Airbnb, founded during the economic downturn of 2008, is one of many innovative businesses operating within the growing shared economy. Airbnb offers an alternative to the traditional hotel business and allows property owners, termed “hosts,” to advertise and rent their extra space, be it a spare room, apartment or treehouse. “Guests” search through the Airbnb website, read reviews and connect with hosts to find less conventional and, often more, affordable lodging. Key to Airbnb’s business success is establishing a framework of trust on which both hosts and guests can rely, a system Airbnb has developed through a strong marketing strategy and through specific practices that support host and guest throughout the rental process. Building this framework of trust in the system is a focus not just for Airbnb, but is also typical of a company operating in the new sharing economy.
WHAT IS THE SHARING ECONOMY?
The sharing economy is a new economic opportunity for customers to access goods whenever they are required at that moment – with access trumping ownership. For example, if a person only uses a car once a month, they could rent a car from a sharing economy company like ZipCar instead of paying a monthly car payment for a car they barely use. Following the economic recession, many Americans have become less wasteful in using their economic resources. In addition, more Americans are expressing an interest in being more socially conscious of green initiatives and other social responsibilities (Neilson). These trends have resulted in a new focus on shared resources. Beyond just the economic benefits, goodwill and community building are important drivers of the sharing economy. Today, people who feel the burden of the current economic period may prefer to rent or sell to their peers instead of giving their business to major corporations.
Furthermore, the Consumer-to-Consumer (C2C) business model is allowing many individuals to exploit their own resources to gain additional income without the high startup costs and long-term commitment for business sustainability. Although the idea of sharing is an old idea, the ability for sharing to generate profit is relatively new. The sharing economy is greatly influenced by online commerce and social media. Online commerce has made it easier for peers to share their goods and services with one another using trusted financing services through websites such as PayPal. Social media has helped spread the economic and personal benefits of the sharing economy and has served as the fundamental marketing tool for the growth of countless collaborative consumption companies. Companies functioning primarily in the sharing economy consistently urge their users to share their experiences via Facebook, Twitter and other social networks. These social platforms have become so integrated in web transactions that once a customer has confirmed or paid, they are prompted to immediately post their money-saving or moneymaking success directly to their social media page of choice.
Also referred to as collaborative consumption, the social economy follows the idea that people will first use what they have, borrow, swap, make and thrift items before they actually buy something brand new (Anderson). The marketers of these sharing economy companies primarily target a few segments but are constantly expanding. Urban areas and members of the X and Y Generations are key demographics for the sharing economy. Demographically, the majority of sharing economy companies will target Generation Y due to their concern for environmental and social issues that influence their decision to save and reuse resources (Kotler, Philip, and Kevin Lane Keller, Chapter 8). Statistics show that the newest generation of adults buys fewer houses and fewer cars than its predecessors (Ciccone). Furthermore, Generation Y is attracted to unconventional practices such as the sharing economy and is highly social, able to spread the word.
Generation X is more likely to be those who are renting out their goods and services. As Generation X has more responsibilities, they enjoy the extra income that helps them finance their obligations, such as children and paying a mortgage. People are collaborating informally in their communities out of both necessity and as a lifestyle choice. A sharing economy company should concentrate on branding, networking and experience to ensure its success (Olson). Branding is key because sharing economy companies want consumers to have confidence in their brand. The sharing economy is at an advantage, being relatively new with a market that is interconnected through online commerce and social media.
Outside of spreading the work, a sense of community is built within the network. Finally, a sharing economy company has to concentrate on customer experience. Customers are looking for ease of use and product value. When these desires are met, consumers will return to use the service as well as recommend it to others. One very successful example of a company with the sharing economy employing these factors is Airbnb, who in less than a decade has built a major competitor to the centuries old hotel industry.
WHAT IS AIRBNB?
Brian Chesky and Joe Gebbia founded Airbnb in San Francisco, when they began renting out airbeds in their apartment to people attending a local conference to generate additional income in 2008. The early business model for Airbedandbreakfast.com, later renamed Airbnb, focused on large conferences such as the Democratic and Republican Conventions, which created bustling business in the 2008 election year. In 2009 the founders, now including Gebbia’s former roommate and tech wiz Nathan Blecharczyk, received $600,000 in seed funding from Sequoia Capital. In that same year, acknowledging that renting to complete strangers made many people uncomfortable, Chesky and Gebbia flew to New York City, home to many of their users, to meet with hosts in person and survey for potential improvements.
This was an unusual strategy for an internet company but it later proved to be profitable. Over the next two years, Airbnb made several key strategic changes that gave it direction and force in the marketplace. Of particular note was the establishment of Airbnb’s broker’s payment model and the decision to bring in professionals to photograph host homes. By the end of 2011, Airbnb had gone international and reached critical mass (Geron). Forbes estimates that Airbnb likely lost money in 2012 in favor of accelerating growth, a hit the company could withstand due to the influx of capital from various Silicon Valley venture capital firms (Geron). Their market penetration is comparatively strong, according to Tech Crunch, with Airbnb’s booking expected to have surpassed that of Hilton in 2012 (Empson), and hosts renting to an estimated 2.5 million people according to the Economist (“All eyes on the sharing economy”).
The Wall Street Journal valued Airbnb at $2.5 billion in October 2012, and Privco projected their revenues for that year to be at $180 million (Melby). In exchange for customer support, website maintenance and various insurance and security features, Airbnb employs a broker-style payment model, taking a portion of the rental price between 6% and 12% from the guest, depending on the property price, and a 3% service fee from the host (Geron). Airbnb has come into its own financially, while still maintaining an identity that, though not especially anti-corporate, is certainly fresh, young and innovative. From the company logo, with its big, curly lettering and informal design, to its emphasis on direct interaction with potential users, Airbnb has built its brand for the generation inspired by innovation.
The motto “travel like a human” emphasizes the difference between the traditional, impersonal, corporate travel experience and the opportunity Airbnb presents to users to build their personal networks with hosts in far off places, at a lower cost. As is perhaps to be expected with an internet company, Airbnb relies heavily on social media to create and perpetuate its brand identity. A key aspect of the company brand is the travel experience. They post a “traveler of the week” on their Facebook, Twitter and Google Plus pages, and recently concluded a photo contest using Instagram, with Airbnb travel credits as the prize. While the choice of prize may be a bit opportunistic, the interactive concept to use the mainstream photo-sharing app, and the reward both fit well with the Airbnb brand and kept the focus on travel rather than profit motive. Naturally, travelers’ blog posts that mention Airbnb, whether they focus on the company or simply mention it in passing, are often promoted through “re-tweets” and posts on the Airbnb blog.
The experience of travel is only one facet of a company identity that is as carefully well-rounded and appealing as its users. Airbnb also emphasizes its interest in the popular local movement with its “Living Local” shows, a part of its “AirTV” series. Each online episode features a tour of a unique Airbnb host property, and interviews with the generally personable host or hosts. Beyond that, Airbnb is aware of the appeal of its unique and tech-centric business model to engineering and tech nerds. The company provides content catering directly to this audience through its specific engineering blog – nerds.Airbnb.com – and its Tech Talk YouTube series, where young tech enthusiasts present on innovative new technologies and how they can and are being harnessed to build businesses (YouTube). These videos, generally around an hour in length, provide an in-depth review of current technological and business innovations.
Airbnb also uses social media to associate itself with other organizations, not unlike cross branding, which establishes Airbnb as culturally present and economically innovative while also eliminating the costs of a major advertising campaign. Their Facebook page, for example, lists SXSW, TED, Virgin America, Lonely Planet and Business Punk as organizations that Airbnb “Likes.” Each of these associations strengthens their brand – Virgin America connects them to another untraditional travel company and to Virgin’s maverick CEO, Richard Branson, whose appeal to young professionals has made him by far the most followed “Influencer” on professional social media site LinkedIn (“LinkedIn Today: Top minds, big ideas”).
Similarly, their public association with SXSW reveals a cultural affinity in line with that of their clientele, and functions in tandem with the demand for lodging during the festival, to which Airbnb has dedicated a specific section of their site. Through these efforts, the company has branded itself as young, innovative and culturally and technically savvy—all traits that exist outside of its travel-focused revenue stream, but which are inherently appealing to the clientele, both hosts and guests, on which Airbnb relies.
AIRBNB FOR GUESTS
Airbnb’s business model focuses on consumer-to-consumer (C2C) transactions based on trust. Its model is similar to the popular C2C marketplace of eBay where buyers and sellers engage in transactions that are each evaluated by individuals for their level of risk on the basis of detailed profiles, history, product, price and other resources. However for Airbnb, the relative level of investment for guests and hosts is significantly higher on a per transaction basis. Travelers are risking their vacation experience, safety and in most cases, a relatively higher dollar value than a single product purchase. Hosts are offering their homes, their personal privacy and their own safety, as well as their living experience for the time that their place is secured by a guest. With these personal investments in mind, the success of Airbnb’s ability to instill confidence, trust and safety throughout their network was critical to the success of the company.
Airbnb’s roadmap to build safety and security for their renters includes a private messaging system that allows users to learn about each other prior to booking while holding private information to be disclosed at a later time. Another system is Airbnb’s “verified ID” badge where users will register their social networks such as LinkedIn, Facebook, Airbnb reviews and official documentation from their photo ID and/or passport. With the verification of all of these resources matching up, those users will receive a “Verified ID” badge with their account information demonstrating to other users that their identification has been vetted. In April of 2013, Airbnb began randomly selecting users to complete this profile and expect to have this expanded worldwide for all Airbnb members in the near future.
Over the last two years, Airbnb has made efforts to increase their resources to expand security and sustain the trust in the marketplace by doubling the size of their customer support staff with 24×7 support, creating a dedicated Trust & Safety department and designing tools to verify user profiles and facilitating richer communications between guests and hosts prior to booking. With these basic features, the usability, consistency and accessibility to hosts and the Airbnb support team continue to be critical characteristics to Airbnb’s service roadmap. Although, when travelers are “shopping” they also have the responsibility of maximizing their use of these tools and take care in evaluating their own transaction risk by perusing host profiles, reviews, social networks and even connecting with their host on a regular basis.
AIRBNB FOR HOSTS
Hosts are just as much Airbnb’s customers as guests so while they must inspire guests to stay in an individual’s residence, Airbnb must simultaneously inspire trust and confidence in the Airbnb model for hosts. Airbnb’s actions and interactions with hosts and potential hosts are meant to project an image of control, confidence and community for the host, with a particular focus on doing so administratively, financially and socially. To simplify and centralize the hosting process, Airbnb manages all the administrative functions of becoming a host, which provides a support system and protection for the host and his or her property. Rather than having hosts build a new website for their rental, the site is already created (in multiple languages and currencies) and all he or she must do to get started is create a profile. Airbnb has a free customer service team to help first-time hosts understand the process. While Airbnb makes it clear on their website that understanding tax and legal status for hosts is the responsibility of the host, Airbnb provides reference documents and answers to common questions on their website.
Although Airbnb maintains the site architecture, hosts are in complete control over the rental price, amenities and house rules. Airbnb in some cases will even offer free professional photography for host properties. A secure online payment system is built into the website to guarantee complete, on-time payment directly to the host (“Why Host”). Hosts are essentially allowing a stranger into their home (or boat, treehouse, etc.) so a sense of control is key for their confidence in this model. To do so, Airbnb creates systems to offer protection to hosts’ persons and property. Hosts have total control over who rents their listing. A potential guest puts in a reservation request through the online system and then the host has 24 hours to accept or decline the request. During this time the host and potential guest can communicate through the website communications system and reference the aforementioned “verified ID” system. However, the rental address is not given out until the owner accepts the guest and hosts also have access to the 24-hour customer service hotline (“Trust”).
Since most hosts are renting primary residences or rooms, protecting against potential damage is much more important than if this was a hotel or business. While normal renters’ or homeowners’ insurance is the responsibility of the host, in 2011 Airbnb launched its “Host Guarantee” property protection program. In May 2012, it took insurance underwritten by Lloyd’s of London to extend the Host Guarantee to up to $1 million in property damages. This covers guest damages beyond the scope of “reasonable wear and tear” in 23 countries. No additional cost or actions are required for the host to have this protection (“Guarantee”). The financial incentive is a key reason people become hosts. In a survey of members of Airbnb in San Francisco in November 2012, over 90% of hosts rented their primary residences to visitors and spent almost half the income they made on living expenses (Lawler). To encourage more people to become hosts and to support existing hosts, Airbnb also focuses on facilitating the financial aspects of renting. Firstly, it is free to create a listing using Airbnb.
For online payments, the guest submits payment and once the reservation is accepted Airbnb processes and collects the payment in full. Airbnb holds the payment until 24 hours after check-in (and after the guest-host walk through). This helps uphold host cancellation policies and provides a neutral third-party for financial exchange. The Airbnb website also facilitates cleaning fees which are held until the property is vacated. The secure payment of fees and usage is a key way Airbnb builds confidence for hosts in addition to the social and cultural aspects of hosting. While the first reason most hosts decide to rent their space is financial, another reason is a desire to meet new people, show off their city and be part of the shared economy.
Airbnb allows hosts to rent out primary and secondary residences, but 50% of hosts rent private rooms in their residence while they are there (“Life”). On the Airbnb site, there are numerous forums and guides for people to learn about becoming a host, exchange ideas and form a deeper community within the sharing economy. The social community built in Airbnb, plus the financial and administrative support systems, encourage new and repeat hosts to open their homes and lives up to the world because they trust in the brand and system created by Airbnb.
Airbnb’s success did not come without the expected growing pains of any startup company, and especially one commanding a dominant market share in the new sharing economy. While its impact on the tourist trade, individual income, revenue to small businesses and economic stimulation are remarkable, the personal price some individuals have had to pay using Airbnb’s service is important not to overlook. From city-issued sanctions to individuals violating lease regulations, to vandalism of personal property and identity theft, the safety, benefits, opportunity costs, and sustainability of Airbnb’s service has been questioned in the media. To alleviate some of these concerns and remain a viable business, Airbnb should examine these obstacles in an effort to institute awareness through its community. They can continue to find ways to provide a more comprehensive and scrutinized ID verification process for all of their users to minimize the existence of bad apples.
The level of care that hosts place on evaluating their individual transaction risk and understanding of regulations specific to their city has a direct impact on their safety and success as an Airbnb host. Through consumer forums, hosts, guests, and potential consumers and guests can communicate on a network to learn from their peers. Airbnb should also consider expanding the countries covered and the items covered under the “Host Guarantee” to increase host protections locally and internationally. Moving forward, Airbnb has to be conscious of the popular pitfalls fellow sharing economy companies have faced. In a Campbell Mithun study, consumers were concerned with the following, in descending order: What I lend could get lost or stolen, I might not trust others in the network, my privacy might be compromised, sharing is not worth the effort, and the goods or services might be of poor quality (Olson). As described above, Airbnb has taken necessary measures to help defend the safety and privacy of its host and guests. However, as the sharing economy evolves, this could get more difficult and new safety concerns can arise that Airbnb will need to resolve quickly.
Collaborative consumption represents a major economic, social and cultural shift as it moves out of infancy and toward acceptance. These companies need to find the balance between the potential of the sharing economy and the standing regulation of the government. The current brick and mortar companies that are participating in highly-regulated industries like hotels or rental cars now have to compete with services that do not go through the same rigorous levels of inspection or qualifications to ensure public safety (Lawler). Sharing economy companies could make a solid argument for self-regulation. Airbnb should take care that they currently have the proper management to ensure there are no nefarious parties in their business dealings and that their brand is strong enough to self-regulate (Lawler). For a well-rounded approach, shared economy companies should look towards or at least be aware of how the government may impose regulations to see how they might help or hinder Airbnb’s progress.
There will come a time when companies like Airbnb will need to defend their unconventional and minimally regulated services, and should now put into place a team that can defend them. Lobbying municipal and state governments in high usage areas is a more traditional but still relevant area for Airbnb to protect its business model and by extension its users. The greatest advantage that collaborative consumption has when defending their stance to the economy is that they exist to help people in their communities to meet their goals (Metcalf, Warburg).
These companies need to leverage their community-based benefits as a way to gain support and appeal to those wanting greater government intervention. Preparation and understanding of user needs, government regulations and economic trends will bridge the nascent shared economy into a strong, sustainable economic force. Therefore, if Airbnb continues to focus on building a brand that consumers can trust in and created mechanisms to support hosts and guests then it can be a durable, profitable company for years to come.
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