Airbnb Canvas Model

Airbnb
A short introduction
And
a review of business model

History: The advent and The growth
 It is Founded: 2008 / San Francisco with the two founders, Joe Gebbia and
Brian Chesk, both were 27, who had met five years earlier at Rhode Island
School of Design . Later Nathan Blecharczyk joined them.
 They were struggling to pay their rent. There was a design conference
coming to San Francisco and the city’s hotels were fully booked, so they
came up with the idea of renting out three airbeds on their living-room
floor and cooking their guests breakfast.

 They set up a simple website with a map and rented out three mattresses
and promised home-made breakfast.
 They had a 30-year-old Indian man, a 35-year-old woman from Boston
and a 45-year-old father of four from Utah sleeping on their floor. They
charged $80 each a night

 In summer 2008 they found the perfect kick-start for their business. Barack
Obama was due to speak in Denver at the Democratic National
Convention, and 80,000 people were expected to be there. They improved
their website and started to attract travelers.
 Within a week they had 800 listings. But the site wasn’t making any money
 they bought bulk quantities of cereal and designed packaging branded
as Obama and ‘Cap’n McCain’ cereal.

 they sold 800 ‘limited-edition’ boxes at $40 each and made more than
$30,000
 In early 2009 they received $20,000 of funding from an angel investor,
Paul Graham.
 They received $600,000 from venture capitalists.
 In the winter of 2012, Airbnb overtakes Hilton Hotels in nights booked.

 Airbnb first became profitable during the second half of 2016. Airbnb's
revenue grew more than 80% from 2015 to 2016.
 In October 2016, New York Governor Andrew Cuomo signed a bill
charging Airbnb fines for violations of local housing laws.
 In January 2017, Brian Chesky, CEO of Airbnb, posted on Twitter that the
company will give free housing to refugees and any others not allowed
into the United States as a result of Donald Trump’s Executive Order
13769

 It raised a massive $1 billion funding round in March that pushed its
valuation to $31 billion as of mid-2017 (pre-IPO). (1)
 They are serving over 3 million listings in more than 65,000 cities in over
190 countries.(1)
 Now, 1.9 million of Airbnb's listings are instantly bookable.(2)
 Airbnb’s accommodation marketplace provides access to 5+ million
unique places to stay in more than 81,000 cities and 191 countries.(4)
 It is estimated that Airbnb is worth at least $38 billion now.(3)

Mission
 Airbnb’s mission: “Airbnb connects travelers seeking authentic
experiences with hosts offering unique, inspiring spaces around the
world.”
 Also :”a trusted community marketplace for people to list, discover, and
book unique accommodations around the world”

Canvas Business Model
 It is a visual chart with elements describing a firm's or product's value
proposition, infrastructure, customers, and finances.
 The Business Model Canvas was initially proposed by Alexander Osterwalder.
 It consists of 9 area’s making main parts of a business structure.
 They are: Costumer segments, Customer Relationships, Channels, Revenue
Streams, Value Proposition, Key Activities, Key Resources, Key Partners, Cost
Structure

Airbnb Business Model:
Key partners: Hosts
 Hosts are the supply side of the Airbnb platform. They bring their
homes/units to the table.
 Airbnb has two types of hosts:
 Rental hosts : offer houses, units/condos, rooms, and more exotic stays,
such as castles, igloos and more.
 Event hosts: offer to guide through local experiences, food, art, fashion,
nightlife, etc.

Key partners: Investors
 Investors/venture capitalists bring the initial rounds of funding to the
table.
 The funding helps with developing the functionality, apps, algorithms, but
also for acquiring customers. Investors bring down the (weighted) cost of
capital (WACC)
 Funding rounds for Airbnb are crucial to keep costs of capital low, to
expand and run operations until the platform becomes profitable

Announced Date Transaction Name Number of Investors Money Raised Lead Investors
Series F - Airbnb
Secondary
Market - Airbnb
Series F - Airbnb
Debt Financing -
Airbnb
Series E - Airbnb
Series E - Airbnb
Series D - Airbnb
Series C - Airbnb
Series B - Airbnb
Series A - Airbnb
$112M Andreessen Horowitz
10-Nov-10 9 $7.2M Greylock Partners
$475M —
28-Oct-13 5 $200M Founders Fund
$100M FirstMark
28-Jun-15 15 $1.5B General Atlantic,Hillhouse Capital Group, Tiger Global Management
$555.5M CapitalG, TCV
16-Jun-16 4 $1B JP Morgan Chase & Co.
$447.8M CapitalG, TCV
17-Oct-16 1 — —
25-Jul-11 9
16-Apr-14 7
20-Nov-15 1
22-Sep-16 6
09-Mar-17 5
(6)

Key partners: Politician
 Politician are crucial for Airbnb at all levels of government.
 New York City has made it illegal to advertise homes for stays of less than
30 days. The exception is to share rooms where the landlord stays in the
same apartment
 Funding rounds for Airbnb are crucial to keep costs of capital low, to
expand and run operations until the platform becomes profitable

Key partners: Travel Partners
 Corporate travel partners: Airbnb has opened a large source of new guests
by expanding into the business travel world. Through their alliances with
platforms like Concur and Flight Centre, Airbnb inventory becomes
available to corporate travel managers.

Non-Key partners
 freelancing professional streets/events/property photographers
 Maps, payment platforms, cloud storage, identification platforms
 Insurance companies

Key Activities
 The network effects are the moat of platform businesses
 The key activities should revolve around improving positive network
effects and reducing negative ones.
 Enticing more users to join and participate
 making the individual host-guest transactions easier and managing
complaints swiftly and learning from them

Key Activities
 Grow the platform by : getting more participants to join , entering new
cities , complementary offering that increases stickiness, such as events.
 Keep participants engaged, e.g. high utilisation of homes
 Keep guests returning by providing great travel experiences in
accommodation and events/experiences
 Add new customer value propositions, e.g. event hosting : creates
complementary offerings to lodging , adds new hosts and offers income
opportunities, increases host and guest engagement
 Analyze the data to fine-tune everything

Key resources
 The network effects
 The homes listed & requested
 The events listed & requested
 User generated content on the webpages
 Captured data

Key resources
 The algorithms
 Development, analytic capabilities and engineers, data scientists
 The brand
 Access to venture capital to keep the business growing
 Skilled employees
 The app & webpages

Value proposition
 First of all , your platform needs to create value for the supply (=hosts)
and demand (=guests) side of your platform.

Value Proposition: Levels
Individual connections:
 Airbnb helps to start the every guest-host connection on the right foot.
 The people providing the service have to be adjusted to the service
delivery standards.

Community:
 connections between the users as a whole enabled by the vast amounts of
user generated content on the destination locations as well as the
respective home/unit/room.

Localization :
 by adding an increasing amount of information/recommendations on the
location and adding events provided by event hosts.:

Value Proposition For Hosts
 Income generation
 Ease of transactions
 Experience of meeting new people
 Guests are already ID checked, plus ability to review guests ratings

Value Proposition For Hosts
 Calendar, booking management through Airbnb
 Insurance coverage through Airbnb (hosts still needs an insurance for
certain items)
 Other host service providers (non-affiliated 3rd parties) from cleaning only
to full management

Value Proposition For both sides
 Airbnb recommended hospitality standards
 Responsible hosting guidelines with all tips on safety, hazards,
neighbours , etc
 Dispute resolution process through Airbnb
 Taking safety and trust seriously

Value Proposition For Guests
 Convenience of booking
 The amount of choice and variety of types of homes
 The proposition to experience the destination more authentically
 Tons of authentic information about the destination city (selected large
cities)

Customer segments: Guests
 by travel type
 business travel guests; leisure travel
 tour of multiple destinations; single destination stay
 by demographic
 single; couple; family with children
 age brackets
 pre or post retirement
 by income bracket
 by interest

Customer segments: Hosts
Hosts : by type of accommodation provided
Room; unit/condo; house
by home/location
country; city
by location type
countryside; suburb; metropolitan

Customer segments: Macro Level
On macro level, you can segment:
• rental hosts/guests only
• event hosts/guests only
These are still very macro segments. All data-driven companies, like Airbnb,
create much more micro-segmentation that should be much more valuable
than the above traditional segments.

Customer relationships
 It is so important to firmly own the customer relationship and to keep it
within your platform.
 The business travel platforms (Concur, Flight Center, see above) and
Airbnb will have careful provisions in their contracts and the customer
data that they share to avoid “leakages”.

Customer relationships:
Both Sides
 Deal with customer issues in appropriate manner and timeliness
 Manage bad behaviours and risks (the “harassing host” and the “house
trashing guest”) and improve rules continuously
 Transparency around privacy, personal data
 Portray the desired company image through social and other media

Customer relationships: Hosts
 The relationship with the supply side will be mainly defined by what the
platform does for them in terms of income while protecting their property
from bad guests:
 The platform’s ability to generate income (short gaps between guests,
listing up the top).
 Provide good guests (weed out the bad apples).
 Manage issues (accidents, damages, complaints) swiftly.

Customer relationships: Hosts
 Support in the on-boarding process.
 Help hosts to succeed in general and Help super hosts to stand out and
be rewarded.

Customer relationships: Guests
 Manage the social, communal, economic footprint/impacts of the
platform
 Liaise with cities, communities, regulators and other groups as required
(and proactively where beneficial)
 Manage the platform’s image across the media and other relevant
channels
 Manage serious incidents quickly to avoid negative viral spread (want to
be on an overbooked United Airlines flight?)
 They have the Airbnb newsroom, Airbnb Citizen, Airbnbmag and their
Facebook pages

Channels:
Awareness and customer acquisition
 Digital ad campaigns via AFAR, YouTube, Dwell, Lonely Planet, Buzzfeed,
the BBC, Facebook and Twitter
 Content marketing: via their newsroom and guidebooks
 App stores (iOS, Android): through high ratings, ads and being featured
 Word of mouth:
 via social media and messaging apps
 user stories: “our users tell the stories better than we do”
 referral programs rewarding referrer and referral taker with credits

Channels: Daily transactions
 Most transactions are fully automated through the app and web pages
 Signing up through the web pages or the app
 Airbnb uses emails & notifications to engage, stimulate participation,
referrals, reinvigorate/recover customers (through special offers,
reminders, etc)

 Keeping users engaged and drawing in new users is essential for all
platforms. Airbnb’s Facebook pages are a great example for this.
 Tiered customer support channels:
Automated customer support for high-volume, low severity issues (e.g.
forgotten items) to be rapid
Multi-tiered customer support (ability to contact a human) for more
severe issues

Many communication channels:
 Airbnbmag
 Airbnb newsroom
 Airbnb Citizen
 Facebook pages

Cost Structure
 Cost of customer acquisition, CAC: referral credits, digital advertising, paid
search (PPC)
 Weighted average cost of capital, WACC (can be ~25% for start-ups, for
Airbnb this should be far less)
 Development of new features, ongoing fine-tuning of algorithms
 Expansion to new cities and new niches

Cost Structure
 Payroll for permanent employees and freelancers (e.g. photographers)
 Costs of payment processing
 Lobbying, regulatory compliance
 Legal cases and settlement costs
 Infrastructure costs, computing power, bandwidth
 Customer support
 Insurance, legal costs

Revenue Structure : Direct
 Airbnb makes their revenues by charging hosts and guest a service fee per
transaction:
 Rental guests pay 5-15%
 Rental hosts pay 3-5%
 Event hosts pay 20%
 Event guests pay 0%

Revenue Structure: Direct
 Guests pay a 2-3 times higher fee per transaction than hosts.
 Hosts pay 3% transaction fees if they select a flexible cancellation policy,
4% for a moderate and 5% for a strict cancellation policy.
 Guest service fees are at the lower end of the 5%-15% range, the higher
the overall transaction value.
 Event fees are very different. There is no service fee for the guest and a
20% service fee for event hosts. Event hosts are easy to get.

Revenue Structure: Cost recoveries
 Airbnb passes Google paid search costs onto the hosts whose space is
being booked through ads.
 Airbnb offers professional photography of rental homes in selected cities
for a fee .
 There are cleaning (and hosting) service providers for Airbnb listed
properties. These are not affiliated with Airbnb but promise to comply
with the Airbnb service standards

1. https://www.innovationtactics.com/business-model-canvas-airbnb/
2. https://www.businessinsider.com/airbnb-total-worldwide-listings-2017-8
3. https://www.forbes.com/sites/greatspeculations/2018/05/11/as-a-rare-profitable-unicorn-airbnb-
appears-to-be-worth-at-least-38-billion/#7fb183762741
4. https://press.airbnb.com/about-us/
5. https://dashboards.trefis.com/no-login-required/qC4zolzn?fromforbesandarticle=as-a-rare-profitable-
unicorn-airbnb-looks-to-be-worth-at-least-38-billion
6. https://www.crunchbase.com/organization/airbnb/funding_rounds/funding_rounds_list#section-funding-
rounds
7. https://www.digitaltrends.com/web/terms-conditions-airbnb/
8. https://www.airbnb.com.au/hospitality
9.

Airbnb Canvas Model

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