AirBnB is a digital accommodation marketplace providing access to 7 million places to stay in more than 100,000 cities and 220 countries/regions around the world AirBnB.
AirBnB's story began in 2007 when Brian Chesky and Joe Gebbia (see Appendix 1 for brief bio of co-founders), both graduates of the Rhode Island School of Design, having moved from New York to San Francisco, were unemployed and were having trouble paying their rent (see Appendix 2 for AirBnB's journey). It came to their attention that all the hotel rooms in the city were booked out due to a local Industrial Design conference. They saw the opportunity to make some money by renting out some of the space they had in their apartment. They bought some airbeds and quickly set up a simple web site called Air Bed & Breakfast. Their first guests were a 30-year-old Indian man, a 35-year-old woman from Boston and a 45-year-old father of four from Utah. They charged each of them $80 a night. Shortly after this beginning, Nathan Blecharczyk, a Harvard graduate and technical architect, joined the team as the third co-founder and Chief Technical Officer.
While the founders initially found it difficult to attract investors in their new venture, in 2009, they raised $20,000 from their first investor, Y Combinator. They used this money to fly to New York City, their biggest market at the time, to meet users and promote the business. They found that a key problem was that the photos of the accommodations were not of good quality. They bought a high-quality camera and they visited each accommodation, taking new photographs for the web site. Returning to San Francisco with a more viable business model, they shortened the name to AirBnB.com and expanded their offering from just airbeds and shared accommodation, to a range of properties from entire homes and apartments to private rooms. By March 2009, the site had 10,000 users and 2,500 listings.
AirBnB's business model is referred to as a two-sided (more specifically, C2B2C) digital platform, matching the guests (travellers) with the hosts (property owners). In so doing, it creates value for both sides of the platform. Guests save money on the accommodation (compared to hotels), and hosts get earnings from their otherwise idle space. The company has a simple revenue model. There is no charge for the hosts to list their accommodation on the website. When guests book a property, AirBnB receives its revenue from two sources. Firstly, it charges a flat 10% commission from hosts for every booking made through the platform. Secondly, it charges 3% of the booking amount as a transaction fee from guests upon every confirmed booking.
In November 2010, AirBnB launched their iPhone app along with an Instant Book feature that enables bookings without the host's prior approval. The following year they opened an office in Germany, which marked the beginning of their international expansion. In May 2012, AirBnB introduced its $1m Host Guarantee, which provided property damage protection of up to $1m for every host at no extra cost. In 2014, the company hosted more than 100,000 guests during the Rio World Cup and relaunched their brand. Over the following three years, AirBnB held open events in San Francisco, Paris and Los Angeles with the number of hosts attending growing from 1,500 to 7,000.
To add value to the customers, in 2016 AirBnB announced the launch of Trips AirBnB. AirBnB.
To fund their expansion, AirBnB raised $4.7 billion in total funding across 10 funding rounds (see Appendix 3 for more details on funding rounds). With the intention to undertake an initial public offering, the business was valued at $31 billion at the beginning of the year 2020. In the last six years alone in its key US market, it has seen substantial gains in sales versus key industry competitors and similar gains in market share. Its yearly revenue has increased from $8.4 billion in 2010 to $3.6 billion in 2018 (see Appendix 4 for yearly figures). In 2018, its sales surpassed the Hilton group and it is also gaining on the Marriott hotel chain. On the 27th March 2019 the company celebrated a key milestone, with the announcement that since its founding in 2007, half a billion guests had checked in at AirBnB listings worldwide AirBnB. AirBnB. Reuters (2019). Airbnb records 30% growth rate in first-quarter on booking strength. Available at
While in the initial years multiple bookings and stranded hosts were key issues, in recent years several cases are reported in which guests have discovered hidden cameras in their accommodation. One recent case occurred in Cork city in Ireland in April 2019 Irish Times (2019). Family ‘felt sense of danger’ after finding hidden live cam in Cork Airbnb. Available at
A spokesman for AirBnB responded in a press statement:
We have permanently removed this bad actor from our platform. Our original handling of this incident did not meet the high standards we set for ourselves, and we have apologized to the family and fully refunded their stay. The safety and privacy of our community – both online and offline – is our priority. AirBnB policies strictly prohibit hidden cameras in listings, and we take reports of any violations extremely seriously. There have been more than 500 million guest arrivals in AirBnB listings to date and negative incidents are incredibly rare.
AirBnB indeed realises trust and safety being central to their platform, as noted by Joe Gebbia in his 2016 TED talk. AirBnB has a ‘Trust & Safety’ team which deals with traveling, hosting, community standards and home safety. In a study Abrahao, B., Parigi, P., Gupta, A., & Cook, K. S. (2017). Reputation offsets trust judgments based on social biases among AirBnB users. Proceedings of the National Academy of Sciences, 114(37), 9848–9853.
To boost its trust ecosystem, AirBnB started a superhost programme in which exceptional hosts are eligible for a ‘superhost’ status based on the following criteria – average rating of 4.8 or above out of 5, have completed at least 10 stays (or 100 nights over last 3 completed stays) over last year, less than 1% cancellation rate, and more than 90% response rate. Superhosts get benefit in the form of getting featured on the platform, attracting more hosts, and receiving additional bonus from the platform. There are around 400,000 superhosts on AirBnB platform, around ten percent of the overall hosts’ number.
Moreover, to enhance the trust and safety on its platform, AirBnB provides the following features:
Source: AirBnB.
With time AirBnB's trust and safety concerns have expanded beyond the two sides – hosts and guests – to the wider community. The concerns are mainly related to its legality in certain markets and the impact on the city life in general.
Consider the example of New York city. For short-term rentals (less than 30 days) in the city, the host must be present in the property, the rooms must be unlocked, and they cannot host more than two guests. While short-term rentals are possible in small buildings (less than three residential units), larger buildings with three or more residential units must be rented at least for 30 days or more. Consequently, many listings on the platform were deemed illegal. To enforce the rules, city administration enacted a law in 2018, requiring such platforms to provide host's name and addresses to the authorities every month. In August 2018, AirBnB took the city administration into the court on the basis that this would breach the privacy of its hosts and endanger their freedom of activity. A federal court blocked the law in Jan 2019 terming it unconstitutional. Similar problems on the legality of AirBnB's listing exist across the globe, for instance in Barcelona, Berlin, Dublin, Paris, Perth or Tokyo. Furthermore, not all hosts are inclined to register their rentals with city authorities. For instance, it was reported RTE (2020). Low compliance rate under laws restricting AirBnB lettings in Dublin city. Available at:
France is AirBnB's largest market outside the US, with around 65,000 homes in Paris listed at the time. A French tourism association complained in early 2019 to the European Union, noting that AirBnB was acting as a real estate agent and not complying with EU property rules, therefore representing unfair competition to the hotel industry. They argued that this represented a significant threat to existing hoteliers in the city. The matter was referred to the European Court of Justice, who issued an opinion in April 2019 stating that AirBnB should be treated as a digital service provider and free to operate across the European Union. The Court noted that AirBnB Ireland (from where AirBnB runs its French website) ‘may be regarded as an information society service’ and should benefit from the EU's free movement of information Lexology (2019). Regulatory Boost for Airbnb from ECJ's Advocate General.
Apart from legality, societal concerns are also coming to the fore FT (2019). Are AirBnB investors destroying Europe's cultural capitals? Guardian (2018). 30,000 empty homes and nowhere to live: inside Dublin's housing crisis.
The appointment of a Vice President of Trust in September 2019 was an attempt by the platform to ensure trust and safety among guests, hosts, and the community. The company notes that the Vice President of Trust is responsible for developing and implementing strategies that would make AirBnB as one of the most trusted online community in the world.
While the company has battled accusations that it drove up rents in many markets and contributed to the nation's housing-affordability crisis, the criticism and associated trust issues did not slow the company's explosive growth. It was something else that put a question mark on the future of the company. During the spring of 2020, the Covid-19 pandemic and subsequent travel restrictions caused serious threats to AirBnB.
In major markets of AirBnB, the effect of the Covid-19 pandemic really started taking place towards the end of February 2020. In the north of Italy, thousands of people were infected. Government agencies such as for the Centre for Disease Control in US and European Centre for Disease Prevention and Control recommended to avoid all nonessential international travel. As the pandemic spread to Spain, France, the UK, Ireland and the US, stricter confinement measures annihilated any tourism opportunities. By the end of April 2020, data from the United Nations World Tourism Organisation (UNWTO) shows that 100% of destinations now have restrictions in place.
AirBnB estimated that due to the Covid-19 pandemic, its revenue for the year 2020 is likely to be less than half of what it had in the previous year. According to AirDNA, an outside tracker of AirBnB listings, hosts saw $1.5 billion in bookings dissipate for the month of March 2020 in the USA alone. By April 2020, AirBnB's valuation has plummeted from $31 billion at its 2017 fundraising to $18 billion. The company, which was initially due to go public in 2020, announced Forbes (2020). Airbnb Lays Off 25% Of Its Employees: CEO Brian Chesky Gives A Master Class In Empathy And Compassion.
The pandemic represents an immense challenge to the travel industry. It is likely to substantially change our travel habits but perhaps more fundamentally where we live and how we work. All these changes represent some challenges yet some opportunities for AirBnB.
A report by Bain Group notes how distance is one of the most fundamental economic factors in today's economy Bain & Company (2016). Spatial Economics: The Declining Cost of Distance.
Travel habits are also likely to be affected. Using the hashtag #traveltomorrow, United Nations specialized agency for tourism (UNWTO) invites people to travel differently in the future. It believes that people may travel to learn from different cultures and to return home enriched and to advance development and promote sustainability. Similarly, it is reported that tourists may not travel as far as they used to and start (re)discovering the world around them instead of far away. Could those concerns and opportunity be integrated by AirBnB in its attempt to build trust with various stakeholders?
Less than 13 years after its inception, AirBnB which had been a major disruptor in the travel industry is now being disrupted. The company needs to think of solutions to sustain its business model and take an active part in the shaping of a better world post-Covid-19.
How does AirBnB create value? What is (are) the value proposition(s) of AirBnB? How does it differ from other traditional businesses?
Explain the importance of reputational mechanisms in maintaining trust in the context of online C2B2C markets. Explain how AirBnB uses reputational mechanisms to ensure and enhance trust between the two sides of the platform.
How can AirBnB maintain a sustainable tourism platform reputation and address the concerns over its alleged negative impact discussed in the case?
What are the possible behavioural changes of business and personal travellers’ resulting from the covid-19 pandemic? How can Airbnb respond to those long-term changes? Should it be reconsidering its target audience? Its value proposition? Its business model? How?