Integrated Capstone Project: Analyzing Airbnb's Growth and Strategy

This integrated capstone project provides a comprehensive analysis of Airbnb's business strategy, focusing on its diversification efforts, risks, and challenges. The project begins with an introduction to Airbnb, its product and service offerings, and the roles of guest and host users. It then delves into Airbnb's diversification strategy, examining its goals, risks, and implementation within a multi-business corporation framework. The project identifies and analyzes various issues and problems faced by Airbnb, including government actions, implications of fair housing, taxation, and resistance from the hotel industry. It explores recommended solutions to address these challenges, providing a detailed understanding of Airbnb's growth and market position. The project highlights how diversification, while offering growth potential, also introduces complexities that require careful management and strategic adaptation. The document also offers a comparative analysis of Airbnb's diversification strategy with other companies, such as Canon, Walt Disney, and Virgin Group, to highlight the general diversification of strategies. The project concludes with a discussion of the potential impacts and challenges of Airbnb's diversification, providing insights into its future development.

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INTEGRATED CAPSTONE PROJECT

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EXECUTIVE SUMMARY
Every business has a potential to grow as well as clear chances to wind up
with the losses. There are many factors both external and internal that define the
success of the business. What matters here is a conscious plan to execute in present
and anticipation of possible threats and opportunities. These challenges are
multiple, when the business is new with the new product or new service. The issues
and concerns are direct multiples to the regular business. Though the new business
management is enough conscious and flexible, there are continuous threats from
the new competitors, who negatively get affect, from the growth of such business.
Diversification strategies and multi-business corporations do further multiply the
challenges and a strong desire and passion to do the business will respond and
receive all challenges and convert them to opportunities.

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Contents
INTEGRATED CAPSTONE PROJECT.............................................................................5
INTRODUCTION...............................................................................................................5
BACKGROUND.................................................................................................................5
Airbnb..........................................................................................................................................5
Product and Service.....................................................................................................................6
Guest User...................................................................................................................6
Host User.....................................................................................................................6
Coordination................................................................................................................7
DIVERSIFICATION STRATEGY.............................................................................................7
Goal..............................................................................................................................8
Risks............................................................................................................................9
ANALYSIS OF MULTI-BUSINESS CORPORATION............................................................9
Advantages..................................................................................................................9
Disadvantages............................................................................................................10
ISSUES AND PROBLEMS...............................................................................................11
Positive Actions from Governments..........................................................................................15
ANALYSIS OF ISSUES....................................................................................................15
RECOMMENDED SOLUTIONS.....................................................................................16
REFERENCES..................................................................................................................17

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INTEGRATED CAPSTONE PROJECT
INTRODUCTION
Every business has the potential, when the product or service serves its
potential customers, with genuine usage. However, the same applies to the other
businesses, especially, competitors. Eventually, something more than the genuine
product development and market is required and that is business forecast and
anticipation of legal amendments (Global News, N.D). On an overall, fluctuations
are natural and consistent performance and expansion of the business becomes the
key aspects. The project has considered and taken the example of Airbnb and it’s
international growth strategy.
BACKGROUND
Airbnb
Airbnb is a lodging privately held company, founded in August 2008, by the
founders, Brian Chesky, Nathan Blecharczyk and Joe Gebbia, in San Francisco,
California. The company offers hospitality service, through peer to peer rental of
property. The company operates with the income of $450 million and revenue of
$2.6 billion, by the year 2017. The total net income gained is $93 million, by 2017,
serving worldwide with hospitality operations, with 3,100 employees.
Airbnb, an American company, operates hospitality service and online
marketplace to rent or lease short term lodging, such as hostel beds, holiday
cottages, homestays, hotel rooms, for people, especially travellers, all over the
world, to facilitate or participate in experiences relating to tourism, like walking
tours, restaurants reservations, etc (Sikich & Chris, 2017). The company provides
such services as a broker and does not conduct any tours and does not own any real

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estate. However, it earns its revenue by receiving a fee from percentage service, in
conjunction with every booking done.
Airbnb having offered lodging to the participants and travellers stands as a
potential example of collaborative consumption and sharing. The website of the
company has completed more than 4 million of listings for lodging, covering 191
countries and 65,000 cities and facilitated check-ins of over 260 million.
Product and Service
The Airbnb produce and service can be accessed through mobile Apps for
iOS, Android, Apple Watch apart from its website. Account creation and
registration can be done by the users, for free of cost. The product is associated
with both the guests and hosts of lodging. When the guests utilize the service, they
are charged with 6 to 12% of fee and hosts are charged with 3 to 5% of fee of
hosting service. The company allows the hosts to add ‘experiences’ to the guests
and these are charged with 20% of the commission to the company (Dia &
Hannington, 2018).
Guest User
A guest can search for the facility of lodging in the website of Airbnb.
Specific search can be attempted with variety of filters, starting from price, type,
location, dates, etc. He or she must provide his or her valid details of telephone
number, photo, payment information, email address along with the name. A scan of
valid identity card, issued by government should be provided, if the host requires
it.
Host User
Host initially, has to login and can create a listing and only be live, after he
or she is willing and ready to publish. Host has the independence to set various
prices, for different stays, like night, day, monthly, weekly etc., and has flexibility
to modify and adjust the pricing according to the season. Hosts in addition provide

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the description about the residence, available dates, amenities, policies for
cancellation and other rules set by him or her that to be agreed to by the guests.
Hosts are advised to provide the residence pictures of lodging that is offered.
Coordination
Hosts can be contacted directly by the guests, through messaging, directly,
through the company. The host can accept the request by enabling ‘instant book’,
automatically and the booking is further accepted or denied by the guest. Once the
reservation is done, meeting times and contact information can be coordinated by
the host with guests.
DIVERSIFICATION STRATEGY
Diversification strategy is a major and potential corporate strategy
implemented usually, with the intention of entering into new industry or market, in
which the specific business does not operate currently and new product is created
in the same industry. As the business is new, it is the most risky section, since the
new idea and business strategy has no experience and difficult to predict the
requirements and potential of the market. The key and primary concern here is that
the product, which is new, is unsure of becoming successful or not (Kane & Laura,
2017). Airbnb has implemented diversification strategy and is made clear from its
varied and new product and in the wider international market.
Diversification stands as one significant and main strategies of growth, out
of four such strategies, according to Market or Product matrix defined by Igor
Ansoff’s.

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Figure: Four Significant Growth Strategies
Diversification by Airbnb is a challenging strategy among the four, since it
demands new knowledge and skills in the development of product, along with
simultaneous new insights into market behaviour. Diversification strategy by
Airbnb demands new resources that include new facilities, new technologies to
expose to higher risk levels of the organization. Diversification hence has higher
potential of demand and risk and ideally, the strategy would be successful, when
the products have enough tendency to stimulate or create new markets, to promote
new product innovation in the markets.
Diversification strategy and product diversification involves new products to
add or introduce either being marketed or manufactured. Diversification strategies
also include new markets or products internal development, licensing of new
technologies, importing or distributing a product line, acquisition of an alliance,
firms with a complementary company. Generally, combination of these options
becomes a final strategy for many new and innovated business operations. And
such combination is determined in function of consistency and available
opportunities with the resources and objectives of the company. Airbnb has
performed all these tasks to ensure that the strategy of diversification is in course
to proceed with.

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Goal
Diversification by Airbnb has the goals, basically in two dimensions. The
first dimension of goal is related to the nature of the strategic objective, which can
be either offensive or defensive. Defensive is usually, because of spreading the
risks to diversify when the current market orientation or current product provides
no further growth opportunities and related to the market contraction. Offensive
diversification reason is towards new positions conquering, promising increased
profitability, compared to the opportunities of expansion. Airbnb has the goal in
offensive dimension, as it threaten the business and even existence of the small
hotel businesses, in large number of countries.
The second dimension of goal is diversification expected outcomes, such as
either growth and profitability or great coherence with activities, done currently.
Airbnb proved it with profitability.
Risks
Among the four significant strategies, diversification strategy has got highest
risk level and demands investigation to be highly careful, because it needs jumping
into a new and unknown market, dealing with unfamiliar service or product.
Eventually, the Airbnb, the home-sharing company puts itself into a great
uncertainty (Austen & Ian, 2017), initially, when the operations are commenced. In
addition to that diversification may also necessitate important financial and human
resources expansion that may detract sustained investments, commitment and
focus, in the core industries.
Having considering the risks associated with the divergence strategies,
chances of success can be measured by conducting different tests, like cost-of-
entry test, attractive tests, better-off-test. Though there are many companies,
including Airbnb, which have attempted the diversification strategy to introduce

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new products or services, a few good examples to mention and remind are as
follows.
1. Canon diversification into office equipment, which is completely new range,
from its regular camera production
2. Walt Disney moving to theme parks properties, from production of animated
movies
3. Virgin group moving to mobile phone and travel from music production
4. Apple moving to mobile devices from personal computers
ANALYSIS OF MULTI-BUSINESS CORPORATION
Multi-Business Corporation is the one, which deals with multiple
businesses, either related or unrelated to the existing businesses. Such business
corporations have to deal with the multiple strategies and multiple business
operations. MBC has got many advantages and certain disadvantages too (Bort &
Julie, 2018). Airbnb is proved to be Multi-business Corporation dealing with the
multiple businesses, like home sharing, walking tours, making reservations with
the existing businesses with multiple strategies.
Advantages
1. The risk of investment is reduced to a greater extent.
2. It can create a capital market, internally, in case external market is not well
created.
3. It can obtain growth of earnings, by acquiring new and newer companies
Disadvantages
1. The cost of management increases, because of the additional layers
2. Accounting disclosure is a bit difficult tasks, as they cannot there cannot be
separate accounting managed for each of the business. It makes the

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investors, managers and regulars harder to manage analyze and hide the
issues.
3. Trading can be done at discount rate, to the overall business individual
value, because investors may win diversification on their own through
purchasing multiple stocks, simply. The whole becomes then worthless,
rather than the total parts’ sum.
4. Clashes in culture can destroy the entire value.
5. Innovation development can be prevented by inertia.
6. Inability to manage, lack of focus unrelated businesses equally well
7. Too big to fail
8. Dilution of brand, where the loss of brand, its association with the price,
product area, cachet, market segment or quality.
Airbnb is assumed to be a multi-business corporation, as it has acquired
many other companies and businesses. Airbnb has acquired Acceleo, a German
company, acquired Localmind company, in December, 2012. Localmind is a
company with another business function, like a platform for question and answer,
based on the locations, online. Airbnb partnered to offer chargers, at some of the
houses of the hosts, with Tesla Motors company. Airbnb is also into the restaurant
reservation booking business. Later the company acquired Luxury Retreats
International company, based out of Canada and stands as a largest acquisition till
now, in February 2017. Travel accessibility company, Accomable, has been
acquired by Airbnb, in November, 2017.

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ISSUES AND PROBLEMS
Airbnb, having started into a new industry, in one way a parallel industry of
hotel and lodging and in one way, a completely new industry, where the individual
house owners, or the public becoming key stakeholders, and incur profits, by
sharing their housing space, it has gone through many issues and resistances, from
small hotel businesses to government, at macro level. The issues are many and are
listed as follows (Aichner & Coletti, 2013).
1. Implications and discrimination of fair housing
2. Terms of use and privacy
3. Transparency of pricing
4. Review system for guest
5. Israeli settlement boycott
6. Affordability of housing
7. Taxation
8. Resistance and concerns from the hotel industry
9. Government actions towards short-term rental and Airbnb
Here, most of the issues are anticipated and natural for the new businesses,
like, which are initiated by Airbnb. However, actions by government are somehow
serious issues and concerns the company has to consider to make certain
adjustments to cope up with the new actions, rules and regulations made by the
government (Julia & Rob, 2016).
There are multiple legislative bodies in all over the world, which have
attempted to mitigate the Airbnb effects, by passing legislations accordingly.
1. A new law has been passed in San Franscisco, in the year 2017, regarding
Airbnb and demanded its hosts to register with the city, prior to their

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initiation to rent the units. And these units should rented for less than 90
days, in a single year.
2. A new zoning code is created in Portland, in 2016 for reulating rentals of
short-term and also included many limitations, like capping of multiple
bedrooms to turn into a single unit, from its list. Portland also ensured to
dedicate some party of occupancy taxes of Airbnb to turn to affordable
housing (Tun & Thiha, 2015).
3. A city draft ordinance is released by Santa Monica, in 2016.
4. There have been certain restrictions and interference in the ownership of
private property, in Indiana state, in 2017, there is a certain relaxation to
limit the interference of the municipalities from the interference, banning the
municipalities to do so, with the hosts of short-term rental house owners of
Airbnb. The relaxation from the interference, is because that it violates
internet law, which don’t allow the platforms of internet to be punished by
law, as the user or host gets failed to comply with the laws that work locally.
5. Santa Monica and San Francisco have passed strict regulations on Airbnb,
while the New York City has completely banned short-term rentals having
30 days limit or lesser. The same ban is again passed by West New York and
New Jersey, in January, 2017.
6. Government of Vancouver forced certain restrictions and regulation against
hosting of Airbnb, in November, 2017, claiming to protect the market of
long term rental, stating that it has been just above availability of zero. It has
passed a new regulation to allow only the principal residence to rent, by the
hosts. It also demanded the hosts to have paid license along with the
maintenance and acquisition fee, insisting to display the number, when
listing rental space. 3 percent of voluntary transaction fee has to be
implementing for every unit of reservation.

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Response from Airbnb
Airbnb has responded to such restriction and negotiated the benefit. It
claimed saying that it was unable to pay such fees, as it is unable to collect
this fee, instead the company has requested for a new amendment to allow to
pay it, in the form of hotel tax.
Response from Hosts
This new amendment was criticized by certain hosts of rentals, as it would
deprive of the income needed much by them.
However, Airbnb considers challenging the move, supporting them that
many home spaces of family are saved for their relatives and friends and
regardless, the same is not for long term rental availability in the market.
7. Government of Toronto, in December, 2017 also has put a similar restriction,
banning from their basements and other units of non-residential element
units, leasing through separate entries, for short term rentals. The
government has argued that it is all to protect the market of long term rental.
Additional fees and licensing are demanded for continuing the hosts to short
term renting.
Response from Hosts
Some of the hosts, especially, who relied on Airbnb as the source of income
have criticized this move. One of these hosts also pointed and criticized the
control of the government over their property is related to be like living in
the Soviet Union’s Stalin era (LaGrave & Katherine, 2017).

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Response from Airbnb
Airbnb is responded with realistic response, like in one way welcoming fair
competition in the rental market and at the same time, mentioning that
economy of Toronto has been growing to be a global hub and listings have
been part of this benefit. Other argument made by the company is that many
local residents are getting benefited from the company, for living expenses
and extra income.
It is a clear indication that the new business has created new economy, by
increasing the income of the public and also has challenged the methods and
models of the older businesses. The company emphasized that Toronto can
benefit from this new business ideas and styles. And it continued to
encourage continuing to host with rentals with external spaces along with
the owned spaces. An interesting and worth noting point here is that Airbnb
has added 292 million dollars into the economy of the city (Masnick &
Mike, 2016).
8. Strict regulations have been enacted by European cities, like Berlin,
Barcelona and Paris, on Airbnb and with strict laws and violated resulted
with heavy fines.
Positive Actions from Governments
Though there have been strict, unfair laws and regulations imposed by
several governments, especially, in the tourist prone cities, there are also
governments that have welcomed the services of Airbnb. Some of them are London
and Amsterdam. Amsterdam has implemented in February, 2015, a cooperative
effort, incorporating rentals tourist tax, with Airbnb and the company has agreed to
ensure that the potential hosts would become aware of the rules and regulations

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required. An amendment has been passed by the London government for housing
legislation to allow the rentals of short-term for up to maximum of three months of
duration in one year, in March 2015 (Slodysko & Brian, 2017).
Another welcome of the services is experienced from European Union, as it
has warned against the banning to share the Airbnb alike businesses sharing, and
suggested to impose only moderate regulations, if needed and to go for outright
bans only as the last resort, towards better public interest. European Union’s
guidelines are advocated by European Commission, on sharing businesses
regulation and also warned that massive revenues, estimated to be around 28
Billion Euros, generated across Europe.
ANALYSIS OF ISSUES
When diversification strategies are concerned the following can be analyzed.
Among the three kinds of diversification, conglomerate, horizontal and concentric,
Airbnb diversification strategy is of horizontal, as it is more suitable compared to
the other two kinds. it is horizontal diversification, because the company
introduces new service or product that is commercially or technologically
unrelated to the current services or products, but does appeal definitely for the
current customers. This strategy makes the company to dependent more on the
chunk of segment of travellers’, who move to farer places, especially.
The company, being Multi-business Corporation and adapting diversification
strategies, have gone through many fluctuations and disturbances while
progressing. The disadvantages mentioned in the above sections, of Multi-business
Corporation, along with the advantages of benefiting from the brand keep growing
the company with the other products and services in parallel. Both the
diversification strategy and multi-business corporation have been combined to
come up as double challenge simultaneously, for Airbnb. Competition from the

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existing market, which gets seriously affected, such as long term rental market, has
been intensified and reached the highest levels of authority in respective
geographical areas, to control and resist. After exploring and recording all the
issues and concerns of Airbnb, apart from its success to increase its business and
revenue to grow almost vertically, to $2.6 billion, by the year 2017, it shows that
divergence strategies are the sources and causes for all these issues. And Airbnb is
firm in expanding the businesses to many more countries crossing 190 and
approaching to 200 and the revenue is growing with constant pace.
The challenges of unpredictable issues from the new business product from
diversification strategies are somehow mitigated with the strength of public
support, as the revenue of the public has got a big potential to grow. And the
challenges arise from the multi-business corporation have been somehow mitigated
by the international laws for internet usage and internet users.
RECOMMENDED SOLUTIONS
The primary recommendation and suggestion that can be made at this point
of time is to foresee and predict the future issues and attempt to make the
adjustments and preparations accordingly. Yes, it is a vague and subjective
recommendation and solution. Hence, it needs further micro level
recommendations and the most important one is to explore more and more for deep
local knowledge. For example, Airbnb has targeted China, as a potential home
sharing country, since the country spends more than 100 million dollars in travel
and tourism and this business has become five times more, from the last five years,
in China. Hence, having local knowledge and understanding the attitudes of
Chinese can help developing the newer growth strategies. Another important
solution against the issues of regulations raising from the governments of
respective counties can be to have tie up and healthier relations, in fact monetary

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relationships, like paying the taxes, giving a small share of percentage in the profits
to the respective governments to ensure support from them. So far, Airbnb is
available in 30 languages and has got access by the travelers and home owners in
191 countries, however, the number of languages has still to be increased, for
wider and faster access, along with translation and localization services. The issues
regarding the regulations usually stem from the insufficient security practices and
also threats to the competitive businesses. So, it is important to set very tight
security practices. However, it may result in taking back step by the home owners
because of the longer and tough security practices. Airbnb can provide detailed
guidance and benefits from such practices.
REFERENCES
Aichner, T. & Coletti, P. 2013. "Customers' online shopping preferences in mass
customization". Journal of Direct, Data and Digital Marketing Practice
Austen, Ian, 2017. Vancouver Limits Airbnb, in an Effort to Combat Its Housing
Crisis. The New York Times.
Bort, Julie, 2018. Airbnb made $93 million in profit on $2.6 billion in revenue, but
an internal clash sent the CFO out the door. Business Insider.

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Brennan, Morgan, 2011. The Most Amazing And Absurd Places For Rent. Forbes.
Choudary, Sangeet. (N.D.). The Airbnb Advantage. TheNextWeb.
Dia, Hannington, 2018. Banning Airbnb in West New York: After complaints, town
adopts ordinance banning short-term rentals. The Hudson Reporter.
Donia, Benhura, 2016. Strategies to Improve Sales Volume.
Global News, N.D. Concerns by Saskatoon hotels over a level playing field with
Airbnb - Watch News Videos Online. Global News.
Heather, S, Levine, Dan 2017. Airbnb, San Francisco settle lawsuit over short-
term rental law. Reuters.
Julia, K, Rob, D. 2016. EU backs sharing economy in boost for Uber and
Airbnb. The Guardian.
Kane, Laura, 2017. Vancouver bans short-term Airbnb rentals in laneway homes,
basement suites.
Kerr, D. (N.D.) Airbnb gets free rein in Arizona thanks to new law. Cnet.
LaGrave, Katherine. 2017. 8 Cities Cracking Down on Airbnb. Condé Nast
Traveler.
Masnick, Mike, 2016. Cities Rushing To Restrict Airbnb Are About To Discover
That They're Violating Key Internet Law. Techdirt.
Reyes, Alpert, E. L.A. lawmakers are still wrestling with how to regulate
Airbnb. Los Angeles Times.

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Rider, David, 2017. Basement apartment owners unhappy with city ban on Airbnb-
like rentals. Toronto Star.
Sikich, Chris, 2017. Indiana House passes bill to protect Airbnb rentals. The
Indianapolis Star.
Slodysko, Brian 2017. Indiana Considers Prohibiting Cities From Banning
Airbnb. U.S. News & World Report.
Tun, Thiha, Z. 2015. Top Cities Where Airbnb Is Legal Or Illegal. Investopedia.