AirBNB Business Plan
AirBNB Business Plan
AirBNB Business Plan
Innovationtactics.com
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Key partners
Key partners are not easily replaceable. They contribute significantly to the
success of the company and influence its future trajectory.
1. Hosts are the supply side of the Airbnb platform. They bring their
homes/units to the table. Achieving a critical mass of supply and
variety of choice is important for the customer value proposition.
Airbnb has two types of hosts:
■ Rental hosts offer houses, units/condos, rooms, and
more exotic stays, such as castles, igloos and more.
■ Event hosts offer to guide through local experiences,
food, art, fashion, nightlife, etc.
2. Investors/venture capitalists bring the initial rounds of funding to
the table. The funding helps with developing the functionality, apps,
algorithms, but also for acquiring customers. Investors bring down
the (weighted) cost of capital (WACC).
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Non-key partners are those where Airbnb have several options with
comparable offerings to choose from. This doesn’t mean the service non-key
partners are providing is unimportant:
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Cloud providers (and many other tech API providers) are not key partners if
they provide easy-to-replace commodities (unlike a few years ago). Airbnb
has acquired a number of small tech companies that may end up becoming
key resources if they contribute significantly to Airbnb’s growth.
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Key activities
The network effects are the moat (i.e. competitive advantage) of platform
businesses. The key activities should revolve around improving positive
network effects and reducing negative ones.
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Key resources
The key resources of a platform business are the network effects. In this case,
those between hosts and guests. Airbnb is a great example for this. Airbnb
hosts are providing places to stay, events, recommendations what to do at the
locations. Not every host does all and that is not required. On aggregate, the
hosts make their destinations (and thus travelling as such) more attractive by
indirectly collaborating. This is a great example that the total is larger than the
sum of the individual parts.
The value propositions listed in the next section unfold their strength with the
networks effects.
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Value proposition
Your platform needs to create value for the supply (=hosts) and demand
(=guests) side of your platform.
Airbnb creates value propositions on (at least) three levels (apart from the
financial value):
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This is how the value propositions for the hosts looks in more detail:
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■ getting guests
■ payments, etc
3. Experience of meeting new people (if desired)
4. Guests are already ID checked, plus ability to review guests ratings
5. Calendar, booking management through Airbnb
6. Insurance coverage through Airbnb (hosts still needs an insurance
for certain items)
7. Other host service providers (non-affiliated 3rd parties) from
cleaning only to full management
Some of the value propositions for the guests (demand side) are:
1. Convenience of booking
2. The amount of choice and variety of types of homes
3. The proposition to experience the destination more authentically
4. Tons of authentic information about the destination city (selected
large cities)
5. Often cheaper than comparable sized hotel rooms
6. Units and especially houses with several bedrooms
7. Cashless transaction
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Airbnb is adding value propositions to both sides that hotels will struggle to
compete with. Compare Airbnb events to the old-fashioned flyers you find in
some corner in hotel foyer.
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Customer segments
I recommend you see both the supply as well as the demand side as a
customer even though on some platforms only one side pays. On Airbnb this
is clearer as both sides pay (see below in “Revenues” section).
■ Guests:
■ by travel type
■ business travel guests; leisure travel
■ tour of multiple destinations; single
destination stay
■ by demographic
■ single; couple; family with children
■ age brackets
■ pre or post retirement
■ by income bracket
■ by interest*
■ Hosts:
■ by type of accommodation provided
■ Room; unit/condo; house
■ by home/location
■ country; city
■ by location type
■ countryside; suburb; metropolitan
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* Airbnb and anyone else will be able to target you very well if you log in there
with your Facebook account.
These are still very macro segments. All data-driven companies, like Airbnb,
create much more micro-segmentation that should be much more valuable
than the above traditional segments.
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Customer relationships
The most important consideration on this dimension is to firmly own the
customer relationship and to keep it within your platform. Airbnb has poached
many customers from Craigslist in their early days. The business travel
platforms (Concur, Flight Center, see above) and Airbnb will have careful
provisions in their contracts and the customer data that they share to avoid
“leakages”. You might say they are very different platforms but what about
losing customers to hotels via the travel platforms or to other short-term rental
platforms that may collaborate the travel platform in future?
Customer relationships to the supply side (the hosts) will be mainly defined by
what the platform does for them in terms of income while protecting their
property from bad guests.
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There is no field for key stakeholders in the business model canvas. This
category is very important for platforms. They are an emerging phenomenon.
As such, the public opinion has not yet fully formed and it will significantly
influence your customer’s view of your platform.
I have already covered lobbyists and influencers as key partners. But here we
need to talk about the public as such.
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Channels
Channels for the initial awareness and customer acquisition are:
1. Most transactions are fully automated through the app and web
pages
2. Signing up through the web pages or the app
3. Airbnb uses emails & notifications to engage, stimulate
participation, referrals, reinvigorate/recover customers (through
special offers, reminders, etc)
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Cost structure
Airbnb’s most important cost elements are:
I have not distinguished between capex and opex but you can see there are a
lot of growth-related costs. The capex components will taper down as the
company matures barring, of course, new growth endeavours.
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Revenues
On the surface, Airbnb makes their revenues by charging hosts and guest a
service fee per transaction:
Other short-term rental platforms (e.g. VRBO, HomeAway) charge a listing fee
rather than per transaction fee. This is a different pricing model.
1. Guests pay a 2-3 times higher fee per transaction than hosts. This
has to do with supply and demand of hosts and guests and with
incentives. Hosts are harder to get as there are fewer people who
have a spare room/unit/house and are willing to rent it out
(repetitively) to (potentially untrustworthy) strangers. Guests, by
comparison, save money (=incentive) compared to hotels.
2. Hosts pay 3% transaction fees if they select a flexible cancellation
policy, 4% for a moderate and 5% for a strict cancellation policy.
Basically, they pay more for certainty (though they may miss out on
bookings from people who prefer flexibility). If you are offering a
home that is vastly popular, you can more likely afford a strict
policy and even pass the additional costs onto the guests by
charging a higher price. Airbnb incentivises hosts to opt for a more
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Cost recoveries
Airbnb passes some of their costs directly onto their customers (beyond
operational costs plus margin).
■ Airbnb passes Google paid search costs onto the hosts whose
space is being booked through ads. Host are opted in by default
but can opt out but wont be listed when the potential guests gets
onto the Airbnb pages through a paid ad.
■ Airbnb offers professional photography of rental homes in selected
cities for a fee.
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■ There are cleaning (and hosting) service providers for Airbnb listed
properties. These are not affiliated with Airbnb but promise to
comply with the Airbnb service standards.
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Any revenue consideration needs to take into account that the offered
accommodation on Airbnb plus all Airbnb fees needs to be lower (or at least
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1. Room: In this case, the hosts rents out one room only. The
amenities (kitchen, bathroom, etc) are shared. The marginal cost
for the host is directly correlated to direct costs by the guest,
incremental heating, electricity, internet usage, etc.. There are two
typcial cases:
■ The host never had the intention to rent this room out in
the classical rental model. In this case, any net income
(minus tax) is additional income. And the host does not
even need to worry how often the room is occupied and
can take it how they feel. This is a common case.
■ If the host has rented the room out on a permanent
basis before and is keen to obtain a higher income
through the Airbnb model, then the utilisation and
transaction cost differences play a role. The host will
surely be able to get a higher per night rate through
Airbnb. But they will need to do at least a minimum level
of servicing of the room themselves after each guest.
And they will also have more gaps say over a monthly
basis. However, on an annual average basis, things
may be different assuming that getting a long-term
rental may cause larger gaps in-between tenants. Cost
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As you can see it is very complex. But Airbnb needs to understand the above
and what motivates hosts to offer their spaces on Airbnb. It is not all pure
financial considerations. And all that I have listed above plays a role in
motivating hosts.
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The question will always be if a platform can create enough cumulative value
for its participants so that it can extract sufficient value for itself. The cost base
for the participants (hosts & guests) is at the heart of the revenue question for
the platform.
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The Airbnb business model canvas (click image for high resolution)
Download the Airbnb Business Model Canvas [pdf] and/or as Powerpoint file
Airbnb Business Model Canvas [pptx].
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Valuable links
I have more in-depth articles in this series of travel platform businesses:
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