How Does Airbnb Make Money?

As a peer to peer network, Airbnb allows individuals to rent from private owners for a fee. In fact, Airbnbcharges guests a service fee between 5% and 15% of the reservation subtotal;While the commissionfrom hostsis generally 3%. Airbnb also charges hosts who offer experiences a 20% service fee on the total price.

The digitalization happened in the last two decades has facilitated the creation of peer to peer platforms whichbusiness modelsdisrupted the hospitality model that was created in the previous century by hotel chains like Marriott, Holiday Inn, and Hilton.

How much money does Airbnb make?

Airbnbmade $93 million in profitson a $2.6 billion revenues. This means the company net margin was 3.58%. That seems a low net margin compared to the9% from the hospitality industry. However, Airbnb is a startup gaining traction and market share over traditional players. Also, itsbusiness modelis based on the growth of its users base.

How much is Airbnb worth?

In March 2017 the company wasvalued $31 billion. As of that date, the company had $5 billion at the bank, and it rejected an investment offer by SoftBank. Airbnbmight be the biggesttech unicorn IPO in 2018.

What are the key partners for Airbnb

There arethree key strategic partners:

1.Hosts

2.Guests

3.Freelance photographers

There are also other partners, from which it depends on theplatformsuccess, like IT experts, and interior designer.

Guests (travelers) can easily find hosts (pretty much anyone with a private home for rent) through the Airbnb marketplace. Also, Real estate agencies that have vacant units can use Airbnb as a way to rent the excess properties they were not able to renton the market. Instead, freelance photographers can earn a living by joining Airbnb as independent contractors.

Airbnbvalue propositionto its key partners

There are several value propositions for both hosts and guests. And for freelance photographers.

Hosts

hosts to can earn an extra buck by renting additional space they have at home

hosts are provided with insurance and liability coverage, the "Host Protection Coverage."

Guests

The booking process is straightforward and the digitalplatformvery effective

travelers have affordable prices

guests can have unique experiences

For both hosts and guests

The review system for both hosts and guests guarantee standards of quality

For freelance photographers

Extremely flexible schedule, easy money

What is the revenue generation model

Airbnb makes money in two ways:

1. It collects a commission from property owners, which isgenerally 3%. While it collects a commission fee from the same owners offering experiences, which is generally 20%.

2. It collects a transaction fee from guests ofbetween 5% and 15% of the reservation subtotal

What are two key issues to Airbnb success

There are two main issues Airbnb has to face:

Trust

When hosts are listing their rooms and homes, they trust theplatformto put them in touch with good people. The same applies to guests. Would this trust be eroded over time so will be the value of the marketplace.

Customer retention

Travelers nowadays have plenty of options. If they revert back to hotels or other solutions, Airbnb loses momentum. Also, another risk might be that of losing guests that make friends with hosts. In fact, they might choose to organize their next transaction privately. The paradox then is that Airbnb rather that strong incentive tie between hosts and guests. It has to create an experience so that both parties can trust each other enough to make the transaction but not so much to get out of Airbnb marketplace.

Summary and Conclusions

Airbnb is a start-up unicorn that disrupted the hospitality industry. As of 2017, it made$93 million in profitson a $2.6 billion revenues. Also, back in March 2017, it was valued at $31 billion. There are three keystrategy ">strategicpartners: hosts, guests, freelance photographers. The revenue generation model is quite simple and its based on a commission fee of 3% on hosts (while 20% for hosts is offering experiences) and a transaction fee of 5-15% over guests.

Two main risks that Airbnb faces as a peer to peer marketplace are trust and customer retention. The company is growing quite fast, and it is planning to get listed. Will this growth continue?

Questions : (case Airbnb)

1. What is the intellectual property of Airbnb? How can they protect that in this global business environment?