How Airbnb created a new business model – and what you can learn from it
Some of the most important innovations of our time were created almost by accident. When researchers initially used the internet to transfer data between them, they did not expect that the internet would revolutionise the world. Later, when Apple built the iPhone they could not have known – although they might have hoped – that it would revolutionise the way we communicate. Digital photography is another example: when Kodak employee Steven Sasson invented the first digital camera he could not have foreseen it would set the foundations for the ‘selfie’ society. Airbnb’s success in travel accommodation is another instance of a disruptive innovation that took an established market by storm.
Founders Brian Chesky, Joe Gebbia and, more latterly, Nathan Blecharczyk, developed the site – literally selling an air bed and breakfast – in 2007 after they couldn’t afford to pay rent on their San Francisco apartment. So they started offering bed and breakfast accommodation to conference guests in the city who couldn’t find a regular room at a hotel.
What these entrepreneurs hit on with their idea wasn’t just a simple way for hosts to offer and guests to find accommodation. They built a marketplace with a number of unique characteristics.
Surprisingly, UQ Business School researcher and tourism expert Professor Sara Dolnicar says one of Airbnb’s major points of difference is the hosts’ ability not to offer accommodation to an inquiring guest.
“That’s madness if you think about it in economic terms. You would think a host would take every booking they can get to make money. A hotel would certainly never refuse to sell you a room. But on Airbnb, that happens quite a bit because people are opening up their own house and they're protective of it. That's the first feature that makes peer-to-peer accommodation networks like Airbnb radically different from anything we've seen before in the accommodation sector,” says Professor Dolnicar.
Empowering both hosts and guests
One of Airbnb’s other differentiators is the equality between the person offering accommodation and the person using it.
“Guests can rate the accommodation. This is not new. We have been doing this on TripAdvisor for a long time. But in the peer-to-peer accommodation network the host also gets to rate and review the guest. Now that’s new. Suddenly here's ‘Freddie’ saying his guest ‘Jimmy’ was not much fun to have around the house. In doing that, Freddie affects Jimmy’s ability to ever find accommodation on a peer-to-peer network again. The system rewards good host and good guest behaviour and punishes bad host and bad guest behaviour. Again, this is radically different than anything else in the traditional accommodation market,” Professor Dolnicar explains.
She says another fascinating aspect to Airbnb is the nature of guest feedback. “On TripAdvisor you get disgruntled people venting or you get really excited people sharing outstanding experiences. This is not helpful for improvement. In peer-to peer networks guest feedback is more detailed. As such it enables hosts to continuously improve. So Jimmy might say that, ‘There weren't enough spoons in the drawer as there were ten of us.’ Easy fix. Freddie goes and buys ten more spoons.”
Professor Dolnicar says the Airbnb factor has the potential to produce substantial economic advantages in local areas, of which councils – some of which have been hesitant to embrace Airbnb – should be taking note.
“Councils should be open-minded about peer-to-peer networks. Let's say I have a holiday home in Victoria, but I live in Brisbane. If I want to make money out of my holiday home I need to hire lots of local businesses – someone to maintain the pool, someone to maintain the garden, someone to do a key exchange and a local cleaner. So this platform offers immense opportunities for small businesses.”
Why do hosts list space?
Professor Dolnicar’s research, which looks at why people open their homes to strangers, has uncovered surprising findings.
“Most people on Airbnb are not renting out a commercial property. They're renting out a room in their home. They let a total stranger into their house and allow them to sleep in their bed. Our simple question was: Why?” she explains.
Professor Dolnicar’s research found those offering accommodation fit a number of categories. There are people who list space on Airbnb for whom the income is not essential, but allows them to afford luxuries. Another group lists space to be able to pay their household bills. “These are low-income people and they use Airbnb to pay for essentials.”
Then there are people who open their homes through Airbnb for social interaction purposes. They don’t care about the money. They just enjoy meeting people. “Some hosts bake cakes for their guests.”
She says an intriguing finding was that some people come from a position of waste-not-want-not when they list space on Airbnb and they have unused space they want to share. Another group wanted to introduce the beauty of their local area to others. “These people may welcome the money, but it is not what's driving them. They are saying, ‘Look at Queensland. This is paradise on earth. I’d like to share this with the world.’”
How hosts evaluate guest inquiries
Professor Dolnicar’s second study looked at why hosts decline booking requests. In an online experiment with real Airbnb hosts, hosts were shown pairs of fictitious guest inquiries and asked which of them they would prefer to offer their space to. The research found the guest’s travelling companions were the most important determinant for the host. So a host might reject a group of friends because they don’t want a party at their home, but they might be open to accommodating an elderly couple.
The second variable that determines whether a host will accept a guest is his or her self-reference on the site, for instance indicating on their profile their clean and tidy qualities. The third factor is the guest’s profile picture.
“Profile pictures matter a lot. Things like age, whether you’re wearing sunglasses, your gender and whether you are smiling all affect the host’s decision,” she explains.
Professor Dolnicar notes the business model is becoming a standard part of the commercial landscape, and they have a range of different dimensions that are yet to fully permeate the business environment.
What can businesses learn from this?
“Well, you cannot learn to stumble over a disruptive innovation. But you can try. So businesses should try radically new ideas. The more obvious advice for businesses, however, is to identify a disruptive innovation when it’s coming and harvest the opportunity quickly.”
“Disruptive innovations radically change the market. Businesses that have traditionally dominated the market need to adapt and many new businesses have the opportunity to develop, grow and prosper as a consequence of the disruptive innovation. Identifying these opportunities and jumping at them is the key,” she added.