BUS020X618S: Innovation Theories Application on Airbnb's Growth

This report provides an in-depth analysis of Airbnb through the lens of innovation theories, specifically focusing on disruptive innovation and the three-horizon model. It begins by defining innovation and introducing Airbnb as a case study, highlighting its business model and global presence. The report then delves into a discussion of the two selected innovation theories, explaining their core concepts and illustrating them with diagrams. A critical analysis of these theories follows, examining their strengths and limitations in the context of business strategy and innovation management. The application of these theories to Airbnb is then explored, detailing how disruptive innovation explains Airbnb's market entry and growth, and how the three-horizon model can be used to understand Airbnb's past, present, and future innovation initiatives. The report concludes by summarizing the key findings and highlighting the importance of innovation for companies like Airbnb in maintaining a competitive edge.

BUSINESS MANAGEMENT 0
Business management
Innovation assessment
System04116
2/28/2019

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Contents
INTRODUCTION...........................................................................................................................2
Discussion 1.....................................................................................................................................2
Disruptive theory of innovation:..................................................................................................3
3-three horizon model:.................................................................................................................3
Diagrams of innovation theories:.................................................................................................4
Critical analysis:...........................................................................................................................6
Discussion 2 application to Airbnb..................................................................................................9
Conclusion.....................................................................................................................................17
References......................................................................................................................................19

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INTRODUCTION
Innovation refers to the process of converting the new inventions and ideas into a products or
services and processes or methods of operation that creates value for which customers will pay.
The Airbnb Company is chosen for completing this assessment of innovation. Airbnb stands for
Airbed and breakfast. Airbnb is a privately owned global company. The headquartered of Airbnb
is in San Francisco, which operates a virtual marketplace, and guest ship service that is available
through its mobile apps and websites (Jasper, 2015).
The following report is about the innovation. Every company requires being innovative for
achieving higher success in their respective areas or industries. The two innovation theories are
used such as disruptive innovation and 3-three horizons model. These theories are used for
analysis how large industries are disrupted and how a small industries can guarantees success
when they faced with a larger competitors. It also used when for looking into the future scenarios
of market to adjust the strategies of the industries and to balance its portfolio for innovation
according to it. The applicability of innovation theories on Airbnb, history of Airbnb related to
innovation and future pathways for innovation is discussed with the help of diagrams. The
business model is discussed in respect to the Airbnb how they do business what techniques and
tools they used for the business in competitors markets.
Discussion 1
Innovation theories is also known as diffusion of innovation theory, it defines how advancements
such as new ideas, behaviors, technology or products to gain traction and over time spread, or
diffuse, throughout a specific population. An innovation is concerned with new things moves
from creation to usage. The main point of the innovation is an idea that differs in types of the
people who take on new ideas or goods on varied timelines.
There are two innovation theories that applicable on Airbnb such as:
1. Disruptive theory of innovation
2. 3-three horizon model

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Disruptive theory of innovation:
Disruptive theory is one of the important theories of innovation but it is one of the theory that is
completely misunderstood. This theory explains that why big or established organizations
eventually are overtaken by smaller organization. In this theory, the market of large companies is
disrupted by the markets of small companies by introducing a new version of an offering that
request more to a subset of the clients or customers. In many cases, a small company introduces
new technologies that are inferior in performance and quality of products compared to the big
companies. However, it makes up for it in different way like lowering the price or convenience.
Over the time and repetition, new technologies will start improving to handle various other
demanding uses (Christensen, 2011).
3-three horizon model:
The three horizons model of innovation is grounded on McKinsey’s three horizons of growth. It
is applied to identify, in what way good the company’s offerings of business will be competent
to provide value and suit to their overall strategies as time takeoff.
The horizons in an invention framework are as follows:
 H 1: exploitation of existing offerings
 H 2: extend the business with new offerings that provides new value
 H 3: explore new offerings for future, which can transform the organization but are not
prepared yet.
As time takeoff, the companies noticed that customer tastes, preferences, competition,
technology and the whole market need to be change. They often make their present offerings as
of less value and require more offerings that are innovative to take their place. When it is
happened, one horizon is replaced by another horizon that is called disrupted point.
This theory is basically applicable to the discussion at CXO or executive level within an
organization to clear that leadership have an complete view of the need for several types of
activities related to innovation. Therefore, it allows the leadership of company to become aware
of the need to ready for the future changes and invest in a multiplicity of innovations that may
not recently be feasible. But It could become the main offerings for the companies in future. It is

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important for viewing into the scenarios of future market to adjust their strategies and balance
their portfolio of innovation according to it.
Diagrams of innovation theories:
1. Disruptive innovation theory-
(Source: Christensen, 2011)
To simplify the diagram, they depict the ability of customers to utilize for an improvement as a
particular line. There is a distribution of customers around this median. Various lines or tiers are
found in markets that are specified by the curve distribution at the right. The Consumers in the
maximum or utmost demanding levels may not be contented with the top that is accessible and
those consumers in the lowermost or minimum demanding levels can be over contented with
minimum. However, on average, this scattered line signifies technology that is virtuous enough
to help existing mainstream customer’s needs (Guttentag, 2013).
In every marketplace, there is a diverse route of improvement that innovating businesses provide
as they announce new and better products and services.

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2. 3-three horizon model:
(Source: Hobcraft, 2015)
Company need to simplify how to recognize the present prevailing or leading system and the
challenges to its continuity into the future, that is in the case for variation in horizon 1. An
Innovation cannot able to find the fit aspects over the time as an external environment varies.
They need to think over the necessary future state, the system that is ideal, they want and the
evolving options that move what they previously have. In horizon 3, mostly they can recognize
basics in the present that provide them encouragement, keeping themselves flexible to all the
preferences that can lead to variation (Ryan, 2019).
Critical analysis:
Many business leaders are not businesspersons or have lost their contact are scared by the view
of such innovation and choose the unstoppable obsession of continued innovation or the keep of
the status quo. The status quo is a brief misapprehension that is selecting speed in the new
marketplaces of the twenty first century. The effective leaders are very often businesspersons in
their personal way, and they appreciate the following benefits of approving the disruptive
innovation plan:

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 It can assist their company increase its market through innovation with new and present
products and services.
 They will identify who are their leaders for these days and for the future. Individuals who
are interested and accept the challenge or problems are the future. People who regret
what is happening and mention to the previous are the past.
 Future opportunities will present themselves as they unlocked the door for the
opportunity of somewhat new, while building a growth platform.
The last point related to disruptive innovative theory is serious as the uncertain and most
unsafe things they can do as a leader is resist the necessity to innovate (Ayodele, 2012).
1. A valuable framework to move your company from inertia to innovation is McKinsey’s
three horizons model. Here we look at who use the model, what it is and how companies
can put it into practice to drive continuous growth today and in future. When companies
are born, they are filled with forward momentum, innovation and growth. As the years
wear on, that innovative spirit is often replaced with inertia. Organizations are bogged
down with the day to day and are not as proactive about looking toward the future. That
is precisely the set of affairs three horizons of growth framework by McKinsey is setup
for addressing. Since the model can help most organizations (Tobias, 2014).
Any company that needs a simple framework to inspire growth and innovation can benefit from
the three horizons model. This framework will not just affect your organization financial goals as
it can invigorate your team and ignite their passion once again. Based on three years of research
into how high performing companies sustain growth, the three horizons theory will not
jeopardize current business as it maximizes future opportunities. Every organization needs
consistent growth over its life, and that is precisely what the three horizons model provides (Min,
and Christian, 2017).
When you put the three horizons into practice in your organization, the 70/20/10 rule is a
good way to plan your activities. Seventy percent of your activity needs to be focused on
horizon 1 since your survival today is crucial for getting to tomorrow. Then allocate 20
percent of your activities to horizon 2 which should be enough to account for the failures and

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missteps your team will experience to bridge to horizon 3 that leaves 10% of your activities
for research and experimentation of horizon 3 (Schleifer, 2018).
Both the theories of innovations are applicable on Airbnb company after critically analysis
the above innovation theories.
Discussion 2 application to Airbnb
Introduction to Airbnb: Joe Gebbia, Nathan Blecharczyk and Brian Chesky founded The Airbnb
Business in San Francisco during 2008 where they developed the primary to peer to peer
facilities that are specific in housings of rooms. The initiators were nomadic for meeting in 2007
but not able to pay for their housing. Therefore, initiators decided to charge rent for their part of
house in respect to help concerning pay for the journey cost. This produced their ideas.
Application to Airbnb:
Disruptive theory of innovation: Airbnb is a disruptive innovation that is using the Christensen’s
theory. Airbnb is disruptive innovation because of its innovative business model, which is based
on internet and its unique appeal to hosts or travelers. With the utilization of reviews, identity
verification, and users profiles. Airbnb permits peer-to-peer accommodations. Hosts or travelers
are also able to uphold their accommodations by using technological infrastructure of Airbnb to
post pictures and content. For hosts or travelers it charges less than staying in a hotel and
provides them a local experience. Hosts or travelers can be appeared in the native culture by
residing in non-tourist areas (Daniel, 2017).
Airbnb is also disruptive because it request to the little end of the market which offering the low
cost to rent of the housing. The median rates of Airbnb for the complete home or bed-sitter are
usually less than five stars hotels. The rates of Airbnb for a private room are incompletely similar
to those of two stars hotels (Dogru, and Markarand, 2019).
With the unique benefits of convenience, local experiences and lower prices, Airbnb has also
experienced enormous growth since 2007.
Three-horizon theory of innovation:

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After researched, it is identified that the innovative theory three horizons is applicable in the
company. This theory has three horizons that are first horizon, second horizon and third horizon.
First origin: It states the present conditions and context of Airbnb and emphasizes on maintaining
stability. The mindset of the manager is also the first horizon of Airbnb. The assumptions about
the productions, resources, services, customers, staffs, capital are discussed in the first horizon.
The services provided by the Airbnb benefited the hosts and travelers. The current working
assumptions about services is identify current situation of market place and provide lower rental
prices comparison to hotels. Airbnb gives the better opportunities to travelers to save money and
hosts to earn them that maintain stability of the company. The staff is focusing on the customer’s
satisfaction, provides hosts and travelers lower rates for rental housing at those areas where they
want to travel (Sharpe, 2013).
Second horizon: in second horizon, present actions taken to resist the changes and to adapt to
those changes or building on those changes. The focus is on creations or managements of
change. In second horizon, the mindset is that of the entrepreneur. The changes are made
according to the requirements or needs of the customers (Hobcraft, 2015).
2. The following assumptions are most challenged by the change in Airbnb business that
are; disrupted by large companies as they provide quality service though their prices are
higher in comparison to Airbnb who arranges rental housing for hosts or travelers across
the cities. Airbnb has offered various categories of accommodation mainly three are
taken into consideration such as share space, private room, and entire room. Airbnb
offered common space that could be an actual idea of an airbed in living room of peoples.
The Private rooms that means they will have the traveler or hosts around but the mark of
seclusion. The complete home that means progressively a bedsitting room may be let
skillfully by a business. These highly vulnerable changes used as assumption will
strengthen their business (Arup, Et all, 2016).
Third horizon: according to third horizon, it is mandatory to identify emerging variations or
changes which represents the transformational shifts from the current market. The changes that

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are emerging completely as new paradigms are providing accommodations with various facilities
such as share space, private rooms and entire room.
Historical innovation of Airbnb:
The founders of Airbnb, who moved to New York without any job, were facing problem in
disbursing their rent and they were seeing the different ways to make some money. They
observed that hotel rooms in New York were fully reserved. After that, they saw such
opportunity. They purchased some airbeds and rapidly put up a website, which was named as
“Air bed and breakfast” AIRBNB. The idea or plan was to offer tourists a place where they can
take rest and breakfast early in the morning. For that, they rented $80 per night. The plan or idea
prospered and some co-founders joined the team. They face severe problems as the website had
only two users. They at first invented at SXSW and received two bookings only. Afterward they
make changes in the website; the company for a second time was launched in august 2008. An
idea was to provide to the number of individuals that approached to the convention. Over and
above 600 persons stayed at Airbnb but their achievement was short-lived (Mckeown, 2014).
They discovered the main problem that the listing pictures were not good. For that purpose, that
purchased a camera and go to each place to take good pictures of the listings. After staying their
clients in New York, Airbnb lastly got traction. Their emphasis was changed from common
space to all accommodation types. (Eyal, and Aliza, 2016).
Future innovation pathways:
Airbnb adopt various pathways related to innovation for future. As they have 2 crores listings in
34000 cities and 191, nations and now serving total 60,000,000 guests till date. Airbnb is now
expanding away from home and rentals of room to offer full services. jobs for people (Incitrio,
2018).
As it is understood that Airbnb depends on two components such as travelers and hosts. They
adopt marketing strategies to encourage and reach number of peoples around the world. They
decided to create offers visually attractive to attract more users. They cooperated with google
and devoted in google exploration advertisement. They performed banner advertisement

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operation that included pictures of apartments and its rooms. This helps in gaining international
audience (Ana, and Michael, 2017).
Airbnb uses tools of digital marketing to enhance customer base that will help in future. The
company generates content about the zone by cooperating with the local travels and hosts
(Wulfen, 2018).
For future innovation, the company focuses more on social media marketing. They regularly post
pictures and videos on Facebook, Instagram or on other social sites of their listings and attract
travelers to visit the place. They launch their own mobile app, which will help in booking rental
place directly from the app at home. Airbnb published a local city guide that provides detailed
information to visitors or travelers (Alina, 2017).
Airbnb made a new logo and titled it “Belo.” They consider that experience of Airbnb is too
varied and unique to represent the one traditional logo. Therefore, they provide creative control
to hosts and travelers. Clients can stay creative Airbnb to modify the sign by changing its shape,
color, icons and merging designs into a current logo. They can paint and sketch a sign that
reflects their experience. The symbols can be carried home in the form of products like thank
you cards, mugs, and remembrance stickers. This will help in increasing or expanding the
customers and bond of brand (Perner, 2018).
Airbnb has begins their hosts and guests services on mobile devices in result to the increasing
use of mobiles by customers. The founders of Airbnb are now more focusing on mobiles, and
build out their mobile team and mobile product. The bookings from Airbnb mobile app become
much faster which will facilitates the hosts and travelers (Willcocks, Et all, 2018).

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Business model:
The business model canvas comprises the nine categories which seen below to describe the
business model of Airbnb. The left hand side of the table is the supply side and right hand side is
the customer side (Makovsky, 2019).
Key partners:
 Busines
s travel
partners
 Travel
manage
rs
 Investor
s
 Lobbyis
ts
Important
activities:
 eradicate
friction from
transactions
 measure
beyond
critical mass
 involve the
participants
 improve value
proposal
 study data
Value proposition:
hosts:
 generation
of income
 Transaction
easiness
 Gathering
new people
 Easiness in
getting
approved
visitors
 Booking,
managemen
t, calendar,
guests:
 Lesser cost
 Ease in
transaction
 Reliable
native
experience
 New variety
 Ratings of
transport
Customer
relationships:
 Own the
relationships
 Manage
interactions
 Resolution of
issues
 Lead joining
steps
 Company
image
Customer
segments
Macro
segmentation
Guest:
 Travel
type
 Demo
graphi
c
 Geogr
aphic
 Behavi
oral
Hosts:
 Acco
mmod
ation
type
 Demo
graphi
c
 Geogr
aphic
 Rental
prefere
Important
resources:
 The effect of
network
 Schedules
 Employer
generated
content
 Platform
structural
design
 Procedures,
data, analytics
Networks:
 Digital
marketing
 Content
marketing
 Expression of
mouth
 Messaging,
social
 appointment
program
 transaction:
pages, apps