Tuesday, September 16, 2014

Blue Ocean Strategy – Airbnb – Social Networking Marketplace for Room renting & sharing – Collaborative Consumption

Airbnb is a web site or social networking market place that allows host to list a spare room, apartment, house, tree house or even a private island; and a guest to rent that accommodation. Airbnb business model is also termed as “collaborative consumption” or “Share economy” where people become both consumer and producers. Collaborative consumption is a new economic model that revolves around sharing, where resource consumption is done collectively rather than individually, thereby maximizing efficiency. Founded in 2008, Airbnb connects renters and travelers from around the world at any price point. With more than 500,000 listings in 192 countries and 34,000 cities, it has provided lodging for over 11 million guests. Airbnb blue ocean strategy is based on process innovation as the company does not own any properties but provides the customers and sellers a platform through which they can service one another. Traditionally people relied on lodging facilities like hotels, hostels, bed and breakfasts or couch surfing websites which are mostly preferred by young backpackers looking to party in cities around the world. Airbnb created an uncontested marketplace where in they are providing the best suitable accommodations to their users at the best possible price.

Airbnb is a website for people to rent out lodging where in users of the site must register and create a personal online profile before using the site. Every property is associated with a host whose profile includes recommendations by other users, reviews by previous guests, as well as a response rating and private messaging system. Disruptive Airbnb created not only a new market place but also created new sources of supply and relying on curation for developing quality. In the early stages, the business model is based on volume, as companies seek to get as many new people on the platform as possible. In the case of AirBNB, they make money as an intermediary between the two parties, the travelers and the locals, taking a percentage from both sides:6-12% booking fee (traveler) and 3% successful booking fee (local). It’s free to list your room or your home on the website. The traveller pays AirBnB when the owner agrees on the booking request. The owner gets paid 24 hours after the check in of the guest via AirBnB system. AirBnB also marks up the price loaded by the host and the lister receives 90% of the sales commission, and the renter receives unique, cost-appropriate lodging in locations around the world.

Airbnb’s blue ocean strategy can be analysed using the ERRC grid wherein business model eliminated the hassles of booking hotel rooms, quality of service, locations, excess cost, etc.,, reduced the costs for customers, inconvenience of finding the best suitable place, etc. raised the customer satisfaction levels, raised revenues for listers and hosts and finally created a new uncontested market space based on market place model using the social networking sites and collaborative consumerism. Customers significantly benefit form Airbnb both in terms of costs and also find a place in a most preferred and suitable location. Airbnb offers many locations in any place with innovative experiences. Airbnb users are not limited by the traditional concept of a hotel; they can choose where they want to stay and what they want to experience. Airbnb represents the innovation in the hospitality industry that attracted the family, business and young travelers and an alternative to hotels in saturated markets especially for events.

Another important aspect is that Airbnb created new sources of supply for hospitality and hotel industry that never existed before where travelers have access to an inventory of travel accommodation composed of the houses of people living in the cities. Initially these new sources of supply were inferior and less sophisticated compared to the established hotel industry in terms service quality and pricing. As the supply on these platforms evolved over time Airbnb started competing directly with established competitors. As the platform found greater adoption among consumers, it attracted mainstream producers as well. Airbnb hosts have faced many problems related to local laws, tenants causing damages to properties, illegal drug & sex parties, service conformance and denial issues, etc. Airbnb is making attempts to reduce the risks people by offering to reimburse $1 million worth of property damage. It doesn’t promise to remove risk entirely. Overall Airbnb business model is a unique model that is hugely successful and created an innovative new market space that is advantageous to travelers, hosts and even mainstream hotel industry is also adopting similar model.


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