Case Study Analysis: Airbnb's Innovative Business Model and Rivalry

This case study analyzes Airbnb's innovative business model, examining its business framework, revenue structure, and disruptive innovation strategy. It explores how Airbnb, founded in 2008, revolutionized the hospitality industry by facilitating the sharing economy and connecting homeowners wi...Read More

Case study analysis of Airbnb

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Table of Contents
Introduction................................................................................................................................3
Analysis and evaluation.............................................................................................................3
Analyzing the business framework adopted by Airbnb and assessing its revenue structure. 4
The business framework....................................................................................................4
Revenue structure...............................................................................................................5
Explaining disruptive innovation based on the case and evaluating how Airbnb became
among the biggest rivals versus the hotel industry................................................................5
Disruptive innovation.........................................................................................................5
How Airbnb became the biggest rivals of the hotel sector................................................6
Proposed recommendations.......................................................................................................7
Developing an innovation proposal.......................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

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Introduction
The process by which a company introduces new ideas, procedures, techniques, services, or
products is known as business innovation. Business innovation must facilitate the
accomplishment of objectives across the entire company, with a focus on achieving
fundamental business aims and projects, which calls for employing technology in innovative
ways of creating a more effective and flexible company. Proposal generation is often the first
step in the innovation process, following which leaders evaluate the strategic positioning,
practicality, and attractiveness of each idea throughout discussion sessions. The goal of the
business innovation approach is to add value to the company. In the current study, the case of
Airbnb has been considered. This study will overlook the innovative approaches that have
made Airbnb a successful business.
The ‘sharing economy' is yet another truly transformative phenomenon: from broadband
services to do-it-yourself machinery to their own time and expertise, many individuals own
stuff they wouldn't utilize most of the time, according to the report of Technology Pioneers
2014, which recognized Airbnb's influence to the sharing economy. Such idle capacity can
now be monetized thanks to the Internet. An example is Airbnb's innovativeness, which is
revolutionizing the travel industry by allowing homeowners to rent out unused rooms or full
properties in their residences. Since around 2014, Airbnb has been active in more than a
hundred and ninety countries, serving more than twenty-five million customers in about
thirty-four thousand places. Airbnb had been projected to outperform several well-recognized
hotel businesses due to its quick growth pace. However, the rise in attractiveness of Airbnb
was not without its drawbacks. The extraordinary skills of the founders of Airbnb made its
business approach an innovative one, which, later on, since the inception of the company, has
revolutionized the hospitality industry. The innovativeness in providing travellers with space
to spend holidays at a relatively cheaper rate than hotels has been certainly among the best
innovations in terms of business in the twenty-first century. This study will analyze the
innovative business model of Airbnb, alongside assessing its revenue structure. Next, it will
analyze the concept of disruptive innovation based on the current case and evaluate how the
company became among the biggest rivals of the recognized hotel industry via disruptive
innovation. Lastly, the study will recommend a proposal that would be encouraging for
product innovation for enhanced productivity.
Analysis and evaluation

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Analyzing the business framework adopted by Airbnb and assessing its revenue
structure
The business framework
Airbnb was founded as a part-time enterprise by three young and budding entrepreneurs in
2008 as a medium for people to rent out their unused rooms, and it expanded to become a
thriving corporation within only five years. Airbnb's business model had been founded on the
sharing economy, in which homeowners and guests were given a platform to communicate
with one another (Guttentag, 2015). The Airbnb website was used to facilitate the
transactions. The company made money by collecting commissions to guests and
homeowners, which was a relatively straightforward business plan. Airbnb served as a
matchmaking component, bringing together homeowners wishing to rent their unused space
and guests looking for a place to stay. The website of the company has been serving as a
virtual marketplace where homeowners and visitors could interact; it provided a platform for
people with apartments, extra rooms, or perhaps an island to connect with the worldwide
travel industry. Airbnb has been facilitating communication between consumers and hosts,
providing a climate where humanity resides in technology. As a result, technology has the
potential to both facilitate and inspire faith. According to Kiesling (2016), the business model
of Airbnb was so innovative that the hosts could use the Airbnb platform to list and advertise
their unused space. Specific facts concerning the hosts' unused space would have to be
provided when listing the space, for instance, type of home, type of room available for
rentals, and so on. Both the homeowners and the visitors were needed to show identification.
The Airbnb accounts of the homeowners were connected to other pieces of knowledge that
revealed their identities, such as government-issued identification and social networking web
accounts like Facebook, Gmail, or LinkedIn accounts. Clients (homeowners or guests) may
be requested to submit a phone number and email address, as well as other information, to
authenticate their genuine identity.
On the other hand, travellers or visitors had to first choose the location they wished to visit
before booking a space via Airbnb. The Airbnb webpage then presented a number of
possibilities in that specific location. The visitors were also obliged to give further
information. Besides, the tariff that the visitors would be charged was established by the
hosts. Airbnb had no input with the pricing; it just served as a conduit among the two parties
(Guttentag, 2016). Airbnb featured professional photography capabilities and complimentary
listings to house owners who could give information of their available to rent housing spaces

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to make the places more appealing. After looking for spaces available, visitors might book
the specified space on their selected dates. The Airbnb portal has been used to perform the
online booking procedure as well as the financial transactions. Airbnb also built a number of
measures into the website to try to keep users from doing their business transactions offline.
Apart from identification screening, the company's Host Guarantee service offered protection
to the homeowners. As stated by Tham (2016), homeowners were protected from damages
under the initiative if the cost of the damage exceeded the amount of the security deposit.
Airbnb also offers 24/7 support to customers to its homeowners and visitors to make things
easier. The service could be reached by phone or email.
Revenue structure
Airbnb made main revenue by collecting a small fee for each booking made via its website.
As a homeowner's service fee, the company collected three per cent. Based on the kind of
accommodation and booking fee, guests were billed anywhere from six to twelve per cent of
the total booking fee (Tham, 2016). The bigger the reservation amount, the lower the
percentage of the fee. Even though the visitors cancelled their bookings, the visitor charge
was non-refundable. According to experts, Airbnb tries to maintain commissions low in order
to deter clients from switching to offline payments. Visitors paid Airbnb when they reserved
a room. The payment was then delivered to the property owners or hostesses just a day before
the visitors arrived (Cacace, 2016). Furthermore, unlike regular hotels, the listing fees were
set by the homeowners – there were no set rates. The prices are set by the homeowners per
night, week, or month. Furthermore, relying on the times, the listing prices could fluctuate.
For instance, on some regional holidays, festivals, or seasons, the costs would be varied.
Explaining disruptive innovation based on the case and evaluating how Airbnb
became among the biggest rivals versus the hotel industry
Disruptive innovation
In a business scenario, disruptive innovation is one that establishes a novel marketplace and
value network, ultimately displacing existing market-leading enterprises, products, and
services (Miller, 2016). Even though they are groundbreaking, not all inventions are
disruptive. Entrepreneurs in emerging companies or outsiders are more likely to create
disruptive ideas compare to market-leading corporations. Market leaders' business
environments prevent them from pursuing disruptive innovations when they first emerge

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since they are not lucrative enough at the beginning, and their expansion can divert limited
resources off from enduring innovations.
In the context of Airbnb, the company did not invent a novel business model; rather, it
reorganized existing operations. Tourists, for instance, rarely used to stay at unknown
individual's homes, but Airbnb developed a new network and practice. Furthermore, the
online rent service did not have any inventories; instead, it simply enhanced its gathered
data to better match consumers. Airbnb had become a trendsetter over the course of five
years, with sales rising year after year; furthermore, individuals began to see that this
business was indeed the new reality and began to adapt to the shifting patterns. The Airbnb
movement had altered people's perceptions of the globe. According to Bashir & Verma
(2016), Airbnb has created a novel marketplace with its disruptive innovation that could
appeal to travellers looking for a more personalized vacation experience. By offering
inexpensive housing, the business addressed a problem that visitors and travellers had been
experiencing for years. It centred on utilizing the spare capacity of rooms and flats in each
and every city around the world and turning such extra areas into a lucrative micro-hotel,
allowing hosts to successfully utilize the additional space in their homes.
How Airbnb became the biggest rival of the hotel sector
Airbnb, according to several industry analysts, became a unique innovation not just because
of the technological advancements it had made but also because of the manner in which it had
disrupted the traditional hospitality sector and posed a danger to the already existing hotel
companies. Airbnb revolutionized the conventional business model by allowing anyone with
a spare room to start a peer-powered venture. As stated by Oskam & Boswijk (2016), the
organization’s business strategy was an old notion with a new technological twist, and its
innovation had been the establishment of an efficient, contemporary digital interface as well
as a linked, dedicated community that aided widen the marketplace of guests
and homeowners interested in sharing their home. He claimed that the immobility of the
middle class and the lingering effects of the 2008 financial crisis had led to the
transformation of these hosts into micro-entrepreneurs. The business's model included a wide
range of products and pricing with no set criteria, and it aided micro-entrepreneurs in earning
a consistent income. Such innovative approaches of Airbnb, through disruptive innovation,
made it among the greatest rivals of the existing hotel companies. The hotel sector was
likewise outraged at Airbnb, claiming that the company had cost them millions of clients who
otherwise would have stayed in hotels (Varma et al. 2016). Airbnb was reportedly said to be

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valued at ten billion dollars, putting it beyond hotel brands such as Wyndham and Hyatt.
Hotel businesses also claimed that they had to pay greater taxes than Airbnb, putting them at
a loss. The traditional hotel businesses were disturbed by the innovative approach of Airbnb
in providing accommodation to travellers.
Proposed recommendations
Developing an innovation proposal
The invention of Airbnb has been an astonishing story. The firm changed the entire scenario
of the hospitality industry. The disruptive innovation that Airbnb came up with solved a long
problem of the travellers having to pay a higher price while residing in hotels. Travellers have
always been keen on finding accommodation in the visiting place at an affordable rate. With
the control of big hotel company chains, it was becoming tougher for travellers to find a place
where they can stay while they are visiting some other place. Besides, there have always been
individuals, who own properties, but the majority of the rooms stay unused. The idea first
came to the two founders of the company, who in 2007 rented their place out for travellers in
San Francisco as the city found it tough to accommodate a going number of travellers. Airbnb
served as a matchmaker, bringing together owners wishing to rent their space and guests
looking for a place to stay. Airbnb’s website portal served as a virtual marketplace where
home or property owners and visitors could interact; it provided a channel for people with
apartments, extra rooms, or perhaps an island to connect with the worldwide travel industry
(Varma et al. 2016). This approach turned out to be the new normal in the hospitality
industry. However, over time the firm faced challenges related to a host complaining about
the nuisance created by the visitors or host's place got robbed or safeguarding the privacy of
the guests. The company faced challenges in terms of providing consistent service and
quality. However, in order to stay competitive in hospitality, such concerns need to be
addressed by the company. Airbnb can again come up with some innovative ideas that could
address them. To start, the company should utilize AI-based technology to verify the
identifications of both hosts and guests and should run a background check to identify any
possibility of risks coming from the hosts or the guests. Besides, the quality of services
should be improved. For instance, the company should employ a caretaker for the host's place
when the host is away. The caretakers should be given a device to monitor the activities of
the guests that could deter the guests from doing any vandalizing acts. Using machine
learning technology can also help in improving the security measures offered by the company

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to both its customers (hosts and guests). Besides, the work culture should become service-
centric to ensure the proper delivery of services asked by the customers. It would ensure the
creation of innovative approaches to aid the company in staying competitive.
Conclusion
This study has analyzed the innovative business model of Airbnb, alongside assessing its
revenue structure. It has further analyzed the concept of disruptive innovation based on the
business of Airbnb and evaluated how the company became among the biggest rivals of the
recognized hotel industry via disruptive innovation. Lastly, the study has recommended an
innovation proposal to further strengthen its business performance by addressing the existing
challenges faced by Airbnb.

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References
Bashir, M., & Verma, R. (2016). Airbnb disruptive business model innovation: Assessing the
impact on the hotel industry. International Journal of Applied Business and Economic
Research, 14(4), 2595-2604. https://www.researchgate.net/profile/Makhmoor-
Bashir/publication/306193997_Airbnb_disruptive_business_model_innovation_Asses
sing_the_impact_on_hotel_industry/links/5b06460ca6fdcc8c2522ac1e/Airbnb-
disruptive-business-model-innovation-Assessing-the-impact-on-hotel-industry.pdf
Cacace, D. (2016). The illegal dimension of business model innovations: how do big firms
deal with disruptive competitors? From the case of Airbnb to Microsoft's
revolutionary approach against piracy.
http://tesi.luiss.it/17311/1/181821_CACACE_DAVIDE.pdf
Guttentag, D. (2015). Airbnb: disruptive innovation and the rise of an informal tourism
accommodation sector. Current Issues in Tourism, 18(12), 1192-1217. http://dg-
research.com/Papers/Guttentag%20(2015)%20Airbnb.pdf
Guttentag, D. (2016). Why tourists choose Airbnb: A motivation-based segmentation study
underpinned by innovation concepts.
https://uwspace.uwaterloo.ca/bitstream/handle/10012/10684/Guttentag_Daniel.pdf
Kiesling, L. (2016). An “Airbnb for Electricity”: Institutional Theory For a Platform Model
In an Historically Regulated Industry.
https://cdn.questromworld.bu.edu/platformstrategy/files/2016/07/An-Airbnb-for-
Electricity-Institutional-Theory-For-a-Platform-Model-In-an-Historically.pdf
Miller, S. R. (2016). Decentralized, Disruptive, and On-Demand: Opportunities for Local
Government in the Sharing Economy. Ohio St. LJ Furthermore, 77, 47.
https://digitalcommons.law.uidaho.edu/cgi/viewcontent.cgi?
article=1023&context=faculty_scholarship
Oskam, J., & Boswijk, A. (2016). Airbnb: the future of networked hospitality
businesses. Journal of tourism futures.
https://www.emerald.com/insight/content/doi/10.1108/JTF-11-2015-0048/full/html

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Tham, A. (2016). When Harry met Sally: different approaches towards Uber and AirBnB—
an Australian and Singapore perspective. Information Technology & Tourism, 16(4),
393-412. https://link.springer.com/content/pdf/10.1007/s40558-016-0070-3.pdf
Varma, A., Jukic, N., Pestek, A., Shultz, C. J., & Nestorov, S. (2016). Airbnb: Exciting
innovation or passing fad?. Tourism Management Perspectives, 20, 228-237.
https://www.researchgate.net/profile/Arup-Varma/publication/308828633_Airbnb_Ex
citing_innovation_or_passing_fad/links/59ed9f9aa6fdccef8b0dd93f/Airbnb-Exciting-
innovation-or-passing-fad.pdf