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Untitled document - Mandatory Assignment
International Business (BUSI-3028)
Fanshawe College
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SM CASE STUDY III
Airbnb business model development and future challenges
Summary
The case discusses the inception of the Airbnb business model, its initial phase and growth throughout the years. Airbnb have focused on growth through geographical expansion, understanding its customer needs and attracting customers through its social media platforms. With the industry slowly growing and changing, Airbnb faces challenges with new entrants and strong competitors while also challenged by some legal factors which threaten the further growth of their business.
What is Airbnb's business model? What metrics indicate that Airbnb's business model is working? Airbnb's business model was focused on connecting people seeking accommodation and hosts who rent extra rooms or spare space. It facilitates the rental transaction between the guest and host. It also focused on a peer-to-peer marketing strategy where the host and guests were provided opportunity to connect and form a community. This group of trusted and loyal renters and hosts allowed them to reduce the risks associated with the model. The fact that they found people from wide variety of backgrounds seek for the service proved the viability and marketability of the business model. With some modifications and additions to their business, Airbnb was able to attract more and more renters with their continuously growing host community across the globe.
What was Airbnb's market entry strategy? They initially focused on major conferences that took place and concentrated on the gaps between the numbers of available hotel rooms and conference attendees which would estimate the demand for their service. Because of their low budget, they majorly relied on blogs for advertising. Of the listed hosts, they also favored the ones that would be present while the house was rented.
Later the listings were expanded from event based to more general and also facilitated the transaction of fee between the guest and hosts which made the experience more comfortable for both parties.
How has the industry evolved and what are the major threats for Airbnb now? As the industry evolved, more and more players emerged in the field which posed as threat to Airbnb. The competition for Airbnb came in three forms : copycats, vacation rentals and one stop vacation services. There were many imitators that followed the same business model of Airbnb but in different geographics. There were also presence of other vacation renters like HomeAway, VRBO and Flipkey that operated in the same segment. These companies were also strong in terms of capital, brand name and growth through acquisitions unlike Airbnb's strategy of organic growth. They also faced competition from large hotel aggregators such as Hotels and Travelocity that are able to provide comprehensive deals even at the last minute with competitive prices.
What should Airbnb do about its legal challenges and competitive threats? For the legal challenges, since different places have different laws and regulations, Airbnb will have to make sure that the hosts at different places follow their respective local regulations to avoid lawsuits. They should also try a less aggressive approach and try to negotiate with the legal terms in terms of permit or tax payments required to ensure the success of their business model and comply with the regulations wherever possible. In terms of competitive threats, Airbnb is different from its competitors in terms of the experience provided to the customers by their service which is unique, affordable and convenient. But at the same time the customer experience depends on the hosts, therefore Airbnb needs to be more aware and responsible for the arrangements made. They should make sure the rental provided by their hosts pass a certain standard so as to provide the customer with the experience they promise and also take more responsibility in their services than just facilitating. They can also focus more on social media presence, customer reviews and celebrity endorsements to gain trust from people.
Untitled document - Mandatory Assignment
Course: International Business (BUSI-3028)
University: Fanshawe College
