Airbnb business model

The Airbnb Business Model: A Comprehensive Guide

Elena Hudgens
By Elena Hudgens 10 Min Read

The Airbnb business model is a multi-sided platform that connects travelers with hosts from all across the planet. Airbnb has become one of the most well-known companies in the hospitality industry by commoditizing trust between property owners and short-term renters.  

If you like to travel, you’ve likely heard of or used Airbnb’s service before. However, when they founded it back in 2008, it was just an idea from two friends who needed money to pay their rent – so they put three air mattresses up for rent and realized this idea could go much further than them.

They are simply a marketplace that allows space-owners to find people who need places to stay.

Airbnb is a fully digital and app-based company that operates without any face-to-face service. There’s no physical space for you to go. And Airbnb does not own properties itself; it only provides the opportunity for people who have something to offer to connect with others. And if others are interested in what they’re offering, just like Uber delivers over 1 million rides a day without owning one single vehicle of its own.

What is Airbnb?

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Airbnb is a marketplace app that connects travelers with hosts. The community is powered by hosts, who provide their guests with unique opportunities to travel like a local. 

Airbnb has created an easy way for people to rent out extra space or underutilized property- which anyone can rent cheaper than hotels and properties listed on real estate agencies usually are – while also giving travelers more opportunities to interact with locals.

How does Airbnb work?

All the information you need about space is available in the Airbnb app. The traveler can access the app and search for a property with the features he needs. He will be able to find a property within his price range. Airbnb has a photography team visiting the listing and taking high-quality photos.

The traveler then makes a reservation via Airbnb’s digital platform without contacting the host. The traveler pays for their stay at Airbnb, including transaction fees. The host and the traveler must agree on the rent before anything else. Once everything has been agreed to, Airbnb pays out to both parties what is due. Finally, both host and traveler can rate each other and write reviews about how it went.

The timeline of Airbnb

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Airbnb was created due to the necessity of extra money for their funders. The founders, Brian Chesky and Joe Gebbia, were housemates who encountered difficulties paying rent at the time. 

They had an idea when they realized all hotels in San Francisco during a conference on industrial design were complete, so they gathered three air mattresses and offered bed-and-breakfast services to designers looking for a room for that conference. 

To advertise it, they built up the www.airbedandbreakfast.com website, which led them to meet Nathan Blecharczyk, a former housemate of Gebbia’s computer science graduate. He helped him finish building a complete platform for home-sharing between users. 

It became available in 2008 when Denver would host the Democratic National Convention with many listings already targeted towards it.

The company’s founders believed in their idea and decided to raise money for it. To do so, they created custom-made Obama-O’s cereal boxes and Cap’n McCain’s cereal boxes when The American election was happening. 

Venture capitalists started noticing the startup soon after and invested in them. In March 2009, the company changed its name from Airbnb Inc. to just Airbnb. With this, they were able to raise $30 000. It didn’t take long before this startup grew exponentially towards profit, too. 

By 2014, there was also a new product called Airbnb Experiences that allowed people to rent out their houses and offer tours or sightseeing activities (among other things).

Airbnb business model

The Airbnb business model is an example of the sharing economy, so much that it also considers itself to be a “community built on sharing.” The industry for this kind of thing allows people to add value to idle or underused assets in their homes. For instance, when renting out your own accommodation spaces through Airbnb.

The two primary components of the Airbnb business model are – 

Host

Hosts are people who want to rent their spaces for money. The app can include their properties under certain conditions- such as available periods, check-in and out times, and other rules. They will also accept or reject the requested reservations while evaluating travelers later. 

Also, Hosts can make money through Airbnb and enjoy the comfort and safety of making reservations. With 24/7 customer service options, hosts have access to their profile information for those who request a reservation. 

They can also decline booking requests that do not fit their needs or desires for any reason they please. Airbnb charges hosts a commission fee that varies from 3% to 5%. Hosts can list their properties for free. 

With each booking, Airbnb deducts its 20% commission.

Guests

Airbnb is the perfect place for guests to book and search for accommodation by filtering based on location, type of property, price, among other filters. Guests can then pay through Airbnb once they have found a suitable match. 

The most significant benefit of a vacationer is saving money on rent. You can also choose the place according to your preferences if you want to. And only with the help of a device, without negotiating anything with anyone else. 

Furthermore, an owner’s profile will be available for travelers’ review and some cases where they can exchange experiences during their stay. And finally, there is payment security facilitated by Airbnb. 

Airbnb charges a transaction fee of 0% to 20%. The rate varies depending on the courses and is charged with each reservation.

Other details about the Airbnb Business Model

Partners – 

Airbnb’s most significant partners are its hosts (private owners, hotels, and inns, to name a few). If there is no interest in renting out rooms through the app, the whole platform would not exist. 

Other partner companies include photographers who provide Airbnb services and insurance providers that help secure rental properties. Investors have also contributed towards making Airbnb possible by providing it with capital to build an entire structure. These are some of the most important contributors to the Airbnb business model.

Activities –

Airbnb has many different types of critical activities, but the primary one is the development and maintenance of their platform. They also have sales and marketing to acquire hosts or guests, information security for all partners or users, customer service on both sides that includes conflict mediation. 

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Channels –

Airbnb’s primary channels are the website and its app, using social media, internet marketing, and an affiliate model. Finally, word of mouth helps them out a lot too.

Cost structure and Revenue – 

Airbnb’s expenses are split between investments in its significant activities and resources and channels via which they are delivered. These include software maintenance and development, marketing, employee salaries, and customer acquisitions with credit card fees. Legal expenses are also a part of their cost structure and administrative costs, including insurance fees. Finally, we’ve looked at the entire Airbnb canvas and come to its revenue model. This is how it sustains itself and generates enough annual income for an estimated $2 billion in billing.

Conclusion

Airbnb is a successful online business driven by the network and sharing economy. It was established in 2008 with 160 million guests from 191 countries and has grown due to this success. 

Airbnb’s continued success relies on increasing both networks and people depending on income through renting out spaces (either rooms or entire homes). Airbnb is a perfect example of an internet-based company that thrived through revolutionary changes to how businesses operate online today.

We hope this guide on the Airbnb business model helps you better understand the company and it’s functions.

Also read: The Key Resources of a Business Model Canvas: A Step-by-Step Guide

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Posted by Elena Hudgens
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Elena Hudgens is an entrepreneur with 10+ years of experience. She started her journey by building her own e-commerce website on Shopify and turned her $1000 savings to millions in just 2 years. Soon she started different ventures in which she failed and succeeded. And now, she's on a mission to help other entrepreneurs with her life and business lessons.
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