Managing Innovation in Airbnb

This report examines Airbnb's innovation strategies, focusing on Schumpeter's Creative Destruction and Clayton Christensen's Disruptive Innovation models. It analyzes how Airbnb has implemented these theories to disrupt the hospitality industry and explores future pathways for the company, including the use of machine learning and augmented reality. The report provides a detailed account of Airbnb's journey, its business model, and its pricing strategy, highlighting how these factors have contributed to its success.

MANAGING INNOVATION
IN AIRBNB

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
Theories of Innovation...........................................................................................................1
Task 2...............................................................................................................................................5
Implementation of innovation theories to recognise future pathways in Airbnb...................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
A volatile business environment can be a challenging place for an organization that is
slow in adapting to changes and implementing them in its daily course of operations. Hence, it is
vital for firms to be agile in accommodating new technologies, ideas and procedures by
employing continuous innovative activities across all levels. Innovation can be defined as
evolution of existing ideas, thoughts and process in a way that provide better solutions to the
customers for meeting their existing or newly developed needs. This project report focuses on
innovation models, creative destruction and disruption, and gives a detailed account of their
application in Airbnb for managing innovation in the business. In addition, the report also
provides a critical analysis of how the business has been managing innovation and recommends
possible future development pathways for Airbnb in regards to its products and services offered
to their customers.
Task 1
Theories of Innovation
Although new, the concept of innovation has been relevant and popular among all types
of organisations ranging from small business to large ones and private entities to public or
voluntary ones (Bolaji, A. L. A., and et.al., 2013). Over the years many innovation models have
been introduced that help in analysing different aspects of this concept. In relevance to Airbnb,
following innovation models have been chosen to critically evaluate the managing practices
adopted by the company in regards to innovation:
(a) Schumpeter's Creative Destruction:
An entrepreneur is one who identifies gaps in existing process, products or services
offered by an organisation in relation to evolving customer needs or preferences and develops as
well as implements new ideas that completely demolish existing state of affairs and creates more
value. The concept of creative destruction heavily depends on this definition of entrepreneurs as
the driving force for any changes in the business. It also aims to provide the reasons behind
innovation and its growing importance in recent times.
Propounded by Joseph Schumpeter in 1942, this model defines innovation as a
phenomenon of 'creative destruction' where existing enterprise process are replaced with new
and innovative dynamics (Brail, S., 2017). These may be related to macroeconomic variables

such as business performance, internal structural changes occurring in the firm and operational
strategies adopted to target various markets. This model looks at innovation as a type of internal
change in the genesis of existing operational frameworks present in an organisation that
ultimately leads to new process, products and services.
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Apart from this, Schumpeter also focused on discovering as well as analysing the
relationship between the size of a firm and its ability to innovate. The model points out the fact
that traditional companies tend to be overshadowed by introduction of new technologies,
marketing and business models eventually leading to their extinction if such changes are not
adopted by them.
In present case scenario, innovation can be equated with the aforementioned theoretical
framework in the sense that more innovative business models, products or services replace aged
and redundant models, products or services (Dagli, C. H. ed., 2012). An example of such
destruction can be observed in the success story of online entertainment streaming giant, Netflix,
that has created a wave of destruction in regards to how audiences use mobile technology and
internet to fulfil their media content necessities. Additionally, introduction of online media
platforms changed the viewership style and preferences of the viewing audience in a way that
resulted in a complete extinction of Videotape, Disc Rental and Cable TV Industry. Employing
strategies such as cheaper pay-TV and direct streaming of media content has led to increase in
content variety offered to its viewers.
Additionally, this model also focuses on the enhancement of productivity in the internal
process of an organisation especially in the case of job creation (Dedehayir, O., Nokelainen, T.
and Mäkinen, S. J., 2014). This means that if creative destruction eradicates existing operational
frameworks of a business, it also creates new structural models, thus, resulting in creation of jobs
that did not exist prior to such changes. For instance, introduction of iPods and iPhones by Steve
Jobs helped global audience realize the simplicity and ease of listening to music and using
electronics such as mobile phones in an innovative manner,thus, creating needs for these
products and popularizing them. This resulted in expansion of business to meet the increasing
demand for iPods and iPhones thus creating job opportunities for more workers. Although it is
important to note that the workforce must be willing to welcome changes and adapt to new
careers and skill-sets to implement current standards (Freeman, A., 2014). Hence, this model
must not be taken in a negative sense owing to its name as its purpose of implementation is to
create value for the customers and increase productiveness for business. On the other hand,
destroying jobs for the sake of creativity should be heavily discouraged and must not always be
equated to innovation (Gailly, B., 2018). Only those changes that simplify or enhance the
productivity in a way that was not perceived earlier by anyone must be considered as innovation.
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However, one should not delve into the notion that this is a phenomenon which is
probable in nature of its occurrence. It should be kept in mind that creative destruction is
important, almost imperative, to the survival of an organisation in the business environment. In
simpler words, it means that the concept of innovation must be given maximum weightage at all
times to ensure successful transition of an organisation into a global institution.
(b) Disruptive Innovation Model:
Creative Destruction Model suggested by Schumpeter in 1942 and Disruptive Innovation
Model propounded by Clayton Christensen in 1995 must be confused to be the same side of a
coin (Khodayari-Rostamabad, A., and et.al., 2013). While the former talks about overall changes
in the process and its effect on productivity, the latter focuses on the alterations introduced by an
organisation that are largely technology-based with their source of origin creating new markets
altogether for consumers. However, both models are open innovation based concepts involving
highly uncertain outcomes. The word 'disruption' means 'activities that interrupt an ongoing
event, activity or process'. Thus, a disruptive innovation refers to technology-backed changes
made in the business environment that significantly affect the way a market or industry responds
or functions. Introduction of computers, advent of Internet, Artificial Intelligence and Internet of
things (IoT) are some of the most prominent examples to theory of innovation. However, these
innovations must not be confused with disruptive technologies as they focus on how the
technologies have been utilized rather than introducing a method of technology altogether.
Clayton proposed that a business could utilize two types of technologies. One which used
a predictive time-frame and allowed the enterprise to improvise its operations in a sustainable
manner, thus, ensuring that the company does not lose its competitive advantage at any given
point of time (Lee, Y., 2017). These type of methodologies came to be known as Sustainable
Innovations. The second form of technology proposed by Christensen indicated business to use
interruptive yet integrated innovations that were smaller in detail, unidentified by competitors
and were radical in nature. These type of methodologies were known as Disruptive Innovations.
As a company needs to innovate by identifying future needs and preferences of customers by
carrying out proper forecasting and planning activities in current period, it is important for a
business to look at those ideas and creative thoughts that are sustainable and not too complicated
(Liu, C., Kude, T. and Mithas, S., 2015). This model, therefore, defines disruptive innovation as
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a situation where accessibility to existing products or services increases to a market which was
not able to buy these offerings before change occurred.
These situations of interruptions arise when incumbent organisations focus heavily on the
improvement of existing product lines rather than introducing new ones for their customers. This
results in overlooking of certain areas that could be improvised on their part thus creating a gap
for certain sect of people.
New players or entrants identify these gaps, create a solution based on the preferences of
people being affected by it and are able to create disruption in the market for established
businesses at an aggressively economical price. This provides the entrants with an opportunity to
create a different market for themselves in an already established industry eventually leading
others to follow in pursuit. Once this pursuit starts in bulk from other competitors, one can say
that a disruption has occurred in that industry. Essentially a disruption innovation can be
characterised with lower bottom-line profits in initial stages along with a simplified assortment
of business solutions offered to the customers that may or may not be as appealing as their
existing counterparts. It should be noted that all disruptive innovations may not be radical or
effective in nature as these innovations are difficult in execution and are not applicable in every
market.
A popular instance of interruptive innovation can be that of Uber,founded in 2009, who
identified the gap trends prevalent in the present transportation industry of United States and
promptly achieved the recognition for its business model. It consorted to providing chauffeur
services to riders at the comfort of their smart phones through an application. This innovation not
only created a disruption in transport industry but also created a new way of looking at how
customers could use their mobile phones to ease the process of hailing a cab when they needed
one at the most.
Therefore, one must keep in mind that this model looks at innovation as an ongoing
process rather than a phenomenon introducing new technologies to resolve a given or new
situation based problem. It should not be confused with introducing new ways to utilize already
existing technologies as they are not disruptive in nature and do not create an effect capable of
declining the competitive edge of incumbent organisations (Mitchell, J. B., 2014).
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Task 2
Implementation of innovation theories to recognise future pathways in Airbnb
Air Bed and Breakfast or Airbnb has been a disruptive innovator since its inception. The
company was founded in 2007 by Brian Chesky and Joe Gebbia in San Francisco to raise rent
money for their apartment. Its business model mainly focuses on providing online lodging
services through websites and smartphone applications giving their users a vast variety of
accommodations options to choose from. Initially started with a website in 2008 called
Airbedandbreakfast.com the company eventually shortened its name to Airbnb. However, the
company does not own any of the accommodations listed on its websites or applications
providing only a platform for lodgers and hosts where they can meet, agree and transact. Instead,
it works on a commission of 3% charged from hosts for every booking which differs for guests
usually ranging between 6% to 12% of their bookings. The product offerings mainly comprise of
airbeds and shared spaces that include homes, apartments, private rooms, castles, boats, manors,
tree houses, tipis, igloos, private islands and any other kind of lodging facility one could
imagine. The business provides amenities such as Airbnb Plus that offer more than 300 villas to
the lodgers around the world. Apart from this, it also offers an experience feature which allows
hosts to offer their guests tours and events such as surfing, food & drink, nature and concerts in
addition to lodging facilities. Recently, Airbnb Work feature has been added to its website which
provides a comfortable work as well as living environment to executives that are frequently
travelling due to business or other work-related reasons. This feature includes top-rated homes
and boutique hotels that give a team-building exeperience as well as enhance collaboration to
work groups. When it says team-building, the company provides opportunities for co-workers to
connect outside office by encouraging them to volunteer for group activities such as ramen-
making class or canoeing lessons. Collaboration-induced work environments are also offered to
business guests by providing them with off-site workspaces that can be rented for a day or more
and are designed to give fresh perspective to the work-teams.
As far as its journey goes, by 2014, the company had launched its own mobile application
for both apple and android users as well as a new logo. Additionally, it had expanded its services
in home cleaning segment by entering into a partnership with Handybook that could be used by
guests in three cities. Also, it ventured its operations in liability insurance, providing protection
to hosts and landlords associated with the company from any kind of property damage done by
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the guests. As one can figure out from the above mentioned milestones of Airbnb, the company
has adapted rapidly to evolving customer needs by continuously altering its product offerings,
methods of booking and options available for guests to choose from.
The main reason for popularity of Airbnb can be attributed to a variety of factors such as
its appealing business model, pricing strategy and ease of use. However, one of the factors that
has largely contributed to its success is the pricing strategy adopted by the business to attract
customers all around the world. Airbnb is able to offer high quality accommodations in a wide
variety of places and prices. The company charges a few pounds a night to hundreds for local as
well as prime locations which would otherwise be expensive for a budget traveller. Another
factor which has contributed to its commercial prosperity is the appealing business model. The
business model of Airbnb has proved to be highly disruptive in nature. As mentioned earlier,
disruptive innovation includes a situation where an entrant is able to recognize a gap, earlier
overlooked by established firms which would be capable of causing creation of new markets as
the gap included a whole different sect of people with unfulfilled needs (Najmaei, A., 2012). The
company has been able to implement the concept of shared economy and internet of things to
back its business model requirements. These concepts have created disruptive technologies in
recent times by creating a global platform for audiences which only requires them to go online,
look for what they need, decide the price and get the desired product or service. For instance,
Airbnb allows hosts to list their otherwise vacant properties on their platform for prospective
lodgers at a predetermined price, thus benefiting themselves, the company as well as the lodger.
People attracted to Airbnb mostly included budgeted travellers, work-related travellers like
executives, work-groups, etc. Therefore, the customer base of this organization differed with that
of incumbent hospitality organisations such as Marriott, who is known to provide premium
services to its clients. Additionally, the guests are able to have a wholesome experience in
regards to the place, culture and people of that particular area. Hence, it can be said that the
company implements disruption model of innovation at its core using low-cost, low-value
solutions to the customers by developing shared platforms for users to meet and transact based
on their likings and budget constraints. The company has evolved employing technology based
features as and when the need has arisen. For instance, it added virtual tours for its users that
included actual images of the property so that the prospective clients would have real
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expectations regarding the quality of place, service and amenities provided by the hosts based on
their budget.
As far as constructive destruction model of innovation is concerned, Airbnb has recently
employed Machine Learning to improve matching in marketplaces. Machine learning is a term
used synonymously with Artificial Intelligence application in an organization. As the theory
states, constructive destruction includes overall changes in process and structure of an
organisation that completely renovate the older frameworks on which the company once
operated (Nunes, L. B., 2016). Machine Learning is one such framework. The existing booking
strategy implemented by Airbnb included a marketplace booking model which operated on
Search-Click-Buy system but the new matching model would provide preferences to both the
host as well as the guest. Hence, it will operate on Search-Click-Booking Request-Accept or
Reject system, where, if the request is accepted by the host, the booking will come through for
the traveller otherwise they would have to look for some other accommodation options. This
model would employ linear regression and ranking models by using the log data and attributes
and generating results thereof. Using Artificial Intelligence to generate information on
customer needs and trends has been quite popular in recent times. These synergies with
algorithm have altogether demolished the use of market research to collect data and then derive
results from them. Thus, altering the techniques used by organisations to obtain large databases
for creating strategies, models and new products or services. Airbnb has an online marketplace
model, hence its important for the business to employ responsive algorithms that not only spot
trend in purchase behaviour of the guests but also provide a data-pool on hosts that has yet to be
targeted by Airbnb. For pricing strategy, the company has employed models that recommend a
custom price for every night and predict price trends by varying the loss generated from nights
when no bookings were made, in an asymmetric manner.
Therefore, managing innovations through implementation of disruptive technologies such
as artificial intelligence and virtual reality, Airbnb has been able to create a distinct place among
its competitors in lodging sector on a global scale.
CONCLUSION
In order to manage innovations in the company, Airbnb has been able to employ
algorithms for determining trends, spotting fads as well as potential markets for both hosts and
lodgers. The above report provides an in-depth analysis of theories of disruptive innovation as
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well as constructive destruction and their implementation in Airbnb's core business and data
models historically as well as in future. Based on this analysis, it can be concluded that Airbnb
has a bright future in regards to the future development of its product offerings, especially when
it comes to providing budgeted workplace and lodging solutions for its users. The company can
employ the power of augmented reality and artificial intelligence in not only matching
marketplace for hosts and guests but can also provide experience based on these technologies
helping customers delve into other guests' experience at the same time they came in contact with
it.
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REFERENCES
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