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How Does Airbnb Work? A Guide to Its Business and Revenue Model

Did you know that Airbnb started as a simple platform to offer mattresses and home-made breakfast? Today, it has revolutionized the way people travel.

Airbnb is an American online marketplace that connects travelers with those local inhabitants of a place who want to rent their property. The travelers get two benefits: an affordable place to stay at and the chance to get a brush with a place’s culture.

To get an idea of the company’s services penetration, get this: the platform has over 4,500,000 listings in over 65,000 cities in 191 countries. What’s more? Airbnb offers the widest variety of unique spaces globally for everyone at all price points.

The Rise of Airbnb

Founded on August 1, 2008, the company grew as a tech masterpiece in a short time span. Having received massive funding, it is now a part of the billion dollar club.

Besides, it is now the world’s most loved hospitality brand. That is because Airbnb‘s business model is unique, profitable, and adapts to the customer needs.

Airbnb company highlights

Key Resources

Airbnb’s key resources are people. In other words, it is a people-centric brand. By people, we mean its employees and its clients. This has enabled the stakeholders to grow the brand incredibly fast at zero marginal cost.

All Airbnb hosts ensure that the guests do not feel like strangers at the new place. They guide the guests about places to visit in the area, the cuisines to try, etc.

As such, they ensure that the guests no longer feel like guests by the time they leave the host’s abode. Quality services define Airbnb.

Brand’s Value Propositions

The Airbnb business model operates on the demand (for the hosts) and supply (to the customers) chain system.

  • Host Value Propositions
  • Generating income
  • Interacting with new people
  • Easy Transactions
  • Insurance coverage

Guest’s Value Propositions

  • Convenient Booking
  • Better cultural experience at the destination city
  • Ample number of choices
  • Cashless transactions
  • Availability of cheaper rooms
  • Sharing the experience through reviews

Which customer segments comprise Airbnb’s business model?

Hosts

  • These people own property and want to make money by renting out their available space.
  • They can create a listing for their property on Airbnb, add property details & set their own rent, check-in, check-out time etc.
  • Hosts can even accept or reject a booking after reading the reviews about the traveler or after going through his social profiles.

Travelers

  • They book the available listed spaces from local hosts.
  • Travelers can instantly book a space by paying through the portal.
  • They can even search for a property by filtering them as per rent, location, amenities provided, etc.

Freelance Photographers

  • Airbnb has a vast network of freelance photographers in all major cities worldwide. These professionals go to a location and click high-definition photos of the property.
  • Airbnb has such a team as HD photos get more responses.
  • The freelance photographers are directly paid by Airbnb.

New Additions to the Airbnb Business Model

Airbnbmag

Airbnb envisions making travelers feel that they belong to the place they visit. In this endeavor, they have added a new product to their business model – Airbnbmag

It is more than just an average guidebook. Costing $15, the magazine is a result of partnership between Airbnb and Hearst.

The magazine is designed to bypass the tourist stomping grounds & help the travelers uncover a place through the eyes of a local.

Business Travel

Airbnb’s business model also includes business-ready homes that fulfill certain requirements for home amenities, type, check-in, responsiveness, reviews, & host commitment. 

This feature is specifically designed for travel managers of the companies to provide better transparency & more accurate reporting for their firm.

Airbnb business model in a nutshell

Source: FourWeekMBA

What is the Airbnb cost structure?

Three main costs involve Airbnb’s room & board structure: 

Pay to Permanent Employees

A monthly salary is paid to every employee. Other amounts are also paid as part of the salary.

Payment to Freelance Photographers

As mentioned earlier, the Airbnb team has hired freelance photographers. This they’ve done so that prospects look only at the best-quality photos on the platform. 

A decided amount is paid to the photographers for this service.

Set Up & Running Costs of Technological Infrastructure

The business costs of setting up the websites, servers, etc., are typically paid by the firm that booked you through Airbnb. Besides financial costs, the other expenses include monthly electric bills & other small rent.

What fee percentage does Airbnb charge?

In 2019, Airbnb divided its fee model into two parts: a host-only fee and a shared Airbnb host and Airbnb guest fee

  1. The host-only fee is for hotels or other hospitality businesses. It is not for individual homeowners and ranges from 14% to 20%. 
  2. The shared host and guest fee is the standard model for hosts renting out their homes. After a booking, Airbnb takes a host service fee of 3% from the host’s payout. As for the guests, Airbnb adds up to 20% of the booking subtotal.

What types of accommodation are listed on Airbnb?

Airbnb has multiple options to host you on your stay. 

Classic Airbnb

Here, the guests can choose from a number of living options:

  • Private Room

In such a setting, you may live in a house with others but have your own bedroom. A host renting out one room of their home must provide information about the house rules, the number of other home occupants, & the shared spaces.

  • Entire Place

Under this option, no part of the living space is shared with other guests. Guests who book this kind of stay expect privacy. However, there may still be a shared outdoor space.

  • Share Room

This is a good option for travelers on a budget. In this setting, a guest may sleep in one room with two or three beds open to other travelers.

While booking, you can avail the instant book facility. Through it, you can book a host’s property without going through an approval process. 

Airbnb also offers unique stays; you can stay in a non-traditional space like a boat or a yurt.

Airbnb for Work

This is available to companies looking to plan employee trips. Hosts with good reviews, workstations, quality WiFi, and other facilities are likely to show up on Airbnb for Work.

Anyone can access these properties by toggling to the “work trip” section of the company website. Properties located near metro or city centers are Airbnb for Work hotspots.

Airbnb Luxe 

These properties are for guests who want top-of-the-class living experiences. Besides high-quality accommodations, guests want the vacation rental to have activities & amenities.

These homes go through a rigorous verification process.

The Airbnb Success Story

What is Airbnb’s revenue model?

Airbnb offers free listings to the property owners. Travelers browse the various properties in a specific location as per their budget & requirements. 

The bookings & monetary transactions are carried out on the Airbnb platform. 

The company gets its revenue share from these transactions through two sources:

Commission from Owners/Hosts

Airbnb deducts a flat 10% commission from hosts for every booking done via the platform. Hosts also have to pay a 3% fee for the processing of the payments of guests.

Transaction Fee from Guests/Travelers

About 6 to 12% of the booking amount is set as service fee by the company for travelers for every confirmed booking. This fee is non-refundable.

Airbnb states that if booking in large numbers, people can save money on booking fees.

Based on the area’s tax laws, users are also charged a Value Added Tax. It is calculated on the final value of goods & services. 

The tax laws vary across countries. So, the company does not charge VAT for every booking. Further, guests who pay in a different currency than the host has chosen are subject to changing exchange rates determined by Airbnb. 

Hosts are charged VAT based on the income earned from various bookings.

How does Airbnb find customers?

How does the Airbnb platform work?

  • Every host lists out their property details on Airbnb along with other factors like amenities provided, pricing, etc.
  • Airbnb sends a professional photographer to the property location to take high-quality photographs.
  • Travelers search for a property in the place where they wish to stay. They then browse available options as per price, amenities etc.
  • Booking is made through Airbnb where the traveler pays the amount mentioned by the host. They also pay some additional money as transaction charges.
  • Once the host approves the booking, the traveler stays there.
  • Eventually, the company pays the amount to the host after deducting their commission.

What are Airbnb’s future business plans?

  • After flexible dates, the company is adding two new search options – flexible destinations & listings.
  • Through flexible destinations, Airbnb’s app & website may recommend certain unique types of homes like adobe houses or castles.
  • Airbnb is planning to double the number of customer support representatives.
  • They are also launching a faster checkout process, updated review systems, & clearer cancellation policies.

Want to build your own P2P marketplace like Airbnb? Talk to our expert team of professionals at Code Brew Labs.

July 6, 2022

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