Business Analysis on Airbnb: How a Company Turned Sharing into Profit

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From ride shares to collaborative startups, new companies are focusing on taking greedy, self-interested requests and turning them into a new way of sharing and profitability. One of the most recent companies to join the cloud is Airbnb. This startup was founded to solve the problem surrounding travelers. This sample essay answers those questions about lodging and price.

Airbnb is comparable to Lyft and Uber. The company looks for hosts to share lodging with travelers and then leases those homes on its website. While this may seem to be a cheaper method for vacation travel and lodging, there are critics who say the new system may bring new dangers to the tourism industry. Others think it is a true symbol of capitalism. 

Impact on business: A look at cloud businesses

Airbnb is not the first company to look to the clouds. Since Google, Adobe, and Microsoft started offering cloud services (i.e. internet hosted servers designed to store company and individual information), the term has become a fad. Now we store anything from photos to business documents using online, secure systems. But it is not storage and cloud systems that have made the largest impact. Internet-based businesses grew rapidly within the past several years.

Freelancer.com, an online business that connects freelancers from all industries with potential clients, listed more than 2.5 million users in 2009. Within four years, Freelancer.com grew those numbers to more than ten million users. Wotif, an online hotel booking site, reported a little over $406 million capitalization rate and market shares worth $2 each in 2006. Six years down the road, the company’s shares are now worth double and has a capitalization rate of $978 million. Other companies with similar success stories include: Uber, Lyft, Booking.com, Priceline, Twitter, Facebook, and Google (Tay, “Here Are the Growth Rates of Internet Companies When They Go Public”). 

Sharing meets profit: what is Airbnb?

With the increased business in the clouds, it’s no wonder Airbnb decided the skies where the limit. Joe Gebbia, CPO; Brian Chesky, CEO; and Nathan Blecharczyk, CTO each invested their time, energy, and money to develop the new start-up. Their vision included discounted travel that would provide financial incentives for both vacationers and those needing to make a little extra money.

Their ideas started with the recent downfall of the real estate market. Gebbia, Chesky, and Blecharczyk knew real estate agents and people wanting to sell their homes needed an outlet to at least make some money on properties. On the other hand, they saw an increasing trend in online booking services, signaling vacationers wanted to travel but lacked the funds they had prior to the recession (Airbnb, “About Us” and Choe, “AirBed & Breakfast for Connecting ’07”). Airbnb was born of these needs.

Deciding to wet their feet in San Francisco in October 2007, Chesky and Gebbia developed the initial idea for AirBed & Breakfast (the forerunner to the current name – Airbnb) at the Industrial Design Conference held by Industrial Designers Society of America. The two roommates were inspired to create the company based on their own living situation. Chesky and Gebbia could not afford the rent for their loft in San Francisco and turned their living room into a makeshift bed and breakfast. The company grew from a one-room rental to more than 60 million guests, 34,000 cities worldwide, 1,400 “castles,” 190 countries, and two million listings (Choe, “AirBed & Breakfast for Connecting ’07”).

Initial funding came from a fun and innovative marketing campaign. The initial team created special edition breakfast cereals for the two presidential hopefuls United States (U.S.) Senators Barack Obama and John McCain. The cereals were named “Obama O’s” and “Cap'n McCains”.  While not designed as store shelf cereals for everyday breakfast needs, the presidential election cereals demanded $40 per box and quickly became collector items. Within the first two months of the election, the three Airbnb founders sold more than 800 boxes of cereal and generated more than $30,000 for the company's incubation (Spors, “The Business of Politics”).

Guest and host relationships: How does Airbnb work?

Airbnb designed its system as collaborative effort between the service users – Hosts and guests. Users sign up for an online profile – like other online marketplaces and social networks, enter all payment information, and provide personal details to match them with potential hosts and guests. As a protection to both guest and host, users now are required to upload a copy of their government identification, either a driver’s license, state-issued ID, military ID, passport, or other form of official documentation (Grout, “How To Use Airbnb To Profit From Your Second Home” and Choe, “AirBed & Breakfast for Connecting ’07”). 

Additional information is required for hosts. Hosts must provide information about the property, including photos, price, amenities, local attractions, house rules, and a little information about the local area. Like other online stores and travel marketplaces, locations are rated based on user reviews and a star system. This allows Airbnb to select properties to advertise and properties to ban from its marketplace. The rating goes both ways though; hosts can record a reference and review of guests, allowing Airbnb to restrict those travelers from using the services again in the future (Grout). 

Once users have recorded their profile, they can either list their service or look for a location to visit. The marketplace is similar to other travel sites, allowing visitors to search by price, location, attraction, rating, and user reviews. With the addition of social networking services, Airbnb grants users to filter their searches based on friend’s reviews and past travel experiences. All payments and arrangements are made via the online platform. Reservation changes and price negotiation is not allowed outside the service (Grout, “How to Use Airbnb to Profit from Your Second Home” and Choe, “AirBed & Breakfast for Connecting ’07”).

Is Airbnb safe?

Airbnb may have become one of the fastest growing companies online, but there are still several critics who claim the venture needs to be illegalized due to safety concerns. Similar to the ride-sharing companies Uber and Lyft fears, Airbnb opponents believe the host homes could become a potential danger to vacationers. The first risk comes from unknown strangers. A female host in San Francisco discovered she couldn’t trust some guests from Airbnb. One day she returned home and found her home trashed and vandalized. The renters smashed a hole through her locked closet door, and took her passport, cash, credit card, and grandmother's jewelry (King, “Reality hits Airbnb after user's home is vandalized, trashed”). 

This story is not alone. There are other, untimely scenarios where the guests and hosts placed the other in serious danger. One host reportedly came home to a legal disaster. His guest used the house as a meth lab (Arrington, “Another Airbnb Victim Tells His Story: ‘There Were Meth Pipes Everywhere’”). He told reporters:

The woman brought in friends to his home. They went through everything he owned, he said. “There were meth pipes everywhere,” he says, and damage to the bathroom and closet doors caused by, he guesses, a human foot or head, and probably an axe. They stole a computer from him as well as small amounts of cash that he left in the apartment. (Arrington, “Another Airbnb Victim Tells His Story)

Another horror story come true is a rather interesting twist. Criminals often find creative means to break the law. Airbnb offered one such option. Guests from San Jose, California visited Berlin for vacation. Their experience turned sour when the apartment's “real owner,” who “had the paperwork to prove it” knocked on the door demanding to know why they were trespassing (Mukherji, “Top 5 Airbnb Home-Rental Horror Stories”).

Airbnb reports, while property damage and safety concerns are rare, they do happen. The company takes special cautions to prevent these from occurring and responds to threats in the appropriate manner. One of the top security functions Airbnb employs is ID verification. All users must submit identification before they can host properties or use facilities as guests (Airbnb, “About Us”). Airbnb also offers $1 million property protection to hosts. If damage occurs, hosts will be reimbursed up to $1 million, depending on location and type of damage (Airbnb, The $1,000,000 Host Guarantee”).

Conclusion

Airbnb may or may not be safe, according to news reports. There are several cases involving severe damage, risk to personal safety, and potential legal infractions on host and guest. Though Airbnb reports these issues are rare, they are serious enough to question whether users should risk their lives or livelihood on little more than free advertisement. Either way, those safety issues are not dissuading many from taking in the bargains and enjoying their vacations. Travelers still turn to Airbnb, as the increased number of users show. There is one sure thing when it comes to Airbnb; the company isn’t going anywhere, anytime soon. Airbnb’s founders are saving the downtime for their users.

Works Cited

Airbnb. “About Us.” N.d. Web. 11 April 2016. https://www.airbnb.com/about/about-us. 

-- “Our Co-Founders.” N.d. Web. 11 April 2016. https://www.airbnb.com/about/founders.-- “The $1,000,000 Host Guarantee.” N.d. Web. 11 April 2016. https://www.airbnb.com/guarantee.

Arrington, Michael. “Another Airbnb Victim Tells His Story: ‘There Were Meth Pipes Everywhere.’” Tech Crunch. 31 July 2011. Web. 11 April 2016. http://techcrunch.com/2011/07/31/another-airbnb-victim-tells-his-story-there-were-meth-pipes-everywhere/.

Choe, Jeannie. “AirBed & Breakfast for Connecting ’07.” Core77. 10 Oct. 2007. Web. 11 April 2016. http://www.core77.com/posts/7715/airbed-breakfast-for-connecting-07-7715.

Grout, Vanessa. “How to Use Airbnb to Profit from Your Second Home.” Forbes. 4 Nov. 2013. Web. 11 April 2016. http://www.forbes.com/sites/vanessagrout/2013/11/04/how-to-use-airbnb-to-profit-from-your-second-home/#13d2be6d2f1d.

King, Rachel. “Reality hits Airbnb after user's home is vandalized, trashed.” ZDNet. 27 July 2011. Web. 11 April 2016. http://www.zdnet.com/article/reality-hits-airbnb-after-users-home-is-vandalized-trashed/.

Mukherji, Aditi. “Top 5 Airbnb Home-Rental Horror Stories.” FindLaw. 1 June 2013. Web. 11 April 2016. http://blogs.findlaw.com/law_and_life/2013/06/top-5-airbnb-home-rental-horror-stories.html.

Tay, Liz. “Here Are The Growth Rates Of Internet Companies When They Go Public.” Business Insider. 17 Oct. 2013. Web. 11 April 2016. http://www.businessinsider.com.au/here-are-the-growth-rates-of-internet-companies-when-they-go-public-2013-10.

Spors, Kelly K. “The Business of Politics: Entrepreneurs might be better off not making their Political preferences known to customers. But some want to anyway.” The Wall Street Journal. 11 Aug. 2008. Web. 11 April 2016. http://www.wsj.com/articles/SB121803424407616937.