Airbnb Case Study: Analysis of Incremental and Disruptive Innovation

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MANAGING INNOVATION ASSESSMENT
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Table of Contents
Introduction................................................................................................................................3
1) To describe, in detail and in your own words, one or more innovation theories of your
choice.........................................................................................................................................4
2) To apply each of your chosen theory or theories in explaining the historical development
of one or more products and/or services, and the possible future development pathways of
your products or services.........................................................................................................11
Conclusion................................................................................................................................14
Reference List..........................................................................................................................15
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Introduction
Innovation is the act of innovating. In the context of business development, it means
innovating or producing new products, ideas, and techniques into the system. Airbnb is a
global company, which is headquartered in San Francisco. It operates the hospitality service
and provides a marketplace online. The company offers lodgings, tourism experiences, and
arranges home stays. Brian Chesky and Joe Gebbia came up with the idea of this company.
Later, Nathan Blecharczyk joined the company as Chief Technology Officer, and together
they named the company AirBed & Breakfast. In 2009, the company gained its name as
airbnb.com. In the given study, different innovation theories have been explained. Their
benefits and risks have been described, and their application in Airbnb Company has been
discussed. This study has provided the discussion on two theories of innovation, the
incremental innovation and the disruptive innovation. The application of the theories has
been discussed in context to the Airbnb Company.
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1) To describe, in detail and in your own words, one or more innovation theories of
your choice
Innovation Theory 1
Figure 1: Different types of innovation theories
(Source: Day, 2016)
Incremental Innovation:
Dustin Mattison in an interview said, “Incremental innovation is taking products, solutions
and technologies which you currently have today and doing some small advancement on the
same technologies or solutions.” This is one of the most common theories of innovation. It
uses the existing technology and enhances the worth to the customers within the existing
market. Most of the companies utilise this theory in one way or another. According to this
theory, some new features are added to the products and services or by eliminating the
features. The goals of this theory are:
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 Increase in profits and sales for the present services and products.
 It aims to protecting the existing models of business.
 It has the objective of creating new models without compromising the existing ones.
Figure 2: Incremental Innovation growth
(Source: Fredsall, 2015)
One of the examples of incremental innovation is the Coca Cola Company. This company has
shown gradual changes since its beginning. It still comes up with new ideas, flavours, and
unique packaging styles to follow the trend and meet the requirements of the customers.
Google Mail is one of the examples of incremental innovation. It has evolved to a large
extent since it has been launched. It has adopted new features and provides services to the
customers in a better way than ever. The Google Company has followed this method in
numerous ways since then. It has evolved the services of Chrome and Google Maps, thus,
providing a better experience to the customers. The company provides a simple product at
first, and then gradually it improves it making it popular in the market.
The smartphones company can be a great example of incremental innovation. The mobile
tech companies deliver the “next generation” models of their phones as well as making a
profit from their existing models of phones. In this way, they can still gain the trust of the old
customers and reduce uncertainty or failure in the new products. There are many examples of
disruptive innovation that have evolved in the years. For instance, a bicycle, it has evolved
with fresh materials in the industry and components like gears, frames, and accessories like
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lights and other things. Another example is a soccer ball, it used to have a big bladder, but
now it is quite light in weight.
Even little innovations can enhance the user experience. It utilises and enhances the
capabilities of current products and services. It also enables the continued growth of the
company. In many cases, this theory provides advantages to the existing companies and
reconfigures the existing abilities to provide a recent need or use. Incremental innovation is
one of the upgrades or improvements that are made to a company's services, products,
methods, and processes. The alterations that are made in the company through this process
are often aimed at the present products' efficacy and productivity. This theory is used by
many companies to improve the position of the products in the trade market. It has become a
common technique in the industry of consumer technology. This is one of the consumer-
friendly techniques to improve production (Fredsall, 2015). The theory of incremental
innovation has a formal model of development. Incremental innovation covers modern
improvements to the present products and the processes of production. It is a critical plane of
technical transformation (Nee, 2014). The commercial worth of unique practical inventions is
remarkably enhanced here. The experience and knowledge gained from this type of
innovation provide the base for development in future (Globerman and Lybecker, 2014).
Figure 3: Incremental and disruptive innovation
(Source: Nee, 2014)
Incremental innovation takes time and gradually develops the market place and products. The
companies that have vast resources, human capital, and money use this theory as it is easy for
them to follow. Incremental innovation theory has many advantages. These are:
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 It helps the companies in the competitive world. They gain profits and thus,
developing the next products.
 The theory when used properly brings the companies ideas in the market. They infuse
the habit of using the products in public. Thus, it becomes difficult for them to stay
without using these products and services. The people can then adopt the
improvements provided by the company in the existing products.
 The process is affordable. It does not surmount the budget of the company. The
company need stability and proper infrastructure to use this theory of innovation in
the business. This theory helps the company to put new ideas into the current
products, thus, reducing the cost of bringing new products into the market.
This method has some risks or disadvantages too. For instance, Kodak, the photography
industry used this method. Since the emergence of the disruptive method in photography, the
company suffered loss. The disruption theory has revolutionised the method of photography,
and thus, it gained popularity over incremental innovation (LOPEZ, 2015).
Figure 4: Difference between incremental and disruptive innovation
(Source: LOPEZ, 2015)
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Innovation Theory 2
Disruption Theory
Disruption is a process when a small company, which has fewer resources or capital,
challenges the established businesses. This theory is also known as “stealth innovation”. It
utilises new technology to the company’s existing market. This theory needs a creative
attitude of the company toward the development of the products and process of promotion.
This innovation uses technology, the application of which affects the industry and functions
of the market. The ways of being competitive are looking for new ideas, reducing the cost,
and producing innovative ideas faster in the market (Day, 2016). The characteristics of this
innovation theory are:
 The targets markets are small.
 The gross limits are lower.
 The services and products are simple (Hutt, 2016).
Some examples of disruptive innovation are Skype, Wikipedia, and many more. The Apple
Company has followed the disruption theory by making its system of web developers thus,
making the iPhone as private computers (Christensen et al, 2015). The iPhone Company has
used keypads, scroll wheels, and buttons earlier in the business. Now it has evolved into a
touch screen mobile with a user interface technology. Another example that can be taken is
the internet. It influences the business and can negatively affect them if not used properly. It
is disrupted as it is a new technology and has not been used before. Uber Company is another
example that has used this theory. Companies like Google, Facebook, and Amazon have used
this technology. Netflix is a perfect example of a disruptive innovator. It was first a company
that deals with renting movies. It focused on the particular group of the customers who
ordered the movie they wanted to see. Now it has evolved into a streaming service by
improving the business models. Here are some examples of disruptive innovation:
Disruptor
PC or Personal Computer
Small mills
Mobile Phones
Disruptee
Minicomputer
Steel mills
Fixed-line telephone
service
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Table 1: Examples of Disruptive Innovation
(Source: Created by the learner)
Black & Decker used this innovation theory to improve the products. It used to produce
electric tools that were heavy and quite expensive. They were specially designed for
professionals. Now it has introduced plastic tools that are much more easy to use and can be
used by anyone. Even inkjet printers were disruption to the laser jet printer. They have a
compact size, low cost, and lightweight. They can easily be used by the students as well
(Bhasin, 2018).
The industries when used this theory operate at lower cost and dislocate the leaders of the
market in the specific space thus, altering the industry. Disruption occurs when the small
companies’ services and products become the centre of the demand of the people because of
its low cost and new innovative technologies. It created new value to the existing products
and services by introducing improved ideas and technology to them. It is beneficial as it
offers new value at a low price (Rouse, 2017). In the fast-paced world, organisations and
businesses should be competitive. In the disruptive innovation theory, the products that have
shortages of some features can offer substitute benefits and changes the market, as well as get
consumer's trust (Guttentag, 2015). The disruption innovation is less expensive than
incremental innovation. This theory changes the way industries or businesses operate
(KENTON, 2017). The companies are using this theory to increase revenue as well as
customers. This theory changes the present market and can create new products (Neely,
2019).
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Figure 5: Disruptive and Increment innovation growth chart
(Source: Gross, 2016)
This method has some disadvantages too. It involves uncertainty and high risk. This depends
on the incremental innovation theory. The smaller or start-ups companies utilise this theory to
create their market. This innovation theory needs a flexible and informal model to deal with
uncertainties (Gross, 2016). It is a more expensive process as it uses new technology. Its
shortcomings are that it has fewer features and difficult to use.
Moreover, it does not appeal to the public. This technique is difficult to track, overcome or
predict. It also has certain risks as it needs an efficient investor who will focus on disruptive
technology, not on the technology itself.
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2) To apply each of your chosen theory or theories in explaining the historical
development of one or more products and/or services, and the possible future
development pathways of your products or services.
Airbnb Company employs a “C2C business model”. This means that people agree to live in
someone else place without even knowing each other in barter for a payment. The company
provides local experiences to the customers. This company is new in the ideas. It is different
from any hospitality services that have been existed before that. Airbnb is exclusive. It was
the only hospitality service that provided an online platform when it was created. This
company has not followed the traditional form in the hospitality services; thus; now it is
comparable to the Marriott chain of hotels. It also offers on its official website castles, villas,
country house, and boats to attract the customers. This is just one of the strategies (López and
Muñíz, 2015). The company has adopted the disruption theory. It has provided efficacy to
the products and services. Last year, it introduced two latest services that aimed at luxury
travellers. These are Beyond and Airbnb Plus. The Airbnb Plus is part of the disruptive
innovation as it is a new version of the existing service of the company. The company has
introduced a modular kitchen, comfy bedding, and Wi-Fi support. It is not much expensive as
well.
Beyond is the latest travel service that has been launched by Airbnb. It is an example of
incremental innovation. This service offers luxury accommodations to customers. The idea
has been adopted from the Luxury Retreats. This service includes mountaintop mansions
and beachside villas. The company has “Superguest program” to offer additional benefits to
the company’s main users. This is also an example of disruptive innovation. The company is
updating the sites and providing easy ways for the customers to navigate it. The users can
now easily browse and choose homes as per their choice. It is one of the strategies of
disruptive innovation theory. There are different homes for families and business travellers
(BELL, 2018). This can also be said as disruptive innovation as the company has made
changes to the existing structures of the hotels. The company has also launched its mobile
app to reach the customers worldwide, provide them with information about the company and
to make it easier for them to book the rooms. This is also a disruptive innovation method.
They can easily get information about the price of rooms, and the messaging feature helps
them to contact the management department.
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The guests can provide feedback to the company, thus, making them provide an improvement
to the services. This helps the company to grow with the help of disruption innovation. The
guidebook provides the customers with insider tips so that they can tell their preferences. The
company has re-engineered its functionality for the guests and hosts. There are some other
techniques of disruptive innovation that the company has adopted. It has also launched a
Global Product Suite for the businessmen. Here, they are provided with business tools like
central billing and monetary reporting data. The hosts of the company can easily promote the
accommodations with the use of the company’s technical infrastructure for posting content
and photos. The cost is fixed and less because the labour is few. Still, it is convenient than
many other hospitality services (Leist, 2016). The company has improved in the
technological sphere too. It has a feature that is called Social Connections from which the
users can find if they have any mutual friends in the Airbnb community.
It has also launched a travel guide called Neighbourhoods that provide information to the
customers to choose the location where they would want to stay. This is nothing but the result
of the disruptive innovation method. The company provided the customers with the benefit of
split payments if sixteen travellers are visiting together. The company has developed
culturally also. It has launched Open Homes to offer low cost or even free housing to
displaced people or refugees. It has also helped the victims of natural disasters, just like once
in 2012 after the storm in New York City.
Though the company provides many benefits to the customers, it has some drawbacks too. It
has been demanded to form high-end hotels that they would have hosts to attend and proper
maintenance of cleanliness. The Airbnb has followed the disruption theory of innovation.
Thus, it does not provide many hosts as it is expected from five-star hotels. The company
should improve in this area to provide the best to the customers. The company should
maintain the status it has gained all over the years. In order to do this, it should come up with
new innovative ideas just like Beyond service. It can also improve existing products and
services like Airbnb Plus. New technical advancements can also improve the quality of the
online services and provide help to the customers. New programs and updated guidebooks
should be provided to the customers for a better experience. The company should adopt the
promotion, sales, and income management techniques that are calculated and planned. At the
calculated level, the company should consider the methods that would help them in fulfilling
the customers’ needs. At a planned level, the company should consider the promotion and
relationship management with the customers (Mody and Gomez, 2018).
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