Innovation and Entrepreneurship: Analyzing Airbnb's Business Model

This report delves into the realm of innovation, focusing on Airbnb as a case study. It begins by outlining key innovation theories, including Schumpeter's theory and Peter Drucker's seven sources of innovation, providing a foundational understanding of how companies can foster innovation. The report then applies these theories to Airbnb, an online marketplace and hospitality service provider, examining how the company has successfully implemented innovative strategies to expand its customer base and disrupt the lodging industry. It analyzes Airbnb's historical development, highlighting its service innovations and its ability to leverage technology to provide accessible services. The report also explores the company's future development pathways, including potential expansions and partnerships, while also acknowledging the competitive landscape and challenges. Ultimately, this report provides a comprehensive analysis of Airbnb's innovative approach to business and its impact on the hospitality sector, discussing the factors that contributed to its success.

MANAGING INNOVATION
PROJECT

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY ......................................................................................................................................3
Innovation theory.............................................................................................................................3
Application of theory to AirBnb .....................................................................................................5
CONCLUSION....................................................................................................................................9
REFERENCES .................................................................................................................................10

INTRODUCTION
Innovation is the process of translating an idea or invention into products and services. In
business, Innovation results when ideas are applied by the company in order to meet the demands of
customers. In this assignment, AirBnb will be considered to perform the various task of this study.
AirBnb is an online marketplace and hospitality service provider and it is accessible via its websites
and mobile apps. It is involved in lodging industry and provide accommodation services to its
customer. It receives commission as a broker from every booking which is made through this. This
assignment will provide understanding of different innovation theories and there application to
AirBnb for increasing their customer base and provide more accessible services to its customers.
Moreover, it will include the critical analysis of development trajectory in order to identify the
success of the products and services in the future.
MAIN BODY
Innovation theory
Innovation is refers to an idea adopted by an organisation to improve their products and
services in order to provide the customers with better services. Innovation theories consist of
Schumpeter's theory of innovation which is in the line with other investment. According to this
theory, innovation is changes in methods of production, developing new services, opening up of a
new market etc (Schumpeter’s Theory of Innovation, 2018). Innovation does not mean invention
rather it refers to commercial application of new technologies, new methods etc. Schumpeter's have
developed the stages which consist of first approximation and second approximation in order to
explain the business cycle theory of innovation (Bahemia, Squire and Cousins, 2017). In the first
Approximation the stage begins in equilibrium where there is no involuntary unemployment.
Innovation assist in increasing the demands of their services provided by the company and
increasing their customers base.
Schumpeter's theory of innovation is faces various disadvantages because this theory is more
based on sociological factors rather than economic factors. According to this theory innovation is
related to introduction of new products or services which assist in gaining the new market through
the new products and services to attract customers towards the products and services of the
company (Biemans, 2018). Schumpeter provided S – curve to define the innovation for providing
clear understanding to the different organisation regarding innovation. According to this innovation
is defined as change in existing production system to increase the profitability and reduce the cost
of organisation. The Schumpeter theory of innovation provided that the innovation opportunities
are created on the basis of introduction of new product, entering into new market with new product
etc.

S – curve represent the variation in the performance in function of time or efforts. This
framework is more flexible in order to analyse the introduction, growth and maturation of
innovation.
Another theory of innovation includes the peter Drucker seven sources of innovation in
which it provided with the different sources which can lead to innovation or changes in the method
(Brulin and Svensson, 2016). According to peter Drucker, systematic innovation is related to
monitoring of the seven sources for the innovative opportunity. The first four sources are within the
organisation that lead to innovative opportunity :
Unexpected : The best source of successful innovation is the form of unexpected success
and failures. The organisation can have rise in their market share which may be unexpected.
Incongruity : It is the discrepancy between what is and what should be. It is symptom of
that which is already occurred. It identified that if the demand for the product or services grow
steadily, its economic performance should be improved (Chandrasekaran, Linderman and
Schroeder, 2015). If there is lack of profitability then there is incongruity between the economic
realities.
Innovation based on process need : It means identifying the need of change through
detecting error in the process which can helps the organisation in creating innovation opportunities
for the business to attract more customer and increase the profitability of business.
Changes in industry structure or market structure : It leads due to changes in the
customers preferences, taste and needs. Disruptive technologies address lower market or the market
that is not fully developed (Ćirić, Lalić and Gračanin, 2016). These technologies have the tendency
to grow there market. With the change in industry and market structure provide the opportunity to
organisation for innovation which may assist them in increasing their profitability.
The below sources involve outside the enterprise of industry :
Demographics or population changes : Changes in the population, income level and
human capital provide the organisation with innovation opportunities. Gathering demographic data
assist the organisation in meeting the demands of target market.
Changes in perception, meaning and mood : it means change sin the perception of the
people which provide the organisation to changes their products or services according to their need
to attract customers toward their organisation (Peter Drucker on the Seven Sources of Systematic
Innovation, 2017).
New knowledge : With the increase in the technologies there have been increasing tin the
knowledge such as internet which has brought great innovation in the industry which has provided
organisation to offer their products and services to the large customers around the globe.
This two theories are the important in innovation which provide industries with various

opportunities to increase their customers base and develop their product of services to gain more
market share through managing the innovation in systematic way. The theories of innovation were
propounded to provide understanding to different organisation and knowledge regarding the
innovation and understanding about the sources which create opportunities for developing
innovation in organisation. The theories of innovation are applicable to different organisation which
are going through different innovation in their process or products or services. Innovation helps the
organisation in improving the brand image of companies and creating new market for their products
and services to meet the demands of customers in order to gain more profits and increase their
market share by providing there products and services in different regions through use of innovation
(Davies and Brady, 2016). Managing innovation assist in developing effective invention for the
company which will helps the firm in gaining new market for their products and services.
Application of theory to AirBnb
The AirBnb is online market place which is operating in the lodging industry and provide
booking facilities to the customers through use of their websites and mobile apps to provide them
which accommodation, food etc. services during their stay. The historical development of AirBnb
includes the entry of AirBnb in the market with service innovation. The organisation provided the
services that were not present in the traditional hospitality industry. The company has use the
modern technology to provide the customers with easy access to the services and provide them
options to books there services for accommodation etc. during their stay. When the AirBnb was
started it provided airbed and breakfast on the basis of which this name of the company was
selected. The Company was first product oriented after realizing the service market is more
beneficial for the firm and for this it developed a website for providing the booking facilities ton
customers. The historical development of AirBnb includes the development of its services after
offing the products such as Air bed and breakfasts. AirBnb is transforming the entire industry by
facilitating true social networking. The Schumpeter theory of innovation is applicable to AirBnb
because as per this theory the innovation includes introduction of new product or services which
was adopted by this organisation.
The AirBnb introduced a services market in the hospitality industry which created a market
which offer unique travel experience to the customers. This company focused on development of
its services in order to create a market. It is a home rental company which provide accommodation
facilities to the guests (Webb, 2017). The innovation history of AirBnb includes trips which were
launched by AirBnb in 2016, It is a service that provide the travellers to have local tours and
adventures during their stay in rentals. Moreover, it launches an Open Home program in 2017
which allowed the host to offer housing to refugees and those seeking shelter from disaster (Airbnb,

2019).
According to theory of Peter Drucker, the innovation opportunities created for organisation
due to the seven sources and AirBnb adopted this source of innovation theory of Peter Drucker.
AirBnb by undertaking the sources of changes in industry and market structures changes developed
its innovation history by identifying the needs to its target customers in the hospitality industry
which provide the company with different ways of creating opportunities to increase the market
share and their profitability by providing the services according to the demands of its customers and
it started to provide the rental lodging and booking for them in different countries through their
website and mobile apps. AirBnb is changing the way people interact for the booking for their
accommodation in different countries.
AirBnb has provided a thousand of people to rent their homes. The future development
pathways of Airbnb include providing the travellers to book the homes anywhere. The future of
AirBnb includes hiring of new property types of the rental purpose. Moreover, for the future
development the AirBnb can create partnership with Hooper, which the leading mobile travel app
for flight search and bookings. AirBnb through developing its services can provide the customers
with better experience during their stay in rentals and assist in retaining them for their future stay at
different locations around the globe. The theory propounded by Peter Drucker involved the sources
which create innovation opportunities for the organisation.
AirBnb in order to identify the innovation opportunities to increase its market share and
provide better services and more facilities to its customers can use this sources for identifying
various opportunities. The future development pathways includes developing its services other than
providing accommodation to the travellers. It can increase the service offering such as car sharing,
meal sharing, local tours etc. Hotel have to compete with AirBnb ton attract guest by developing
their service quality because AirBnb through its innovation have created a market where the people
are provided with high quality facilities and home rentals around the different places. On the critical
note, Airbnb services are affected due to the emergence of competitor which is provided by its
various competitors by following the same innovation of Airbnb and providing the home rental in
different countries.
The future development of Airbnb includes trend of global nomads. They don't have home
and cars but have smartphones and laptop and Airbnb will provide them accommodation to satisfy
their requirement and fulfil their needs. Moreover, Airbnb provide peer- to – peer accommodation
and the hosts are also available to promote the accommodation of Airbnb through use of
technological tools (vom Brocke and Lippe, 2015). Furthermore, Airbnb is disruptive because it
appeals to the low – end market and offering a low cost for the rentals. There are various factors

which contributed to the growth of Airbnb such as unique selling proposition of Airbnb in which
they access to local vendors in a variety of industries. The Company provides the travellers to live
like local which is a success factors that leads to the growth of Airbnb.
The factors that are responsible for the success of the business of Airbnb is their unique
strategy and their way of reaching their customers through use of modern technology. It focuses on
the stable economy and fulfilling the demands of the tourists by providing the accommodation on
the basis of their demands by renting the home in different countries to provide their services in
different countries. The sharing economy by the Airbnb started by creating probably two of the
biggest assets of people that is homes and their cars. The biggest competitors of AirBnb are trip
advisor, Home away etc. but they have different business models. Airbnb have the most innovative
strategy. The success factor create a value proposition for the Airbnb in the industry by providing
the company with competitive advantage against the other firms in the same industry.
The competitive advantage framework of porter which includes cost , focus and
differentiation. All these factors have contributed to the value proposition of Airbnb. The cost
advantage is the biggest factor that is responsible for the success of its business. The invention at
the Airbnb includes the service innovation. While developing the mobile application and website
the focus was on the service provision. Service innovation is the final product that emerges from
efforts of both crowdfunding and user involvement. The business model of Airbnb is based on
sharing economy mechanism which enables it to generate its income.
On the critical note there were various problems what are faced by Airbnb in developing its
services and entering the new market with innovation. The biggest problem that Airbnb faced was
to make the people accept their business model (Van Lancker, Wauters and Van Huylenbroeck,
2016). Airbnb in order to gain the market and attract customers used the guerilla promotional
strategy to capture the audience through social media. The Airbnb focus on developing its services
through use of technological tools available in the market to provide customers with better service
experiences and facilities. The organisation faced problem in the development trajectory of the
invention due to lack of market knowledge and their customers. Moreover, there is lack of trust in
the people which affect the business development and invention of the services for Airbnb. But
Airbnb by using the Peter Drucker theory can improve their customers experience and develop its
innovation opportunities by customizing their services according to the requirement of its clients
(Scozzi, Bellantuono and Pontrandolfo, 2017). This Schumpeter theory provide them the
innovation is based on the development of new product or entering the new market. Through use of
this theory organisation is able to solve the problems relating to their invention through use of the
innovation theories as it provide them organisation with various ways through which they can enter

the market and attract customers for their services.
Airbnb through use of Theory of innovation by peter Drucker can develop its products and
services which will helps them in increasing their profitability. Organisation through use of theories
can identify the ways and improve their knowledge regarding innovation and ways which can help
in developing their invention in the products and services. Airbnb by using this theory can identify
the ways through which it can develop innovation opportunities. Airbnb is focusing on service
invention but for future development it can use product invention and can provide different products
such as food etc. to attract more customers towards their products and services (Salerno And et.al.,
2015). Airbnb through use of technology can develop its services to gain more customer attract and
provide more facilities other than accommodation order to provide more facilities to its clients
which will helps the firm in gaining competitive advantage towards the other organisation.
The users of the services of Airbnb are provided more importance as they are the people
that are responsible for the success of AirBnb in around different regions. Moreover, Development
of invention of services of Airbnb will help them in creating a lucrative market for the hospitality
industry and providing the clients with better services over different places. Airbnb by setting the
performance goals is able to identify the performance level in the industry to determine its
performance in the whole industry.
Development of service invention by Airbnb was affected due to lack of knowledge in the
market about this invention before has created a challenge for the company to provide the clients
with trust regarding the services provided by them. The service invention by Airbnb created a social
impact on the audience because its provided accommodation to the refugees to provide them shelter.
Moreover, it provides traveller it lives at homes which assist in giving them homely feeling at any
place of Airbnb (Parida and et.al., 2017). This created positive image of AirBnb in the society and
supported the firm in implementing their innovative idea. The invention was beyond the novel
invention because it focuses of clients needs rather than profitability as main factor which lead to
the success of this organisation.
Peter Drucker theory of innovation can be applied to Airbnb for development of its future
invention through use of different sources which can help the company in identifying different
innovative opportunities. The seven sources include unexpected, incongruity, changes in market and
industry structure, changes in demographics, new knowledge, changes in perception, meaning and
mood and innovation based on process need (Fernandez and Chiambaretto, 2016). The Airbnb
through any of this sources can develop its invention in the services offered by the company to
provide the customer with more facilities according to their requirement.
The organization does not own any lodging space but its main agenda is to connect the client

with hospitality industry all around the globe. The factors that have contributed to the success of
Airbnb include convenience, customization, affordability, unique stay experience etc (Eriksson And
et. al., 2016). Airbnb while development of its service intention can be affected by various factors
such as competitors, less focus on clients based on income group etc. Airbnb have to make proper
strategy and provide in depth knowledge and advantage of the service's ton customers to provide
them knowledge about their services.
CONCLUSION
From the above assignment it has concluded about two theories of innovation which consist
of Schumpeter theory and Peter Drucker theory of seven sources which are applicable to AirBnb
and provide understanding about the innovative strategy used by AirBnb to provide better
experience to tourist by providing them facilities to live at homes. Moreover, this assignment has
included the different historical development of Airbnb such as Airbed etc. the study has also
included about the future development of invention by Airbnb in order to provide the clients with
more services other than accommodation such as car rental for local tour, food facilities etc. Also,
the assignment has provided the factors that have contributed in the success of AirBnb such as their
cost, convenience facilities, customisation and their unique stay experience provided to clients has
helps the company in their growth and success.

REFERENCES
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