Airbnb Business Model: How Airbnb makes Money?

Do you ever wonder Airbnb’s business model is this a massive success?. Well, if the reply to the above question is yes and in case you haven’t discovered the satisfying response to it, however, do not worry. It had been, initially, only an idea to earn additional money and earn through rent. It’s totally revolutionized how people travel now. Airbnb revenue model is exceptional, gainful and has evolved into such an extent it is ballooning travel industry.

“Cost is the thing that you pay, Value is the thing that you get”- Warren Buffet, this statement says it all how Airbnb works. They focus on just two things; the value they provide and the price they get of the value provided. Well, truth be told before Airbnb swayed individuals to sleep at different houses and turned into a billion-dollar company.

What is Airbnb?

Airbnb is an American Online Marketplace and accommodation brokerage facilitator founded in 2008. Airbnb is a platform where hosts of the property can register their space on the site and get it rented.

Customers who want to rent space can visit the site and choose the space they want. Airbnb rented an apartment are for a temporary purpose, although you can rent the space up to six months under long term rentals. Both the hosts and customers are bound by the terms and condition of Airbnb.

How does Airbnb Works?

Airbnb allows you to rent the property so you can have a home like an experience while traveling.

Letting unknown people at your house was not considered a good idea before Airbnb. Many investors at the start did not want to fund Airbnb due to the varying same reason. After the arrival of Airbnb, the hosts and guests not only consider the idea good but say it’s brilliant.

Airbnb changed the dynamics of the accommodation business and in here we discuss how Airbnb works.

How to be a guest in Airbnb?

You can either be a guest or a host in Airbnb. To be a guest of the property, you must have Airbnb app or you must sign in the websites.

The sign-in is easy and you can create your account in a few clicks. It’s free to create an account on Airbnb.

You can find the listing of properties from 190 countries and 34000 cities in Airbnb. So, there are plenty of places you are bound to like in the city you are looking to visit.

You can find places to rent on the basis of where you want to go when you want to check-in, when you want to check out and how many guests will be staying. If you want to narrow your search, you can do it so by adding more information such as neighborhood location, type of property, price and more. You don’t have to pay until the hosts accept your reservation.

How to be a host in Airbnb?

Not only you can connect with Airbnb as a guest but you can also join them as hosts. If you want your property to be rented for earning a good amount of money, then Airbnb is the way to go.

If you want to be a host on Airbnb then its quite easy. It’s free to post a property for rent on Airbnb. You must accurately describe your property and listing all of its amenities so that it matches your space with the right guests.

If you want your places to look good, you can hire a professional photographer to click photos of your apartment. The prices and availability of the property can be set as per the host’s schedule.

Airbnb gives the host the complete freedom to decide whether or not they want to book to someone. Any damages to the property done by the guest are covered by Airbnb, so as a host you don’t need to worry about your property safety. If you look at the complete package then being a host in Airbnb is a brilliant idea.

Airbnb charges a commission to the guests as well to the hosts. It charges 3 percent commission to the host and charges anything between 6 to 12 percent to the guest.

Airbnb Business Model

 The business model essentially consists of three major components. A business model should be able to define how do you create, capture and deliver the value. Airbnb Business Model defines the customer base of the company, captures the trend and delivers the value to its customer.

People love Airbnb because it’s cheaper and provide a lot of different kind of housing offers that fit the needs of all kind of travelers. It is only possible because of the Airbnb Business Model. Airbnb Business Model is designed in such a way that it provides great revenue to the company and innovative service to customers.

Let’s discuss the Airbnb Business Model and its components in detail:

Customer Segment of Airbnb Business Model

Airbnb started with customer innovation by creating a new market of people who would rent rooms in other people homes. Before the arrival of Airbnb, it was inconceivable to let random people sleep in one of the rooms of your house.

In the initial days of Airbnb, most of the investors were not interested in Airbnb as they thought the Airbnb Business Model was not going to work. Major concern of the investors was people will not let strangers into the house, so it cannot work.

Despite all those doubts about Airbnb, it worked and investors regretted the opportunity they had passed on.

The main problem of this market was due to trust issues because most people were worried about the idea of letting someone else live inside their home. What if they break something in your flat or trash it completely, what if they are crazy and dangerous people are the kinds of normal fear many people still have even with Airbnb.

It was the main challenge Airbnb had to overcome and they managed to do it, thanks to trust by design. They designed their website and built the website in such a way that created trust among the users about the site. The website uses a robust system of identity verification and reviews for both hosts and guests. Airbnb managed to create a community of people that strive to behave nicely to each other. Nobody wants a nasty review about themselves whether it’s for owners or travelers. So, the review system is at the center of the trust solution and this trust was carefully designed by the Airbnb team.

Value Proposition

Any business model should look to create value for its customer base. Airbnb Business Model has also created value for its customer and its trust. Trust was the major reason why people did not prefer Airbnb at the start. But after designing the website with trust, the stock of the Airbnb is on the rise.

Trust by design is the main piece of the Airbnb Business Model which allowed it to grow so fast because everything else is just an obvious advantage.

The fact that the online marketplace creates two main value proposition advantages: prices are lower than traditional hotels and there’s an infinite variety of housing offers. With Airbnb, you can get a house as per your requirement and not just typical hotels rooms with double beds.

You can find exactly what you need as per the number of people traveling with you and housing criteria you are looking for.

Key Partners of Airbnb Business Model

Airbnb is not a real estate rental company but an online market place that puts hosts and guests in contact. So, Airbnb can avoid various real estate and operational cost that hotels have to pay. The key partners for a hotel are online food delivery company, payment partners and customers.

Airbnb does not have its own building and thus its key partners are also different from what hotels have. The key partners for Airbnb are the host of the property. Hosts are the owner of the property; they list their property on the Airbnb website. Airbnb work is to connect a suitable guest for the property with the host. Airbnb charges commission with the host for showing their property on their website. It is one of the sources of income for Airbnb.

Key Activities of Airbnb Business Model

Hotels key activity is hospitality management but for Airbnb, the key activities include Marketing, platform maintenance, customer service, and lobbying.

Airbnb is an online service which connects host and guest, so they need to market themselves in order to be known. Marketing helps to expand the reach of Airbnb. The company prefers to do online marketing as their target customers are also present on the internet.

The other key activities of Airbnb include platform maintenance and customer service. Airbnb is basically an online service platform so it’s a major focus is to maintain the platform on a regular basis. The company focuses on making its website easily accessible, lag-free and easy to use.

Airbnb constantly keeps optimizing the design of its service. It’s very easy to book for guests and all the steps are very clear when you’re browsing the listings. It’s also extremely easy for hosts to list units, start renting and do all kinds of operations on Airbnb platform such as collecting deposit fees for example. So, all of this is design innovation. It is important to reduce the number of obstacles for people to make a purchase.

As of today, another important activity for Airbnb is dealing with local legislation. Hotel is pressurizing legislation to limit Airbnb vacation rental market. Airbnb is looking to settle this for some time now, hopefully, it will be over soon.

Key Resources of Airbnb Business Model

When there is the talk of disruption– the name of Airbnb pops out as the example. Airbnb disrupted hospitality service market. It needed resources to disrupt and build the market. The key resources of the Airbnb Business Model are People, Host communities and Brand.

People are the major resource for any organization and in Airbnb scenario, they are the most important resource for the organization. Airbnb is dependent on Hosts and guests to earn revenue. The presence of both these aspects is most for Airbnb to Succeed.

Brand of Airbnb and the host community created by Airbnb to gather the trust are other key resources of the organization.

Channels of Airbnb Business Model

• The website and the app of the Airbnb are the two Channels of Airbnb Business Model.
• Guests and Hosts can use both the platform to get or provide services via Airbnb.

Customer Relationship

Airbnb maintains customer relationship by building the community. The company relies on trust, as the hosts have to trust strangers to live in their house. By creating a community of hosts, Airbnb makes sure in making people behave nicely in another people’s house. The damage done by the guest is paid by the Airbnb. So, the hosts don’t have to worry about any damage to their property and they can entirely focus on the service aspect.

Cost Structures of Airbnb Business Model

• Airbnb spends a huge amount of money on marketing its service. Marketing is important for Airbnb as it spread awareness about Airbnb service and also bring customer to the company.
• The other expenditure of the company involves the maintenance of site and property. A website should be maintained regularly as it is the medium which connects hosts and the guests. The other maintenance is of the property- if the guest damages the property of the host.
• Airbnb constantly needs to fight the legislation. Hotel in some places want restriction and Airbnb needs lawyers to lobby for them in those places. So, the cost structures also involve legal expenses.

Revenue Stream of Airbnb Business Model

Airbnb has come a long way, once the founders had to sell cereals in order to keep the company running and now it has a valuation of over $ 25 billion. It is one of the most popular unicorn startups in the world.

The growth of the Airbnb is due to a huge amount of revenue generated by the company over the years. We all know Airbnb generates massive revenue but only a few know the source of revenue. So, let’s find out how Airbnb generates revenue.

How Airbnb makes Money?

Airbnb makes money from the booking of the property. The owner of the property lists his/her property on the website. Guest who is looking for a room can book the property from the host.

Airbnb is an online market place which connects hosts and the guest so, it earns revenue from both the hosts and guests. It charges a commission on booking of the property.

Hosts of the property are charged 3% percent commission on the booking whereas the guest is charged anywhere between 5 to 15 % commission on the basis of property they book.

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