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How Does Airbnb Make Money? Airbnb Business Model In A Nutshell

Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. The platform also charges hosts who offer experiences with a 20% service fee on the total paid amount.

How much money does Airbnb make?

The digitalization that happened in the last two decades has facilitated the creation of peer to peer platforms in which business models disrupted the hospitality model that was created in the previous century by hotel chains like Marriott, Holiday Inn, and Hilton.

Airbnb made $93 million in profits on a $2.6 billion revenues. This means the company’s net margin was 3.58%. That seems a low net margin compared to 9% from the hospitality industry.

However, Airbnb is a startup gaining traction and market share over traditional players. Also, its business model is based on the growth of its user base.

How much is Airbnb worth?

In March 2017 the company was valued $31 billion. As of that date, the company had $5 billion at the bank, and it rejected an investment offer by SoftBank. Airbnb might be the biggest tech unicorn IPO in 2018.

What are the key partners for Airbnb?

There are three key strategic partners:

  1. Hosts
  2. Guests
  3. Freelance photographers

There are also other partners, from which it depends on the platform’s success, like IT experts, and interior designers.

Guests (travelers) can easily find hosts (pretty much anyone with a private home for rent) through the Airbnb marketplace.

Also, Real estate agencies that have vacant units can use Airbnb as a way to rent the excess properties they were not able to rent on the market. Instead, freelance photographers can earn a living by joining Airbnb as independent contractors.

Airbnb mission and vision

Airbnb’s mission is to create a world where people can belong through healthy travel that is local, authentic, diverse, inclusive and sustainable.

This is how Airbnb describes its mission. And it continues:

Airbnb uniquely leverages technology to economically empower millions of people around the world to unlock and monetize their spaces, passions and talents and become hospitality entrepreneurs.

The key element of a platform and peer-to-peer business model like Airbnb is the creation of a viable ecosystem. In this case, Airbnb becomes a platform for other entrepreneurs or aspiring hospitality entrepreneurs:

Airbnb’s people-to-people platform benefits all our stakeholders, including hosts, guests, employees and the communities in which we operate.

Airbnb organizational structure

According to LinkedIn, of the over fourteen thousand employees connected on the professional network, most of them work in arts and design, operations, engineering.

And another good chunk work in business development, media, and communication, sales and marketing.

Airbnb value proposition to its key partners

There are several value propositions for both hosts and guests. And for freelance photographers.

Hosts

  • hosts to can earn an extra buck by renting additional space they have at home
  • hosts are provided with insurance and liability coverage, the “Host Protection Coverage.”

Guests

  • The booking process is straightforward and the digital platform very effective
  • travelers have affordable prices
  • guests can have unique experiences

For both hosts and guests

  • The review system for both hosts and guests guarantee standards of quality

For freelance photographers

Extremely flexible schedule, easy money

What is the revenue generation model?

Airbnb makes money in two ways:

1. It collects a commission from property owners, which is generally 3%. While it collects a commission fee from the same owners offering experiences, which is generally 20%.

2. It collects a transaction fee from guests of between 5% and 15% of the reservation subtotal

What are two key challenges to Airbnb’s success and further scale?

There are two main issues Airbnb has to face:

Trust

When hosts are listing their rooms and homes, they’re trusting the platform to put them in touch with good people. The same applies to guests. Would this trust be eroded over time so will be the value of the marketplace.

Customer retention

Travelers nowadays have plenty of options. If they revert back to hotels or other solutions, Airbnb loses momentum. Also, another risk might be that of losing guests that make friends with hosts. In fact, they might choose to organize their next transaction privately.

The paradox then is that Airbnb rather than strong incentive tie between hosts and guests. It has to create an experience so that both parties can trust each other enough to make the transaction but not so much to get out of the Airbnb marketplace.

Summary and Conclusions

Airbnb is a start-up unicorn that disrupted the hospitality industry. As of 2017, it made $93 million in profits on a $2.6 billion revenues.

Also, back in March 2017, it was valued at $31 billion. There are three key strategy“>strategic partners: hosts, guests, freelance photographers.

The revenue generation model is quite simple and it’s based on a commission fee of 3% on hosts (while 20% for hosts is offering experiences) and a transaction fee of 5-15% over guests.

Two main risks that Airbnb faces as a peer to peer marketplace are trust and customer retention. The company is growing quite fast, and it is planning to get listed. Will this growth continue?

Airbnb Business Model Explained in an Infographic

airbnb-business-model-explained

Airbnb first-ever pitch deck

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, professionals, and entrepreneurs in 2019 alone | Gennaro is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate and become profitable | Gennaro is an International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

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