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Established in 2008 during an economic downturn, Airbnb is a company that operates within the shared economy. It offers an alternative to traditional hotels by allowing property owners, known as "hosts," to rent out their extra space. Users, referred to as "guests," can use the Airbnb website to search for accommodations and connect with hosts. Trust is vital for Airbnb's success, which they have achieved through effective marketing strategies and practices that benefit both hosts and guests. This focus on trust is not exclusive to Airbnb but is also prevalent in other companies operating in 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 (Neilson).
In addition, more Americans are expressing an interest in being more socially conscious of green initiatives and other social responsibilities.
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“ She followed all my directions. It was really easy to contact her and respond very fast as well. ”
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.
Moreover, the Consumer-to-Consumer (C2C) business model enables individuals to utilize their own resources for additional income without the need for substantial startup costs and long-term commitment.
While sharing has always been a concept, its potential to generate profit is relatively recent.
The sharing economy is heavily influenced by online commerce and social media. Through online commerce, peers can easily exchange goods and services using reliable financing services like PayPal. Furthermore, social media has played a crucial role in spreading the economic and personal advantages of the sharing economy, serving as the primary marketing tool for numerous collaborative consumption companies. These companies actively encourage users to share their experiences on platforms like Facebook, Twitter, and other social networks. As these social platforms have become integral to web transactions, customers are now prompted to immediately post about their money-saving or moneymaking successes on their preferred social media page after confirming or making a payment.
The social economy, also known as collaborative consumption, promotes the idea that instead of purchasing new items, people should first utilize what they already have, borrow, swap, create, or thrift. According to Anderson, sharing economy companies primarily target a few segments but are consistently expanding. Urban areas and members of Generations X and Y are crucial demographics in the sharing economy. In terms of demographics, sharing economy companies focus mainly on Generation Y due to their concerns about environmental and social issues that influence their decision to conserve and reuse resources. (Kotler, Philip, and Kevin Lane Keller, Chapter 8). Data reveals that the newest generation of adults purchases fewer houses and cars compared to previous generations (Ciccone). Additionally, Generation Y is drawn to unconventional practices like the sharing economy and is highly sociable, which enables them to spread the word.
Generation X, comprised of individuals who have increased responsibilities such as raising children and managing mortgage payments, often engage in renting out their goods and services. They find this additional income to be advantageous in meeting their financial obligations. Collaborating informally within their communities has become both a necessity and a lifestyle choice for them. In order for a sharing economy company to succeed, it must prioritize the establishment of a strong brand, the creation of networking opportunities, and the provision of a valuable experience for its users (Olson). Developing a trustworthy brand is essential as it inspires consumer confidence. The sharing economy, which is still relatively new, benefits from its online commerce and social media platforms that connect the market.
The sharing economy has two key advantages: distributing work and promoting a feeling of community. In this industry, it is crucial for companies to prioritize the customer experience since customers appreciate convenience and valuable offerings. When these requirements are fulfilled, consumers will not only continue utilizing the service but also endorse it to others. Airbnb serves as an excellent illustration of a successful sharing economy firm that effectively integrates these aspects. Within a decade, Airbnb has emerged as a formidable rival to the conventional hotel sector.
Airbnb is a platform that enables travelers to rent homes or properties from individuals.
Brian Chesky and Joe Gebbia created Airbnb in 2008, based in San Francisco. Initially, they rented airbeds in their apartment to individuals attending local conferences with the aim of making extra money. Originally called Airbedandbreakfast.com, the company primarily focused on major events like the Democratic and Republican Conventions during the 2008 election, which turned out to be successful. In 2009, Nathan Blecharczyk joined the founders. Being a former roommate of Gebbia and possessing technological expertise, he proved to be a valuable addition. The trio secured $600,000 in seed funding from Sequoia Capital. Acknowledging people's reluctance to rent to strangers, Chesky and Gebbia personally traveled to New York City where Airbnb had numerous users. Their purpose was to meet hosts face-to-face and gather feedback for potential improvements.
Airbnb adopted an unconventional approach as an internet company but eventually became profitable. In the following two years, significant strategic changes were implemented by Airbnb to gain direction and strength in the market. Notably, they introduced a broker's payment model and hired professionals to photograph host homes. By the end of 2011, Airbnb had expanded internationally and achieved crucial growth (Geron). According to Forbes, it is speculated that Airbnb may have experienced losses in 2012 to support its rapid expansion; however, the company was able to manage it due to funds received from Silicon Valley venture capital firms (Geron). Tech Crunch suggests that Airbnb's market penetration is remarkable; their bookings potentially exceeded those of Hilton in 2012 (Empson). Furthermore, accommodations were rented by hosts to approximately 2.5 million individuals, as reported by the Economist ("All eyes on the sharing economy").
The Wall Street Journal estimated Airbnb's value to be $2.5 billion in October 2012, and Privco projected their revenues for that year to be $180 million (Melby). Airbnb employs a broker-style payment model, where they take a percentage of the rental price (between 6% and 12%) from the guest for customer support, website maintenance, insurance, and security features. The host is charged a 3% service fee (Geron). Financially successful, Airbnb still maintains a youthful and innovative identity. With its informal and curly logo, and emphasis on direct interaction with users, Airbnb has built a brand that appeals to the innovative generation.
The slogan "travel like a human" underscores the distinction between the conventional, impersonal, and corporate travel experience and the opportunity that Airbnb offers users to establish personal connections with hosts in distant locations, at a reduced cost. As expected for an internet company, Airbnb heavily relies on social media to shape and maintain its brand identity. An important aspect of this brand is the travel experience. Their Facebook, Twitter, and Google Plus pages feature a "traveler of the week" and they recently organized a photo contest on Instagram, where winners were awarded Airbnb travel credits. While some may view the choice of prize as opportunistic, the interactive nature of using a popular photo-sharing app and the reward align well with the Airbnb brand, keeping the focus on travel rather than solely profit. Naturally, blog posts by travelers that mention Airbnb, whether they explicitly discuss the company or briefly mention it, are frequently shared through "re-tweets" and featured on the Airbnb blog.
Airbnb highlights its commitment to the local movement with its "Living Local" shows, part of its "AirTV" series. Each online episode showcases a distinctive property hosted on Airbnb and interviews the friendly hosts. Moreover, Airbnb recognizes its appeal to engineering and tech enthusiasts and caters to this audience through its dedicated engineering blog, nerds.Airbnb.com, and Tech Talk YouTube series. In these hour-long videos, young tech enthusiasts present cutting-edge technologies and how they are utilized in business innovation.
Airbnb uses social media to create associations with other organizations. This strategy is similar to cross-branding and it helps establish Airbnb as a culturally present and economically innovative company. Additionally, this approach eliminates the need for a costly advertising campaign. On their Facebook page, Airbnb has listed organizations such as SXSW, TED, Virgin America, Lonely Planet, and Business Punk that they "Like". Each of these associations helps to strengthen the Airbnb brand. For example, being associated with Virgin America connects them to another unconventional travel company and Richard Branson, the maverick CEO of Virgin. Richard Branson is immensely popular among young professionals and is the most followed "Influencer" on LinkedIn, a professional social media site ("LinkedIn Today: Top minds, big ideas").
In addition, Airbnb's association with SXSW demonstrates a shared cultural connection with its clientele. This partnership also addresses the lodging needs during the festival, prompting Airbnb to create a dedicated section on their website specifically for this purpose. As a result, the company has effectively positioned itself as a youthful, innovative, and knowledgeable presence in both culture and technology. These attributes go beyond mere travel arrangements and strongly resonate with Airbnb's reliable community of hosts and guests.
The purpose of the Airbnb platform is to cater to guests.
Both Airbnb and eBay operate under a consumer-to-consumer (C2C) business model. Similar to eBay, Airbnb's model involves buyers and sellers evaluating the risk of each transaction based on factors like profiles, transaction history, quality, pricing, and other resources. However, compared to purchasing a single item, Airbnb requires higher investments from both guests and hosts for each transaction. This means that travelers not only risk their vacation experience and safety but also a relatively larger amount of money. On the other hand, hosts offer their homes, privacy, safety, and living experience during the guest's stay. Because these transactions involve personal investments from both parties involved, Airbnb places significant importance on establishing confidence, trustworthiness, and safety within its network as fundamental elements for achieving success.
Airbnb has implemented various measures to ensure the safety and security of their renters. One such measure is their private messaging system, which allows users to learn about each other before booking. This system also allows users to keep certain private information undisclosed until a later time. Another safety feature is Airbnb's "verified ID" badge, which requires users to register their social networks (such as LinkedIn, Facebook), Airbnb reviews, and official documentation (such as photo ID or passport). When all these resources are verified, users receive a "Verified ID" badge on their account, indicating that their identification has been authenticated. In April 2013, Airbnb began randomly selecting users to complete this profile, with plans to expand it worldwide for all Airbnb members in the future.
In the past two years, Airbnb has made efforts to expand security and maintain trust in the marketplace. This includes doubling the size of their customer support staff to provide 24x7 support, establishing a dedicated Trust & Safety department, and creating tools to verify user profiles and improve communication between guests and hosts before booking. These features are crucial to Airbnb's service roadmap as they ensure usability, consistency, and accessibility for hosts and the Airbnb support team. When travelers are browsing for accommodations, they also have a responsibility to maximize the use of these tools and assess their own transaction risk by reviewing host profiles, ratings, social networks, and maintaining regular contact with their host.
AIRBNB FOR HOSTS
Airbnb ensures that hosts feel confident and supported by managing all administrative functions associated with hosting. By providing a pre-existing website, available in multiple languages and currencies, hosts can easily create a profile and get started. The company also offers a free customer service team to assist first-time hosts in understanding the hosting process. However, Airbnb emphasizes that hosts are responsible for understanding the tax and legal aspects of hosting, while still providing reference documents and answers to common questions on their website. Overall, Airbnb aims to inspire trust and confidence in the host community through administrative, financial, and social support.
Even though Airbnb maintains the site architecture, hosts have complete control over the rental price, amenities, and house rules. In certain cases, Airbnb may even provide free professional photography for host properties. The website incorporates a secure online payment system to ensure that hosts receive complete, on-time payment directly. As hosts are essentially allowing strangers into their homes (or other accommodations), maintaining a sense of control is crucial for their confidence in this model. Therefore, Airbnb establishes systems to protect hosts' well-being and property. Hosts retain full authority over who rents their listing. Potential guests can submit a reservation request through the online system, giving the host 24 hours to accept or decline. During this time, both parties can communicate via the website's messaging system and make use of the "verified ID" system mentioned earlier. However, the rental address is not disclosed until the owner accepts the guest, and hosts can also rely on the 24-hour customer service hotline for assistance.
Protecting against potential damage is crucial for most hosts who rent primary residences or rooms, especially as compared to hotels or businesses. Although hosts are typically responsible for their own renters' or homeowners' insurance, in 2011 Airbnb introduced the "Host Guarantee" property protection program. This program was further strengthened in May 2012 through insurance provided by Lloyd's of London, which extended coverage for property damages up to $1 million. The Host Guarantee applies to damages caused by guests that go beyond what is considered reasonable wear and tear and is available in 23 countries without any additional cost or requirements for the host ("Guarantee"). The availability of this protection serves as a significant financial incentive for individuals to become hosts. A survey conducted in November 2012 among San Francisco Airbnb members revealed that over 90% of hosts rented out their primary residences and used nearly half of their earnings to cover living expenses (Lawler). In addition to promoting host participation and supporting existing hosts, Airbnb also focuses on simplifying the financial processes associated with renting. Notably, creating a listing on Airbnb is completely free.
The payment process for online bookings on Airbnb involves the guest submitting payment, followed by Airbnb processing and collecting the full payment once the reservation is accepted. Airbnb retains the payment until 24 hours after check-in and the guest-host walk through, serving as a neutral third-party for financial transactions while also upholding host cancellation policies. Additionally, Airbnb's website enables the handling of cleaning fees, which are held until the property is empty. This secure handling of fees and usage is instrumental in fostering trust among hosts, alongside the social and cultural aspects of hosting. Despite financial considerations being the primary motive for hosts to rent their space, there is also a desire to connect with new individuals, showcase their city, and contribute to the shared economy.
Airbnb provides the opportunity for hosts to rent out their primary and secondary residences. However, it is worth noting that 50% of hosts choose to rent out private rooms in their own homes while they are still present ("Life"). In addition to offering a platform for renting accommodations, Airbnb also fosters a sense of community within the sharing economy by providing forums and guides for aspiring hosts to learn and exchange ideas. This supportive environment, along with the financial and administrative assistance, encourages both new and repeat hosts to embrace Airbnb's brand and system by opening up their homes and lives to the world.
NEXT STEPS
Airbnb’s success in the sharing economy has had both positive and negative impacts. While it has greatly benefited the tourist trade, small businesses, and individual income, there have been some challenges. The company has faced issues such as city sanctions, violations of lease regulations, property vandalism, and identity theft. These concerns have raised questions about the safety, benefits, opportunity costs, and sustainability of Airbnb’s service. To address these concerns and maintain a successful business, Airbnb should focus on increasing awareness within its community. One way to do this is by implementing a more thorough ID verification process for all users to screen out potential problems.
The level of care that Airbnb hosts put into assessing their individual transaction risk and understanding local regulations directly affects their safety and success. To enhance host protections, Airbnb should consider expanding coverage to more countries and categories under the "Host Guarantee." To avoid the pitfalls experienced by other sharing economy companies, Airbnb must acknowledge consumer concerns about lost or stolen items, lack of trust in the network, compromised privacy, perceived effort without sufficient benefit, and poor quality goods or services. Although Airbnb has made efforts to ensure the safety and privacy of hosts and guests, they must continue addressing new safety concerns posed by the evolving sharing economy.
Collaborative consumption is undergoing a significant economic, social, and cultural transformation from its early stages to gaining acceptance. It is crucial for these companies to strike a balance between leveraging the sharing economy's potential and adhering to government regulations. Traditional businesses operating in highly-regulated sectors such as hotels or rental cars now face competition from sharing economy services that may not undergo the same rigorous inspection and qualification processes to ensure public safety (Lawler). Sharing economy companies have a strong case for implementing self-regulation. Airbnb should exercise caution by ensuring they have proper management in place to prevent any malicious activities and maintain a robust brand that can self-regulate (Lawler). To adopt a comprehensive approach, sharing economy companies should consider or at least be aware of potential government regulations and how they could either assist or hinder Airbnb's progress.
In the future, companies such as Airbnb will be required to justify their unconventional and minimally regulated services. Therefore, it is crucial for Airbnb to establish a dedicated team that can effectively defend these services. A key aspect for Airbnb to safeguard its business model and, consequently, its users is to engage in lobbying efforts with municipal and state governments in areas where the platform is highly utilized. One significant advantage that collaborative consumption offers when defending its role in the economy is its commitment to assisting individuals in their communities to achieve their objectives (Metcalf, Warburg).
To ensure long-term success, these companies should use their community-based advantages in order to attract support from individuals who desire increased government involvement. By being knowledgeable about user needs, government regulations, and economic trends, the budding shared economy can become a robust and sustainable economic force. Therefore, if Airbnb remains committed to establishing a reliable brand and adopting measures to assist hosts and guests, it has the potential to thrive as a profitable company in the future.
The Rise of the Sharing Economy: A New Economic Opportunity. (2016, Jun 12). Retrieved from https://studymoose.com/airbnb-marketing-strategy-essay
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