Airbnb connects these buyers and sellers by maintaining a website that allows the parties to find each other based on their preferences, handling the payments, and increasing security by identity verification processes. Airbnb also provides insurance for the hosts. Airbnb is also an example of the so-called “sharing economy”: it does not own any properties, but relies on people monetising their underutilised assets – in this case, homes, rooms, or apartments. Unlike traditional hotels, Airbnb scales not by increasing inventory but by growing the community of hosts and travellers and matching them with each other.

Airbnb was founded in 2008 in San Francisco; the same year it received $20,000 from Y- Combinator (a start-up mentoring program). In 2014 Airbnb closed its latest round of funding at a $10 billion valuation. This makes Airbnb worth more than some major hotel chains including Wyndham Worldwide, valued at $9.2 billion, and Hyatt Hotels, at $8.4 billion. Currently there are more than 600,000 properties listed on the site; to date the company has had more than 10 million nights booked in more than 19,000 cities in 192 countries, mostly in Europe. In late December 2013, the company reported it had over six million new guests in 2013, and nearly 250,000 properties were added in 2013. Airbnb competes directly with hotels; on average apartments on Airbnb are 21% cheaper than hotels in most major US cities. Also, the success of Airbnb has started a wave of clone companies. Airbnb faces local competition from companies such as Wimdu in Germany, 9flats in the UK and iStopOver in Canada.

Airbnb connects two groups of customers: travellers in need of accommodation and landlords willing to rent out their place for short term.

Learn more about the Matchmaking Business Model

You identify two or more customer groups and brings them together in your marketplace.

Engagement  — Value Creation Proposition
Airbnb creates value for its both customers in different ways.

For guests: it gives travellers the option of cheaper accommodation, which is especially important in cities like New York, London, Paris, with low availability of budget accommodation options. Also, it allows travellers to experience their destination less like a tourist and more like a local by staying at locals’ places rather than standardised hotels, which makes for a more special experience during travelling.

For hosts: the primary benefit for hosts is the ability to receive additional revenue by short-term renting of their homes (or rooms in it).

Society: It is also argued that Airbnb has creates social value: it brings tourist money to less visited neighbourhoods and it serves as a complement to hotels, allowing for overflow when hotel capacity is stretched.

Delivery — Value Chain
Airbnb’s website provides a search engine, which matches customers to properties, sets prices, and flags potential problems. Airbnb takes a number of important measures which enable establishing trust between the two transacting parties, such as identity verification. To use Airbnb, site visitors search for listings in their destination city. Once they have found a place, they can send a message to the host with any questions about the room or its location and reserve their booking.

Hosts list their properties on Airbnb’s website. Airbnb encourages hosts to provide as much information about themselves and the property as possible and offers them a professional photographer for their property. Hosts with good reputations get more business. Through Airbnb, guests and hosts can verify each other’s driver’s license or passport, e-mail address and phone number, and connect Facebook profiles. The host and the guest agree on the convenient method of exchanging the keys.

Afterward, guests and hosts rate each other online, so there is a huge incentive to deliver a good experience because bad reviews means less ability to participate in the market in the future for both hosts and guests. Airbnb also automatically provides $1 million in insurance against damage or theft to nearly all of its hosts (some countries have restrictions) and only rarely gets claims.

Monetisation — Value Capture
Customers pay for the stay in full using a credit card or PayPal. Airbnb holds the money until a day after guests check in, ensuring that they are not swindled out of their cash and that the guests are treated well. In exchange for providing the market and services like customer support, payment handling and $1 million in insurance for hosts, Airbnb takes a 3% cut from the renter and a 6% to 12% cut from the traveller, depending on the property price.

Disclaimer — Written by Tatiana Mikhalkina and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School, this case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2014