LEAVEY BUSI NESS SCHOOL

March 9, 2021

JENNA BUCHER, ALLISON CEPUKENAS, JOSHUA CHANG,

CATHERINE DINH, GARRETT SCHUETZ

Airbnb: Is it time to Re(Bn)Brand?

In the year 2020, amidst the global pandemic of Covid-19, Airbnb is greatly affected by

travel restrictions placed on many countries. Their attempts to stay relevant despite the travel

restrictions have become increasingly difficult, and they need to make a decision where to focus

their marketing efforts.

Established in 2008, Airbnb is a service that allows anyone to rent out their home for a

set amount of time, replacing the need for a hotel. They offer a website and mobile app, in which

users pay a fee to rent the Airbnb property. Customers also pay an additional cleaning fee to

ensure the property is sanitary for the next customers.

With the decrease in profits from the global restrictions, Airbnb had to lay off 25% of

their workforce. They have also been without a CMO for two years, after the resignation of

Jonathan Mildenhall in 2018.

Due to these circumstances, Tiffany White, the senior marketing manager at Airbnb, must

step up to the plate. Tiffany is tasked with creating a new marketing strategy for the U.S. in 2021,

choosing a focus between the short-term rental market that has launched Airbnb to success in the

past ten years, or shift to accommodate a new and growing long-term rental market that caters to

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work-from-home professionals and “stay-cations”. She will present this strategy to a board of

directors next week for review and approval.

Company Background

Joe Gebbia and Brian Chesky, college friends from the Rhode Island School of Design

(RISD) and co-founders of Airbnb, moved to the Bay Area with the dream to create a startup in

Silicon Valley. Joe Gebbia (Chief Product Officer), Brian Chesky (Chief Executive Officer), and

Nathan Blecharczyk (former Chief Technology Officer; current Chief Strategy Officer), provided

a platform for people to rent out their living spaces during major events such as a design

conference in San Francisco, the South by Southwest (aka SXSW) festival, or the Democratic

and Republican National Conventions in 2008. Airbnb gained popularity and customers that

would later get them into Y-Combinator, the world’s most popular startup accelerator, and

receive funding from investors including Sequoia Capital.

Since then, they have been growing year over year to a gross booking value of almost

$38B in 2019. In 2020, however, as the COVID-19 pandemic spread, bookings have vastly

decreased since March. The company must redefine traveling to keep revenues and profits afloat.

The Rise of the Short-Term Rentals Market and the Current

Situation

In the past decade, short-term rentals have skyrocketed in popularity, making their way

into mainstream travel culture. From 2016 to 2019 alone, the short-term rental market has grown

by over 100% in the U.S.1 In 2019, there were over 1.5 million short term rental units listed on

various platforms, which was 7 times the amount in 20142. With online platforms such as Airbnb

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and its competitors such as Vrbo, Flipkey, and HomeAway, short-term rental bookings have

never been more convenient and efficient. Consumers have grown to prefer short-term rentals

(STR’s) over hotels due to the accommodations such as local interaction, home-like amenities,

increased privacy and space, and a unique experience (Exhibit 1).

For investors of real estate, the STR model’s cash flows and ROI prove to be attractive

and consistent, bypassing hassles such as eviction while bringing in higher rent costs. Many

real-estate entrepreneurs rely on the revenue of their STR listings alone to make a living, and

consider themselves “self-employed”.

However, the STR market’s growth was ground to a sudden halt in the face of the

Coronavirus (Exhibit 2). For the first time in 10 years, percent growth was negative, an average

of -6.1%, across all Airbnb and Vrbo listings worldwide 3 (Exhibit 3). Airbnb has seen a $1.2

billion drop in revenue during the first nine months of 20204. With many cities facing

stay-at-home orders and customers fearful of renting travel accommodations, Airbnb must

strategically find a way to increase their bookings. Moreover, Airbnb has faced regional

challenges such as a recent decision to cancel bookings in Washington D.C., ahead of the

presidential inauguration due to security concerns5. Last year, Airbnb surprised many with the

announcement of an IPO. On the day of the IPO, Airbnb’s share price more than doubled6. This

strategic change came at a time when the sector had been hit with reduced travel trends.

According to CEO Brian Chesky, Airbnb’s new strategy is to target remote workers who are

once again considering travel6. Success on the stock market paired with a new business strategy

affirm the attractiveness of this unit.

In order to encourage bookings during the pandemic, Airbnb has been driven to adapt to

COVID-19 guidelines. Airbnb revised their cleaning procedures to ensure the safety and comfort

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of their guests. The commitment made by hosts includes an enhanced five-step cleaning

procedure in consultation with the U.S. Surgeon General and guidance from the CDC and the

WHO7. Airbnb will need to be strategic in their decision-making as they adapt to challenges

caused by the pandemic and other world events.

The Case for Long Term Rentals

Thousands of Airbnb hosts have been without income since the start of the travel bans. It

is unsurprising that guest cancellation rates have increased sharply, and Airbnb’s new full refund

policy in light of the situation hasn’t made it easier on hosts. As a result, in 2020 hosts had begun

taking their listings off of Airbnb and placing them on competing sites that allowed for

longer-term stays. One Airbnb host in Dallas, Sean Ray, states, “I’m putting someone in my

house and crossing my fingers they’ll pay… I can’t keep it on Airbnb because that’s a guaranteed

loss” 8.

However, while bookings for weekend-long trips in the cities have declined, there were

increases in longer-term stays in listings in rural areas. In 2020, everyone but essential workers

adopted a work-from-home lifestyle, and according to a Gartner survey of company leaders, 80%

of companies plan to continue allowing their employees to work from home at least part time

after the pandemic (Exhibit 4). This power to clock-in from anywhere in the world gives

workers and students incentive to continue booking long stays, a trend that many predict will

stick around even as vaccines begin to roll out across the country.

Looking Ahead

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 Over the past few weeks, Tiffany White has been considering her two options carefully.

While the STR market is stunted for now, vaccinations will undoubtedly cause the number of

rentals to increase once again. However, it is uncertain whether or not long term rentals are here

to stay.

The first option Tiffany came up with suggests that Airbnb should segment their vacation

market in order to take advantage of the rapidly growing work-from-home market. Additionally,

she wonders if Airbnb should consider creating a sub-brand, like “AirWFH” to differentiate the

two services and maintain their brand image? Ever since its creation in 2008, Airbnb has been

for short-term rentals; is 2021 finally the year to refocus? For this option, the Airbnb team would

create a separate section on their website specifically for work-from-home compliant properties.

With uncertainty about the duration of work-from-home orders, Tiffany wonders if investing in

this new category is too much of a risk.

For her second option, Tiffany is considering that Airbnb sticks to their roots, continuing

to provide short-term rentals to customers in the US. If the pandemic ends soon, Airbnb will

have saved money by not creating a new market that requires advertising among other expenses.

However, if work-from-home continues, Airbnb will have lost customers to competitors and will

have to enter the long-term rental market late.

In the meantime, Tiffany needs to come to a conclusion on which option to present during

the board of directors meeting next week.

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 Appendix

Exhibit 1 Monthly Occupancy Rate of Hotels from 2011 to 2020

Exhibit 2 Airbnb’s Gross Booking Value Worldwides from 2017-2020

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Exhibit 3 Decline of Active Airbnb Properties Worldwide

Exhibit 4 Gartner Survey Regarding Company’s Sentiment on Work from Home After the

Pandemic

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 References
1
Rastegar, Ari. “Council Post: The Rise Of Vacation Rentals: Short-Term Tenants, Long-Term

Profits.” Forbes, Forbes Magazine, 26 Nov. 2019,

www.forbes.com/sites/forbesrealestatecouncil/2019/11/26/the-rise-of-vacation-rentals-sh

ort-term-tenants-long-term-profits/?sh=16db9a296f42.

2
CBRE Research, 2020, pp. 2–45, Short Term Rentals: A Maturing U.S. Market and Its Impact

on Traditional Hotels.

http://cbre.vo.llnwd.net/grgservices/secure/Short-Term%20Rentals%202020.pdf?e=1615

225247&h=71c5a6e9d56fc5c4f1c4395d20a51ec6

3
DuBois, Dillon. “Impact of the Coronavirus on Global Short-Term Rental Markets - AirDNA -

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www.airdna.co/blog/coronavirus-impact-on-global-short-term-rental-markets.

4
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Times, The New York Times, 16 Nov. 2020,

www.nytimes.com/2020/11/16/technology/airbnb-revenue-prospectus-ipo.html#:~:text=T

he%20drop%20was%20%241.2%20billion,it%20moves%20to%20go%20public.

5
Davies, Emily, et al. “Airbnb to Cancel All D.C. Reservations during Inauguration Week as

Security in the City Is Tightened.” The Washington Post, WP Company, 14 Jan. 2021,

www.washingtonpost.com/local/airbnb-reservations-cancelled-inaugruation/2021/01/13/2

205e42a-55b9-11eb-a931-5b162d0d033d_story.html.

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6
Feiner, Lauren. “Airbnb Skyrockets 112% in Public Market Debut, Giving It a Market Cap of

$86.5 Billion.” CNBC, CNBC, 11 Dec. 2020,

www.cnbc.com/2020/12/10/airbnb-ipo-abnb-starts-trading-on-the-nasdaq.html.

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“COVID-19 Safety.” Airbnb, Airbnb, Inc., 2020, www.airbnb.com/d/covidsafety

8
Rodriguez, Salvador. “Airbnb Hosts Are Scrambling to Find Long-Term Renters and Flocking

to Other Platforms.” CNBC, CNBC, 25 Mar. 2020,

https://www.cnbc.com/2020/03/25/airbnb-hosts-turn-to-long-term-rentals-competitors-du

e-to-coronavirus.html