Airbnb’s Business Model Canvas (part 4): Expansion

Big companies rarely end up with the same business model as when they’d started. This article is part 1 of the series of Airbnb’s Business Model Canvas Evolution.

2011-2014:  International Expansion, More Fundraising, and War with Local Government

2011: Expansion, Launch of Airbnb Social Connections & Host Guarantee Program

By 2011, Airbnb had expanded to 89 countries and had reached 1 million nights booked on the platform. The company won the break-out mobile app award at SXSW, signaling a triumphant return after its dismal launch in March 2008.

2011 was a good year for Airbnb. In July, they raised $112 million in financing and received a valuation of over $1 billion. They also managed to rope in more notable investors like Hollywood star Ashton Kutcher. The company continued to expand and established an office in London in October 2011.

Airbnb began to report bookings that exceeded industry giants like Hilton Hotels. There was no avoiding it; Airbnb was now mainstream. However, there was one flaw in the business model; safety risk for both users and hosts.

Inviting a stranger into your home was not without risk. Reports of damage to properties and robberies started to surface. There were safety and vetting issues in the business model that Airbnb had to address. Reviews and comments were not inspiring enough trust among users.

Social Connections

They came up with Social Connections to combat the inherent trust issues among the user and the hosts. Social Connections is an optional feature that allows listings to show the guest which of their friends or social media contacts have used a particular host.

The Social Connections program used the social media site Facebook to facilitate this feature. Any Airbnb user could search for a host-based on specific characteristics they had in common with the host. This went a long way in providing additional safety for the users and the hosts.

Host Guarantee Program: Enhancing Customer Relationships

To address the issue of property damage or theft, Airbnb introduced the Host Guarantee Program. The policy offered insurance worth $50 000 for Hosts whose homes were damaged or victims of theft. The program quieted the negative press the company had received after a woman reported that a guest had trashed her home.

Airbnb went a step further and established a 24-hour customer hotline where hosts or guests could get quick responses from Airbnb. They also doubled their customer support unit to handle the volume of customers who needed assistance.

This quick response to problems allowed Airbnb to expand rapidly all over the globe. The company went on a shopping spree in 2012, acquiring numerous companies that would help them enhance their services.

Notable mentions include:

  • The London-based rival CrashPadder added six thousand international listings to Airbnb’s existing inventory.
  • NabeWise, a city guide that collects information for specific locations. This allowed Airbnb to offer local recommendations to travelers.
  • Localmind is a location-based question and answer platform that allows users to post questions answered in real-time by locals.

2013: The War with City Authorities Begins & Backlash Due to the ‘Airbnb Effect.’

2013 began a years-long war for Airbnb against local city authorities that is still ongoing. When the idea for Airbnb was born, it overlooked the fact that the business was dipping its toes into the housing market.

This market is governed by local authorities that have regulations in place against short-term rentals in some cities. There is also a tax issue that the Airbnb business plan didn’t account for. Many towns had laws that required vacation rentals to pay a hotel or tourist tax.

Airbnb expanded rapidly because the company didn’t have to follow any health, safety, tax, and zoning regulations. Unlike hotels and other vacation rentals that had to comply with these rules.  

From the start, Airbnb argued that it was not breaking any local or state laws because it served as a middle-man between hosts and guests. It was a platform just like Vrbo and that facilitated a transaction. It should not have the same regulatory responsibility as Hilton or Marriott Hotels.

Airbnb argued that the onus was on the host, responsible for complying with all the city regulations and paying the relevant taxes. The local government authorities did not accept this position. The most contentious battles arose between the New York State Attorney General and Airbnb.

Eventually, the company decided to negotiate with the local authorities in the various cities. They came up with Voluntary Collection Agreements that mandated Airbnb to collect and deliver taxes from its hosts.

This was not the end of the war, and Airbnb would clash with city authorities often. The company was constantly cited as a significant factor in the increase of property values in urban areas. They were accused of pushing out long-term renters and increasing housing shortages in the cities. A claim Airbnb denies to this day.  

2014: New Partnerships & a New Logo

2014 saw more growth for the company. They ventured into new territories where the strategy was always to start by developing the supply side (hosts) first. They found that homeowners took some time to get used to the idea of opening up their homes.

So they used the same tactics as they had in New York. In France, for example, Airbnb noticed that although people were using the service when they traveled to the country, there was slow acceptance of the service within France.

They set up a team to physically travel to France to figure out how to popularize the service. The group engaged the few users that were already using the service and found out what was going on. They discovered that people were still uncomfortable with the idea of hosting a stranger or staying with one. They decided to embark on an aggressive marketing strategy that included throwing parties, info sessions, setting up info booths, and posting flyers. This was similar to what they had done in New York, and fortunately, the strategy worked.

Partnership with Handybook & Concur

That same year they launched the new company logo and announced plans to bring some key partners into the business; home cleaning services. They partnered with Handybook to provide discounted cleaning services for hosts.

The idea for this partnership was to improve the guest’s experience while removing the cleaning burden from the hosts. Airbnb would charge the guest a non-refundable cleaning cost. They trailed the program in San Francisco and expanded to New York and Los Angeles.

Eventually, Airbnb officially adopted the program to standardize the cleanliness of the homes on their website. 

In an additional bid to improve the user experience, Airbnb partnered with Concur. This service made it easier for business travelers to categorize their Airbnb bookings as business expenses. The year ended with Airbnb increasing its Host Guarantee Policy to $1 million.  

2015: Product Launches and More Partnerships

In 2015, Airbnb partnered with Deutsche Telekom, the parent company of T-Mobile. The partnership’s purpose was to pre-install Airbnb’s app on mobile phones in 13 countries. They included a 30 Euros voucher as an incentive for users who registered on Airbnb using this app.

Airbnb also released the following products:

  • An official iPad app and AppleWatch app.
  • Price Tips, a pricing recommendation tool for hosts.

These partnerships and product launch further solidified Airbnb’s position in the industry. Up to this point, industry giants like hotels and lodges were not paying attention to Airbnb. However, that soon changed.

Competition with the Hotel Industry

When Airbnb started, the hotel industry paid little attention to it. The relationship between Airbnb and giant hotel chains was friendly at the beginning. Airbnb was absorbing the hotel industry’s leftovers during big events.

However, it soon became apparent that the hotel industry had underestimated the impact Airbnb would have on the market as a whole. Many hotels developed plans to try and mimic what Airbnb was doing by changing that catered to the millennial market.

These changes included launching hotel chains that were designed for millennials. Other hotels added community-centered activities where guests could get an authentic local experience just like Airbnb. However, some hotels did the bare minimum and only tweaked their decor to attract younger guests.

These efforts came too late. Airbnb already had a foothold in the market and was poised perfectly for a hostile takeover. A 2015 article titled “Is It Too Late to Fight Back Against Airbnb?” pointed out the various ways Airbnb was going to cause trouble for the hotel industry. Their website was far more superior to most of the big hotel chains. They had extra features that fluidly integrated the whole experience for the guest.

A user could easily use the map function to check out the surrounding area.  Additionally, their listing presentation was superior and could be viewed seamlessly on any device.  They had also begun to expand into the luxury market by offering luxury houses on their listings. Airbnb was offering something that hotels could not, a unique urban holiday experience at every level.

Although both still refuse to acknowledge that they are competing, the numbers tell a different story. A report by the Hotel Association estimated that hotels were losing $450 million in direct revenues per year to Airbnb. Airbnb had become a threat to hotels.

Airbnb’s Business Model Canvas: Expansion and Establishing Dominance

At this point, Airbnb’s Business Model Canvas looked like this: 

Business Model Canvas of Airbnb: Expansion

>> Read next article in the series: Airbnb’s Business Model Canvas (part 5): Becoming An Entire Hospitality Brand

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