and put them up for rent to pay their own rent. After doing this successfully they realized the potential of this successful idea and decided to take it to a larger level, this is how Airbnb came into existence.
Airbnb became an online giant within a few years and now it is a fully digital platform and offers vacation rental services via app and website. The notable thing is after being a US$78 billion company still Airbnb doesn’t own any property and only connects owners and short-time renters and that’s all. It makes this business model interesting and worth investing in.
What is Airbnb and how does it get started?
Airbnb basically a service beneficial for both travelers and local owners. Unlike rental properties where owners rent their abandoned homes or spaces, Airbnb allows owners to rent their primary residences. This platform is used by travelers looking for a homey feel and a local connection at every location of the world they visit and by owners looking to increase their income while staying in their comfortable home environment.
Airbnb ensures safety and builds trust in exchanging goods and services among owners and travelers. Its in-depth review system helps travelers safely find accommodations for their lodging needs. They can find safe spaces to sleep, rest, food, and shelter using the Airbnb app and website. In the online marketplace, individuals trust reviews to safely choose quality services before making a purchasing decision. Airbnb fosters this trust by allowing owners and travelers to post reviews based on their mutual interactions. Currently, Airbnb has 6.6 million+ active listed properties on its platform from more than 200 countries. This allows it to offer lodging facilities to 1.4 billion guests offered by over 4 million hosts.
Journey of Airbnb
The journey of Airbnb was started in 2008, when two friends Brian Chesky and Joe Gebbia were financially broke and looking to raise money to pay rent. For this, they further rented out three mattresses in their apartment to attendees of a conference in San Francisco because all the hotels were booked as it was peak time. They named their services Air Bed and Breakfast (Airbnb later). This idea helped them in paying out their rent. They realized the potential of this idea and decided to take this idea further. Within a few years of starting this small experiment created a hotel industry disruptor platform, known as Airbnb, which now operates in over 200 countries.
How does Airbnb Work for Travellers and Owners?
- The process initiates from the hosts’ side, they simply download the Airbnb app and list their property for short-term rent along with related information and the asking price.
- Based on location, Airbnb sends a photographer to the location to record high-quality images of the place. This part is essential as it going to offer the first impression to the guests. If images are not high quality and professional guests can simply overlook it or scroll down.
- Traveler accesses the app and search for a property in a preferred location and within a specific budget.
- Once done, they can reserve the place for any specific dates available without having contact with the host.
- Travelers can pay the fee to Airbnb which includes transaction fees. The hosts must agree with the rent.
- If everything goes well, the traveler stays in the rented space and Airbnb pays the host after deducting its commission.
- To make the platform more trusted and valuable both host and traveler can rate the experience and write reviews.
- A similar process is followed at all Airbnb listings offered across 200+ countries around the world.
Who Owns Airbnb and Impacts Its Decisions?
Airbnb is owned by its co-founders Brian Chesky as CEO, Joe Gebbia as CPO, and Nathan Blecharczyk as CSO. However, after its IPO in 2020 number of its stakeholders increased. Currently, Vanguard Group, FMR LLC, Capital Research Global Investors, and Blackrock Inc. have all made investments in Airbnb.
Individual stakeholders also hold an estimated 11.28% of Airbnb shares. On the other hand, mutual fund holders have about 35.69% of the company’s shares. Since individual holders hold a lesser percentage of shares, in Airbnb institutional holders have an influence on the company’s decisions.
What is the Growth Plan and How Does Airbnb Make Money?
According to its mission statement, Airbnb aims to create a world where anyone can belong anywhere. To complete this mission Airbnb not only has to push its limits in the global market but also needs a huge money to lead the market. The mission drives the enthusiasm behind generating new ways to earn through its most successful vacation rental business. Airbnb is looking to develop itself as a platform that can handle every part of travelers’ trips which would help it diversify its revenue streams.
Currently, Airbnb depends on its short-term rental business where its revenue comes from three main sources:
- Commission from Host: However, hosts can list their properties on the platform for free, with each booking Airbnb deducts 3 to 5% of the amount charged as commission. Additionally, if a host offers special events and activities to attract travelers then Airbnb charges a 20% commission.
- Fee From Traveler: Along with property rent Airbnb charges 0% to 20% of the booking amount from travelers as transaction fees. It varies with property and place. This is another promising way for Airbnb to generate revenue.
- Host-Only Fee: Airbnb charges hosts who list traditional hospitality listings, such as hotels and apartments, or software-connected hosts differently. However, this fee is not applicable in the US, Uruguay, and Canada. This charge is usually between 14% and 16% but can be higher for hosts with Airbnb plus listing and a strict cancellation policy.
What is the Business Model of Airbnb?
Airbnb’s customer base holds various sections explained below.
1. Customer Base: Airbnb Business model’s customer base consists of hosts (property owners who list their property on the platform to offer accommodation to travelers) and guests (travelers who are looking for a stay, and other lodging services locally).
Hosts and Guests are further categorized based on types like Individuals, Couples, Family, Business travelers, etc. Airbnb also differentiates them on the basis of location, price, and space type (house, cottage, farm, apartment. etc.). Moreover, based on the experience and amenities these places provide such as Self Check-in, Wi-Fi, TV, Kitchen, Pool, Parking, Iron, Hair Dryer, washer, dryer, Unique, cozy, personable, Scenic view, Cooking class, Hike, Wine tasting, walkable distance to restaurants, city attractions, beach, etc.
2. Value Propositions: Propositions that helped to add value for Airbnb members (hosts and guests) and the company include simple and secure property listing, making extra money by renting out their spaces, full control of availability of dates and pricing, $1 M home insurance to cover damage or accidents, professional photographer for high-quality photographs for property, let hosts and guests easily communicate, and two-way reviews.
Additionally, hosts can allow travelers to self-check in by sending instructions on how to enter along with an entry code. Hosts can also connect to Airbnb’s customer support helpline 24*7 via phone, email, and live chat.
On the other hand, guests (travelers) can also save money by choosing local hosts instead of expensive hotels, and can easily find and book from millions of listings from 200+ countries. Moreover, they can choose amenities based on their preferences such as a kitchen, Pool, washer, etc. Airbnb values guests’ experience and developed a business model that lets guests have a unique experience instead of staying in the same kind of old hotel rooms.
Both guests and hosts are always concerned about safety during their night stay. To ensure safety Airbnb performs a background check on all members. The self-check-in also adds great value to the platform as it offers travelers an option, that makes it easy for them to check in any time at their convenience. Additionally, the payment is secure on the platform ensuring travelers’ safety from any type of fraud. Airbnb’s virtual travel platform lets guests explore far-flung places from the safety of their own homes.
3. Key Partners: Key partners of Airbnb are its real strengths that helped Airbnb build its foundation to this very day. Airbnb together with these key partners innovates and builds a successful ecosystem. These key partners involve hosts – providing travelers with property information and experiences such as kayak tours, cooking classes, wine tasting, hiking, etc.
Also, the investors at Airbnb are the backbone of the company and provide it with resources that help formulate and shape the structures of the business. A huge amount is needed for innovating cutting-edge technology for the platform and ideas that work to enhance user experience. Some of the investors that have invested in Airbnb are Y Combinators, Sequoia Capital, Google Capital, Tiger Management, etc.
However, Airbnb’s business model has disrupted the traditional hospitality industry but it also fostered a sense of belonging and adventure for travelers worldwide. It is growing and adapting to changing travel trends. Airbnb would remain a prominent player in the global travel and accommodation market with a mission where it is to make the world a place where everyone can truly belong anywhere.
If you are a business in the same domain and want to develop an Airbnb-like business model or create an app at the global or local level, contact experienced app and website developers. From business guidance to web development, they have got you covered.