How Airbnb Change The World Within 10 Years’ Time

Introduction: Airbnb operates an “online community marketplace for people to list, discover, and book accommodations worldwide online or from a mobile phone to individuals and businesses. ” (Bloomberg, 2018). Founded in August 11, 2008, the company just celebrated its 10-year anniversary this summer. Compared to conventional accommodation supplier giants (Hilton Worldwide, launched in 1919; IHG, origins 1777), it is a very young company. But 10 years is enough for the world to witness a wholesale change in the antient, changeless market. This article focuses on how the company discover and redefine the customers’ problems in conventional market, how it took efforts to come over such problems, and how it changed the whole market.

Accommodation market before Airbnb: Before Airbnb entered the game, traditional accommodation market already had a long history. Nishiyama Onsen Keiunkan, built in 705, was considered the oldest hotel in the world. History of hotel can be divided into 3 stages.

Inns

Dates back to antient China, inns are also known as Ke Zhan in antient Chinese language. Ke stands for Customer, while Zhan is for horse stable. The combined letters implied the function of such antient inns: offer a place for travelers to take a rest and fodder their horses in the midway. In this stage there’s no concept of “relax”, the aim of moving into an inn is specific: Get prepared for the next trip. Figure1: Ke Zhan in Tang Dynasty

Modern Hotels

The first hotel with modern concept was built in Exeter, 1768. The same time period when the concept, mass tourism, was first proposed. As tourism became an activity which most civilian can afford, the demand for modern hotel rises. People began to show tendency to select hotels which are more comfort, more relaxing, with luxury decorations and considerate services. In this period where online booking system was not invented, goodwill of hotel is gathered through word of mouth and newspapers.

Online-booking system

At the beginning of millennium, the development of internet technology and the popularity of personal computers brought to the world the appearance of online-booking system such as TripAdvisor and Booking. com. Such online platform enabled online rating, commenting and selecting of hotels, making it convenient and reliable for customers to travel.

The problem of conventional market:

Shortage in supply side

Modern cities usually have tight urban planning. For megalopolis like New York City and Shanghai, there is little space to place the hotels. Government policy together with sky-high land rental fees disabled many hotels to site there. Ironically, big cities are exactly where most commerce, labor fluence and tourism occur, and where the demand for hotels are highest. Such incoordinate results in a foreseeable shortage in supply side in big cities. For the American city Hamilton, tourism brought more than 3. 4 million visitors to Hamilton and resulted in just under $241 million in economic activity and 2,300 jobs, according to a report presented to city councilors (Steve Arnold, 2011) The inconstancy between tourism demand and hotel shortage severely hamper tourism and also cause inconvenience to travelers.

Increasing hotel fee

Because of shortage in supply side and high rental fees, accommodation is getting more and more expensive for travelers. To make things worse, as there are no alternatives in hotel industry, international hotel groups can safely raise up the price without losing much market. As a result, all the cost above will be shift to customers.

Inflexibility nature of hotel

Hotel is inflexible in nature. The number of hotels within a region is fixed. The number of hotel rooms is also fixed. It takes months or even years to build a new hotel. However, the festival and activities in a city is not rigid. For example, my hometown is a coastal city where tourists only come to visit in summer. The thing is, hotels are never enough during summer and hotel owners make a hell sum of money. While in other seasons the rooms are almost empty, and hotel owners keep losing money operating the empty construction with summer revenue, or rather close them.

Product homogeneity

Indeed, hotels have varieties of type, they can be luxury, or economic; they can be romantic, or commercial; they can be beside the beach, or on the snow mountain. But all of them follow the same rule: they are a group of rooms gathering together and managed by a group of people. However, travelers nowadays have even more types of tastes, some of them prefer more individualized room, with no other customers in the hallway nor beside them while eating. Some of them want to limit the element of hotel and travel and enjoy the sense of home. All these are what traditional hotel cannot offer.

Airbnb: the concept breaker and disruptive innovatorWhen time turns to 2008, roommates and former schoolmates Brian Chesky and Joe Gebbia brought the idea of “peer to peer economy”, also known as sharing economy, to the accommodation market. The business model of Airbnb can be presented in the figure below: The value principal of Airbnb is to set up a user-friendly platform with rating systems that offer a link between hosts and travelers. In the travelers’ view, they may easily recognize hosts and photographers as part of the company. The truth is: hosts, travelers, and photographers are all the company’s customers. Airbnb gain its share of service revenue from both hosts and travelers and use part of the money to directly pay the photographers who took high-rated photos. The business model of Airbnb is not only innovative, but also epoch-making to the whole accommodation industry. It redefined travel and largely broadened the concept of accommodation from a group of hotel rooms to individual housing, or anything with a rooftop. Such innovation is definitely disruptive. Game rules have changed: Instead of owners building a hotel and waiting for guests in a passive way, Airbnb involved both the supply side and the demand side in the game, a process of mutual adaption and mutual selection.

How Airbnb changed conventional market once and for all

Shortage in supply side

Hotels in Metropolis is in short largely because there is limited spare area planned by the government to construct. What Airbnb is doing actually turned residential area into commercial area. It obscured the boundaries between each planned area and made it possible to transform anywhere to hotel room and make profit.

Increasing hotel fee

Firstly, Airbnb solved the problem of hotel shortage, balancing the supply side with the demand side, thus lowering the overestimated price. In Georgios research (2017) he compared two cities in Texas: Austin and Dallas, the former city experienced sharply increasing diffusion of Airbnb, while the latter one, serving as a control group, did not. He found out in Dallas the hotel price kept going up without the control of Airbnb. Whereas in Austin where Airbnb is expanding its market, the hotel price even dropped. Such comparison shows the price impact in a straightforward way.Secondly, Airbnb serves as an alternative to hotel market. The impact manifests itself primarily through less aggressive hotel room pricing, benefiting all consumers, not justparticipants in the sharing economy. According to Georgios Zervas’ research, such impacts occur mostly in peak tourism period, where without Airbnb the hotel price should be the highest.

Inflexibility nature of hote

As presented above, price impact occurs mostly in peak demands. This is because different to hotel, Airbnb, as a kind of sharing economy, is flexible in nature. Every room owner can add or remove themselves on the mobile app with a single slide. Therefore, it is a self-adjusted market which reacts so quickly to the market that beyond every hotel owner’s imagination. The accumulative result is benign: closing the gap between peak period and bleak period, making the supply and the price varies smoothly.

Product homogeneity

As an alternative to traditional hotel product, Airbnb provide customers with more choices.

Is it successful? Of course it is! Figure 6: Success timeline of AirbnbAs showed in the picture above Airbnb is earing a great sum of money and thought highly by the investors. In the year 2017 single, Airbnb made $93 million in profit on $2. 6 billion in revenue. Now the company has over 140,000 customers staying at Airbnb listed places, in over 34,000 cities across 190+ countries, every day. As the quote I put in the very beginning of this article, “The two founders never knew they will create such a world heat. And traditional hotel giants never thought about their accustomed market can be done in such virus way. They kept thinking how the 4 problems could be solved in the traditional way: probably through improving the service quality, race to control best location, etc. If the two founders knew the secrets of how traditional accommodation company succeeds and get restricted to it they may not went so far. However, they happened not to know it. Therefore, they jumped out of the circle and flies disruptively.