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Airbnb - Business analysis based on Porter 5 Forces

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An analysis of Airbnb is conducted based on Porter 5 forces scheme. We developed a review of the forces influencing hotels and lodging industry. In a second phase we see how IT is influencing this forces and can be turn to advantages. Finally we define Airbnb business model and conduct a SWOT analysis.

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Airbnb - Business analysis based on Porter 5 Forces

  1. 1. airbnb Lora Julien – Morand David IMBA IEA Lyon 2016 1
  2. 2. Agenda 2  Industry under Porter’s glasses  Airbnb business model  Structural change due to IT  New market... New competition  Conclusion
  3. 3. Industry  Lodging and accommodation  Service industry within hospitality industry 3 http://www2.unwto.org/content/why-tourism Tourism Hospitality Lodging/ Accommodatio n
  4. 4. Industry  Market figures  International tourist (overnight visitors) have reached 1 133 millions in 2014 : +4.3%  Continuous growth over last 5 years  “UNWTO forecasts a growth in international tourist arrivals of between 3% and 4% in 2015” 4 UNWTO Tourism Highlights, 2015 Edition
  5. 5. Industry 5  Market figures  Europe 51% - Americas 16% - APAC 23% – AMEA 10%  53 % travel for leisure  14 % travel for business  27 % travel for other purpose (visit relatives, religious, health treatment …)
  6. 6. Industry 6  Average occupancy in Europe http://ec.europa.eu/eurostat/web/tourism/statistics-illustrated
  7. 7. Industry 7  Total expenses in Europe http://ec.europa.eu/eurostat/web/tourism/statistics-illustrated
  8. 8. Industry 8 Average daily rate RevPar RevPAR = Rooms Revenue /Rooms Available European cities hotel forecast for 2014 & 2015.18 gateway cities,Amsterdam to Zurich, March 2014, PWC
  9. 9. Industry  Types of companies  Multi-national chain  Private hotels  Hostels  Types of clients  Private tourism & Leisure  Business travellers  Convention / Event  Tour operator  Monopolistic competition  Many suppliers with differentatied products and many buyers  One should keep in mind that supply is restricted to available rooms and can not be increased over demand  When demand > supply : supply becomes inelastic to price 9
  10. 10. EFFECT OF COST EFFECT OF PRICE Industry 10  Porter’s 5 forces Rivalry among competitors Threat of new entrants Bargaining power of buyers Threat of substitutes Bargaining power of suppliers Joan Magretta, 2012, Understanding Michael Porter, BHrvard Business Review Press PRICE – COST = PROFIT
  11. 11. Industry 11  Porter’s 5 forces  Threat of new entrants  High barriers to entry due to cost of and lack suitable location  Adaptation to local culture under worldwide scale  Legal and local policy can prevent settling a place  Threat of substitutes  Substitute can be internal between international and domestic  No real outside substitutes  Bargaining power of suppliers  Low as wide range of suppliers compared to industry players  Bargaining power of buyers  As strongly segmented buyers have low power  Only tour operator could have in specific segment  Economic & political situations will change buyer behaviour  Rivalry among competitors  Strongly segmented market will keep rivalry aside with low fight on price  Price inelasticity of supply for high demand prevent rivalry on price when demand is high
  12. 12. Value chain 12
  13. 13. Value chain 13 Building / Real estate • Find a place • Build a place • Rent a place Marketing and Sales • Advertise • Reserve a stay • Schedule arrival of guests Operations • Clean place • Prepare commodity • Secure place • Provide info and rules • Receive host After sales • Insurance • Service on demand • Complementary offers
  14. 14. Business model 14  “…Airbnb is a trusted community marketplace for people to list, discover, and book unique accommodations around the world — online or from a mobile phone or tablet.”  Airbnb is offering a market place for both hosts and travellers https://www.airbnb.com/about/about-us?locale=en viewed on 01/12/2015
  15. 15. Business model 15  Registration to Airbnb is free  Airbnb charges  3% to travelers  6-12% to hosts  Airbnb guarantees hosts’ location up to 800 k€ https://www.airbnb.com/about/about-us?locale=en viewed on 01/12/2015
  16. 16. Business model 16  So far Airbnb...  ...owns no rooms...  Is widely international  Enables hosts to adjust price vs. demand  Enables travellers to judge and mark hosts  Expects 150 Million lost(*)for the year but…  …Is valuated at 24 billion $(*) ... (*)“The Secret Math of Airbnb’s $24 BillionValuation”, http://www.wsj.com/article_email/the-secret-math-of-airbnbs-24-billion-valuation- 1434568517-lMyQjAxMTI1MTA0NDcwMzQzWj accessed on 4/12/2015
  17. 17. Business model 17 “What’s an Airbnb ListingWorth in 2015?” http://skift.com/2015/06/19/whats-an-airbnb-listing-worth-in-2015/ accessed on 3/12/2015
  18. 18. Industry changed by IT 18  Porter’s 5 forces  Threat of new entrants  High barriers to entry due to cost of and lack suitable location  Adaptation to local culture under worldwide scale  Legal and local policy can prevent settling a place  Threat of substitutes  Substitute can be internal between international and domestic  No real outside substitutes  Bargaining power of suppliers  Low as wide range of suppliers compared to industry players  Bargaining power of buyers  As strongly segmented buyers have low power  Only tour operator could have in specific segment  Economic & political situations will change buyer behaviour  Rivalry among competitors  Strongly segmented market will keep rivalry aside with low fight on price  Price inelasticity of supply for high demand prevent rivalry on price when demand is high  No tangible assets as hosts owns locations  Localization of offers using a global network community  From BtoC to C to C : shared economy  Community help judging service and recommendations are base of quality  Hosts are integrated to development  Competition is not promoted ; help from community is pushed towards hosts
  19. 19. Industry 19  Porter’s 5 forces changed Rivalry among competitors Threat of new entrants Bargaining power of buyers Threat of substitutes Bargaining power of suppliers EFFECT OF PRICE EFFECT OF COST PRICE – COST = PROFIT Airbnb does not promote to make profit for its hosts but rather to value their assets
  20. 20. Building / Real estate • Find a place • Build a place • Rent a place Marketing and Sales • Advertise • Reserve a stay • Schedule arrival of guests Operations • Clean place • Prepare commodity • Secure place • Provide info and rules • Receive host After sales • Insurance • Service on demand • Complementary offers Value chain influenced by IT 20  Airbnb has increased the perceived value of place using IT and marketing  Operational costs in on the side of the hosts Building / Real estate • Find a place • Build a place • Rent a place Marketing and Sales • Advertise • Reserve a stay • Schedule arrival of guests Operations • Clean place • Prepare commodity • Secure place • Provide info and rules • Receive host After sales • Insurance • Service on demand • Complementary offers
  21. 21. Influence of IT  Airbnb can be seen as a multi-sided platform  It brings together two distinct but interdependent groups of actors  Here hosts & travellers are linked by Airbnb  It facilitates interactions  It grows on network effect (viral addition of people form each group) Business Model Generation:A Handbook forVisionaries, Game Changers, and Challengers, 2010, John Wiley & Sons : p 77-79 21
  22. 22. Influence of IT 22  Technology  Sophisticated algorithm for searching locations  Build to be translated from the beginning  Open source code to facilitate browsing  Mobile application realeased  Idea of sharing and community to developers  nerds.airbnb.com  Technical blog for developers  airbnb.io  Access to open source code
  23. 23. Influence of IT 23  Strong use of web tools  Use of the network for promotion  https://youtu.be/U3oICoTN1-M?t=635  Google ads, Google analytics  https://youtu.be/U3oICoTN1-M?t=728  But also... Be present locally  https://youtu.be/U3oICoTN1-M?t=260 Going for Global: 5 GuerrillaTacticsWhen the Slick Stuff Fails Rebecca Rosenfelt, Growth Product Manager,Airbnb https://www.youtube.com/watch?v=U3oICoTN1-M
  24. 24. Competitive advantage  Brand recognition  Notion of community is core value  Focus on both hosts and travellers user experiences  Wish list for travellers  “Airbnb Neighborhoods” : guidance website  Price setting tool (yield management) for hosts  Photographers for hosts  Defence of hosts (happened) vs local govt. 24
  25. 25. Competitors  Traditional hotel chain  Direct competitors : HomeAway,Wimdu, 9flats  Hotel Reservation sites : Expedia, Priceline  Other market places : EBay,Amazon  Travel site :Tripadvisor 25
  26. 26. Competitors 26 “What’s an Airbnb ListingWorth in 2015?” http://skift.com/2015/06/19/whats-an-airbnb-listing-worth-in-2015/ accessed on 3/12/2015 + market value extracted from yahoo finance on 3/12/2015 at 16pm
  27. 27. Competitors 27 Airbnb Direct competitors Hotels Booking sites Market Place Travel site Internet Experience Lodging Experience Qualitative representation of competitors vs. Lodging and internet experience
  28. 28. •Financial situation yet not profitable •Management may not be experienced to sustain growth •Volatility of hosts •Highly dependable on economical situation •Law suit from local govt. •Increase of competitors in premium sectors •Event at major city change business (Paris’ attacks) •Disinterest of guests as several businesses are taking the host market in big cities •Buy by competitors SWOT 28 •Business travellers •Trends from known people •Increase of mobile devices use •Extension into complementary offers S W O •Brand recognition •Host and traveller services centric •Lower price •Market value attracts investors T
  29. 29. Conclusion 29  Airbnb has created a full ecosystem based on IT  It succeeded in breaking the trade-off of bringing a unique stay experience at a low cost  It would face threats from political law that can prevent its hosts to gain advantage of renting their accomodations
  30. 30. Thank you Lora Julien – Morand David 30

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