Managing Innovation at Airbnb: A Disruptive Innovation Analysis

This report provides a comprehensive analysis of Airbnb's disruptive innovation, detailing its application of the disruptive innovation theory within the hospitality industry. It begins with an introduction to the concept of disruptive innovation, outlining its principles and processes, and then explor...Read More

RUNNING HEAD: Managing Innovation 0
Airbnb
Managing innovation

Managing Innovation 1
Contents
Introduction...........................................................................................................................................2
Disruptive innovation theory.................................................................................................................2
Principles and process of disruptive innovation theory..........................................................................2
Pros and cons of the application of the disruptive innovation theory in Airbnb.....................................3
Background of Airbnb...........................................................................................................................5
Disruptive innovation theory at Airbnb.................................................................................................5
Past and present.....................................................................................................................................6
Future....................................................................................................................................................6
Conclusion.............................................................................................................................................6
References.............................................................................................................................................8

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Introduction
Managing innovations is the act of introducing something new. It is not simply inventing
something new like the product but it requires be launching and introducing to the world.
This report states the disruptive innovation of Airbnb. Airbnb drives an online marketplace
and hospitality service. It can be accessed through websites and mobile applications. The
company has taken a unique approach to the lodge. This report comprises the disruptive
innovation theory. The principles and process of disruptive innovation theory are also
accompanied by the pros and cons. The application of disruptive innovation theory in Airbnb
Company is applied. The background of Airbnb is discussed in the report along with the
disruptive innovation theory. The past, present, and future of Airbnb are discussed
concerning disruptive innovations.
Disruptive innovation theory
The disruptive innovation theory is an influential way of discerning concerning innovation-
driven growth. It leads to the overview of product or service into the established industry
which aims at performing better (Govindarajan, Kopalle & Danneels, 2011). Disruptive
innovation is a practice in which product or service takes origin at the bottom of the market
by being less expensive and more accessible. The disruptive innovation theory explains the
phenomenon in which an innovation is transformed into the existing market by hosting
simplicity, convenience, accessibility, and affordability. The disruptive innovations generally
take place in the niche market and appear unattractive to the industry but the new product
wholly redefines the industry. It is a positive force and makes products better, accessible and
affordable (Leclercq-Vandelannoitte, 2015).
Principles and process of disruptive innovation theory
The disruptive innovations help companies to make a bold move. Disruptive innovations are
based on the following principles:
Let go of the past: The past works as a great teacher but bringing past in the present can
shackle the imagination and refer to thinking small (Greenhalgh, et al. 2004).
Boost courage: The employees should be encouraged to express their ideas. The spirit of the
invention is instilled in the team by enabling people to express their ideas.
Embrace failure: The ideas should be carefully cherished by several trials and adjustments.
The team should be encouraged to think of failure as a learning skill of the innovation.
Imaging possibilities: Looking for the powerful ways to reinvent business can be invented by
the possibilities which do not exist (Joshi, 2018).
Reject limits: As a part of the disruptive technology, a company should meet with the
resistance. A company should think of ideas beyond the limits.

Managing Innovation 3
Aim beyond: The past and present should not mislead the future. The research should be done
properly and data should be assessed to understand the project and take a step forward
(Christensen, Raynor and McDonald, 2015).
The process of the disruptive innovation process is explained below:
The process in Airbnb starts when the customers pick the option of availing services on the
website. The customer views the hotels listed on the website. The suitable hotel is selected as
per budget and locality. There are various options available on the website as per the budget.
Afterward bookings are made by the customers on the prescribed date. The ERP system
manages bookings and automates functions. The ERP system analyses the data. Airbnb
record order by confirming identify of a person by the email id and government id. Afterward
the company validates order by checking the availability of rooms in the hotel (Hsiao and
Chuang, 2016). The host confirms whether the room is free on the specific date or not. Once
the availability is confirmed by the hotel, the bookings are confirmed by Airbnb. The
customers pay on the website of the company in advance just after the booking is confirmed.
Airbnb sends the confirmation call and message over the phone once the payment is made.
The rooms are kept booked on the specific dates decided by the guests. The guests can avail
the services for the days fixed by them. The guests are required to show a confirmation
message as soon as they check-in. The guests are also needed to show the ids for availing
services of the hotel.
Pros and cons of the application of the disruptive innovation theory in Airbnb
Pros
Lower prices: The disruptive innovation of Airbnb provides whole accommodation at the
lower prices than the three or five-star hotels. The single room provided by the company
costs less than the one or two-star hotel. It makes the stay of people at lower prices. People
are appealed towards the business model of the company. The Airbnb accommodations

Managing Innovation 4
provide more of local experience. Airbnb has even revolutionized the whole hospitality
industry (Pikkemaat and Peters, 2016).
Homely atmosphere: There is no reception, housekeeping or room service in the Airbnb
accommodations. The customers can easily make bookings on the website. It has even eased
the process of check-in and check-out. There is a number of hosts at the website of the
company (Horng, et al. 2017). The customers can opt for any accommodation liked by them
by views pictures and ratings.
Huge options: Airbnb provides great options for the hotels varying in prices and services. The
guests can pick any accommodation as per the suitability. The customers are required to login
with their email ids and the government id is also required for availing services (Priporas, et
al. 2017).
Easy cancellation: The customers can cancel the bookings if the need arises. It is the easy
process the customers can go on the website and view the option of cancellation. But the
guests will be liable to the financial liabilities. The guests are partially charged up to some
percentage.
Cons
Negative impact on the on the local quality of life: Contracting a place on Airbnb can be
actually an inexpensive holiday but it actually results in pushing rent rates for the locals. The
decision of saving a few bucks for a trip can become an expense of the local residents. As
invisible tourists, it is desired to support local residents of the places visited. The lives of the
locals should not be made difficult. The residents also have raised concern about the regular
stream of different tourists (Qin, Li, and Yu, 2015).
No reception, housekeeping or room service: The hotels take care of matters such as
reception, housekeeping, doorman services and services required to keep the place
consecutively effortlessly. The absence of a reception area with the Airbnb leads to check in
and check out without a host. It is sometimes not flexible to suit travel plans.
Privacy is never guaranteed: The privacy is never guaranteed at Airbnb. Certain stories also
appeared about the hosts using concealed cameras in the rooms. It is never fine to film
someone without their consent. Airbnb is not for persons who love privacy (Henttonen,
Hurmelinna‐Laukkanen, and Ritala, 2016).
Lack of safety and security regulations: The constant principles and procedures are missing
across Airbnb rentals as these are mainly private possessions. The hosts do not follow the
strict regulations as other hotels do. The hosts also do not pay the same insurances as other
hotels do. If anything happens to Airbnb, the guests are not covered.
Airbnb can be illegal in the city visited: The company faces problems in different cities like
New York, Barcelona, Paris, Japan, Berlin and more. The domestic laws in these cities make
it unlawful to rent whole accommodation on Airbnb for less than thirty days. The company is
even charged to advertise unlicensed properties (Guttentag and Smith, 2017).

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Background of Airbnb
Airbnb was initiated in San Francisco during 2008. It runs an online marketplace and
hospitality service. Now, Airbnb is located in more than 190 countries and continues to
expand globally. The company is even able to establish operations in Cuba along with other
countries. Airbnb provides comfortable and reliable stays for the guests. It responds
immediately to the messages of guests within 24 hours. The company even accept reservation
requests, the guests do not have the need to send four or five requests in order to find a place.
The cancellations are taken seriously by the company and the hosts are asked to avoid
cancelling on guests. As a result, guests can be subjected to penalties comprising financial
penalties if the confirmed booking is cancelled (Wikhamn, et al. 2018).
The guests on the website of the company can search for the lodging by making use of filters
like lodging type, location, date, and price. The guests are required to provide personal and
payment information before booking. Airbnb has especially ‘designed for trust’ and provides
various options for the safety mechanisms. The company has acquired Localmind in
December 2012. It is a platform allows users to post questions regarding specific locations
online.
Disruptive innovation theory at Airbnb
The disruption is considered a theory of competitive response. Initially, Airbnb permitted
guests to nap on an airbed in the living room of a random person for a low price. People who
were involved to Airbnb were not the same as those were fascinated to luxurious hotels. It is
because this model was for low-value customers. This disruption model even did not
necessitate Airbnb to own possessions and hire operating staff. It was a low-cost resolution
for the low-value customer. Over time, Airbnb raised in popularity along with the quality
offered. The company even started to address the necessities of the higher value customers
(González-Rodríguez, et al. 2018).
Airbnb as disruption innovation used Christensen theory. According to this theory, disruption
can be low end or new-market. The low-end disruption states to the business which serves at
the bottom of the market and serves customers in a ‘good enough’ way. The new-market
disruption states to the business which competes in the low margin sectors of the market.
Both low end and new market disruption are used by Airbnb to emphasis on the over-served
and underserved customers. Airbnb is disruptive due to its ‘innovative internet-based model
and exceptional appeal to the tourists’. The hosts can easily promote their accommodations
by using the technological infrastructure of Airbnb to post content along with the photos
(Guttentag, 2015). Airbnb offers more local experience and charges less than staying in a
hotel. Airbnb is considered disruptive because it appeals more to the low-end market and
charges low rent. The Airbnb rates for a whole apartment are less than the four and five-star
hotels (Gomezelj, 2016). Whereas Airbnb rates of a private room are less than the one or two-
star hotels. The company has experienced massive growth since 2007.

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Past and present
The occurrence of the hospitality business was barely a matter of profitable interest. But with
the prime network accommodation service, Airbnb has surpassed the huge hotel chains in the
quantity of beds offered and market assessment. The web-driver initiatives of the company
offer guests a place to stay and sharing experiences. Airbnb was started in 2007 by converting
the home into the air, bed, and breakfast by proposing overnight stays on air mattresses. A
few years later, the Airbnb’s website went afar air mattresses and extra rooms and started
offering whole apartments. The company becomes a competitor in the traditional hospitality
industry. The business model of the Airbnb is grounded on the persons who need additional
money can rent out their properties. The company keeps step with the rapid and disruptive
growth by combining insights with the trends and developments recognized. Airbnb is a low-
cost decision and the hotels are driven by financial motives. The hosts of Airbnb offer
competitive pricing as compared to the hotels (Xiao, et al. 2019). The small and medium-size
independent hotels attained a great opportunity to enhance the visibility of their offerings by
contracting with Airbnb (Dogru, Mody and Suess, 2019). The sales of the company continue
to revolutionize the market. Till now the company has been successful in conquering 65,000
cities in more than 190 countries.
Future
Airbnb is expected to double its bookings in the coming year with the 40-50% growth. The
company is capable of making 3.6-4.3% of accommodation inventory by 2020. The affected
segments in the initial years were lower-priced hotels, not business travel. Airbnb aspires to
enter into the business world in the future (Yang, et al. 2018). It can result in a competitive
threat to the hotel industry. The company has realized expansion opportunities in the new
geographical areas or offers external to the business model of the company. A deductive
approach is set by Airbnb for future development. This approach stipulates the circumstances
in terms of consequences of critical uncertainties identified as scenario dimensions. This
situation method is also known as global business network method. Add on, Airbnb has also
planned to organize a digital Delphi panel with the extensive biological spread with a total of
31 hoteliers, consultants and destination marketers (Cronin and Dearing, 2017). Airbnb has
even planned to focus more on the guest experience as a vision of 2020. The guest experience
will be considered a significant element in real estate evaluations.
Conclusion
Airbnb epitomizes an advanced accommodation product which has moved the perception of
hospitality all over the hotel industry. The company has introduced something innovative.
Airbnb has become a significant topic in the hospitality sector. There is slight considerate of
the degree to which Airbnb is used as a hotel auxiliary or how the guests of the company
view service relative to the hotels. The disruptive innovation helped Airbnb to aim beyond.
The application of disruptive innovation comprises imagine possibilities and reject limits.
The process of disruptive innovation defines the process of Airbnb. The application of
disruptive innovation theory in Airbnb has attained pros in the form of lower prices, homely
atmosphere, huge options, and easy cancellation. The cons are realized in the form of

Managing Innovation 7
negative impact on the on the local quality of life, no reception, housekeeping or room
service, no guaranteed privacy, lack of safety and security regulations, the price is never
guaranteed and is also illegal in some cities. Airbnb as disruption innovation used
Christensen theory. According to this theory, disruption can be low end or new-market. The
disruptive theory used by Airbnb is the theory of competitive response. Initially, Airbnb
permitted guests to sleep on an airbed in the living room of a random person for a low price.
This disruption model even did not necessitate Airbnb to own possessions and employ
operating staff. Airbnb soon started to address the needs of the higher income segment.
Airbnb has surpassed the huge hotel chains in the number of bed offered and market
assessment. In the coming years, Airbnb is expected to double its bookings with the 40-50%
growth. The company is even capable of making 3.6-4.3% of accommodation inventory by
2020.

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References
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Cronin, M.J. and Dearing, T.C. eds., 2017. Managing for social impact: Innovations in
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and Okumus, F., 2018. Revisiting the link between business strategy and performance:
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