Airbnb - Robin

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Business_Profiles_FS

Company #1: Airbnb

Links:

WSJ

How and why did this company start?

This company started as a way for people with available living space (both short and long term) to connect with people in need of housing as an alternative to hotels. Two RISD graduates came up with the idea after renting their apartment out as a small b and b during a convention in San Francisco when all the local hotels were booked, and quickly realized how profitable their idea was. They teamed with a Harvard grad and began developing the website. In order to secure funds for their project, they sold 800 cereal boxes labeled as Cap'n McCains and Obama O's at $40 a piece. Along with an initial seed investment from Y Combinator, the founders raised over $50,000. CNN. Their website quickly grew to become the immediate alternative when hotel spaces were entirely booked and in 2011 the company received $112 million in Series B funding from a group of investors. (Source: INC.com Article Gigacom) The company rapidly grew, and recently in April 2014 received an investment of $500 million from the private equity firm TPG, evaluating the company at $10 billion. The website today has over 600,000 listings in 200 countries. (Source: TechCrunch Article) It is currently a privately owned company operating out of San Francisco, California. Nest, a company known for their programmable smart gadgets, is now partnering with Airbnb to offer smart thermostats in select Airbnb locations around the country. This has lead to some speculation of negative side effects resulting from homeowners controlling the climate while guests are staying in their home. (Source: Mashable)

Controversies

Several controversies have around the legality and quality of tenants using Airbnb. In New York, law restricts apartment tenants from renting out their apartment for fewer than 30 days, and often lease agreements restrict tenants from short term apartment rentals. In Quebec, the law requires a $250 permit in order to rent out your apartment for fewer than 31 days, and law officials have been pursuing people renting out their apartment on Airbnb. (Source: Quebec News Time) Furthermore some users have been able to entirely avoid the transaction fees entirely through private contact outside of the website.

In one instance, a woman had her home destroyed and burglarized by an Airbnb guest, which along with another misfortunate Airbnb event lead to the company releasing a $50,000 insurance policy to cover damages accrued during an Airbnb stay. (Source: LA Times)

Competitors:

In some sense, Airbnb is competing with top hotel chains such as Hilton, Mariott, Comfort Inn, and Sheraton. However, there are also alternative apartment renting websites including Homeaway, Roomorama, and Onefinestay. (Source: ABC News article)

Company Strategy Analysis:

Airbnb generates revenue through a 6% guest fee and a 3% host service fee. This has the advantage of being able to generate a significant income from a single guest/host transaction (say your reservation cost $1000, this would pay Airbnb a total of around $90). Although they need to compete with larger hotel chains, it is the first website to offer an online-based alternative to lodging. Although other competitors have popped up, Airbnb continues to be the more popular website. A private analyst estimated their 2012 revenue to be $189 million, and the company continues to grow every year. Although controversies and certain laws have inhibited the use of the service in certain areas, I do not foresee this leading to the end of the website. I imagine Airbnb will continue to be a leader in it’s industry for future years, as they have yet to saturate the market and the potential market size is not shrinking. However, I do see the battle between the hotel industry and Airbnb continuing to grow, as the company is beginning to leech into the hotel market and steal customers (which has lead to opposition to the website from the hotel industry). The website has also set up a rating system to further insure the quality of stay for both the guest and the host. Although issues will continue to arise, methods will continue to be developed by Airbnb in order to sustain their services. (Source: How Does Airbnb Make Money?)