Indian Institute of Management, Indore

Before You Startup

Assignment

Submitted to:

Prof. Sachidananda Benegal

Submitted by:

Tanvi Choudhary

Roll No. 2021PGP404

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Journey of Airbnb using elements of lean and effectuation:
Co-founders and roommates Brian Chesky and Joe Gebbia came up with the idea for
Airbnb when they were having trouble making rent payments. After realising that
all of the nearby hotels in San Francisco were occupied for a local industrial design
conference, the two designers decided to set up three air mattresses and offer a bed
and breakfast service to the conference's attendees. Instead of using Craigslist, which
Chesky and Gebbia found "very impersonal," they built airbedandbreakfast.com.
After hosting three designers for $80 per night during the conference, Chesky and
Gebbia realised they were onto something. They quickly saw the value in providing
a taste of the area to tourists from out of town. What made Airbnb stand out was its
emphasis on community. Rather than just renting out a room, they provided a full-
service stay, making guests feel at home and turning the host into a representative of
the neighbourhood. Rapidly realising the need for a more robust website and
platform for online home-sharing, the roommates recruited Nathan Blecharczyk, a
computer science graduate and Gebbia's former flatmate, to help. In 2008, when the
website was completed, there was a hotel room shortage in Denver due to the
Democratic National Convention. The three founders focused on the region and
launched successfully, although they lost money.
Because of the widespread interest in the 2008 US presidential race, Gebbia and
Chesky put their design and marketing brains to use by making unique versions of
the Obama and O's Cap'n McCain cereal boxes. By selling these "limited edition"
cereal boxes for $40, they were able to bring in $30,000 to go toward running the
business. Initially held afloat by the sales of specially designed cereal boxes, the
company eventually attracted the attention of venture capitalists, who invested in it.
At the beginning of 2009, Paul Graham invested $20,000 in the company and
encouraged it to join his renowned startup accelerator, Y Combinator. Because of
this, Airbnb was able to spend a few months honing its offering before seeking
funding from more venture capitalists. After receiving $600,000 from Sequoia
Capital in March 2009, the company rebranded from Air Bed & Breakfast to Airbnb
and swiftly expanded. Additional funding came along shortly thereafter, and within
a few years, Airbnb was a fully-fledged, globally operating business.
Airbnb's extraordinary success over its whole history can be directly attributed to
the company's optimistic adaptability in the face of adversity. In the summer of 2011,
when a host's property was damaged and looted by her guests, the corporation
admitted its error. It set up a programme of protection for hosts in the event that
guests caused harm or stole from them. For the first year, Airbnb's "Host Guarantee"

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paid for repairs and replacements for property damage and theft up to $500,000.
Increasing the limit to $1,000,000 in 2012 was a smart move. Airbnb has also made a
commendable effort, reacting to cities' concerns and working with them to ensure
that hosts comply with local short-term rental ordinances. The company, however,
has also been involved in a number of legal battles with municipalities and
governments over their regulation and outright ban on short-term rentals.
Additionally, Airbnb has made strides in the travel industry by hiring Fred Reid, the
original CEO of Virgin America Airlines. Chesky has already announced his plans to
shake up the tourism industry. With Reid on board, Chesky's lofty goals have a
better chance of becoming a reality.
Equally intriguing is Airbnb's stated goal of providing a hotel-like service with
designated Airbnb rooms with its recent purchase of ten levels of the Rockefeller
Centre. While Marriott International and other hotel chains examine the home-
sharing business, Airbnb is adapting, expanding, and improving its offerings.
Although Airbnb has an impressive background, it is clear that the company has big
intentions to expand. Airbnb is expanding outside the home-sharing market, as seen
by the company's plans for a huge IPO launch in 2020, and is now a major player in
the hotel and lodging markets. More than 7 million listings may be found on Airbnb
right now in 220 different countries and regions. Airbnb listings are most numerous
in the United States, France, and Italy. On Airbnb, there are roughly 650,000 people
who offer their homes for rent. Priceonomics reports that Airbnb hosts earn an
average of $924 a month and can make as much as $ 10,000 if they market their
listings effectively.
Airbnb’s journey in the above paragraphs clearly highlights how its founders used
the elements of lean and effectuation to build their business from scratch. They
started with three air mattresses (bird in the hand) and continued to make
improvements in their business model using the principles of lean. The roommates
leveraged US presidential elections to earn more money for the startup when they
were incurring losses (lemonade principle) and built partnerships with several
private and government players (crazy quilt). They made continuous improvements
in their business model and upgraded it based on its stakeholder’s reviews.

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Airbnb Revenue and Cost Structure:
Service fees paid by guests and hosts for bookings make up the bulk of Airbnb's
income. Guests are responsible for a service fee equal to or less than 14.2 percent of
the total cost of their stay, as stated in the listing. On top of that, a 3% fee is added to
the total cost of each confirmed booking to compensate the host for handling guest
payments. It's possible that this price will increase for Airbnb Plus accommodations.
In the event that the host does not honour the reservation, the guest is responsible
for the service cost. When guests need to make changes to their reservations, Airbnb
charges them more for the service.
Users in the European Union (EU), Norway, Switzerland, Iceland, and South Africa
must also pay value-added tax (VAT) on top of Airbnb's service fees. Travelers
staying in the EU must additionally pay taxes at the rate applicable in their native
country. Guests are also exposed to the prevailing exchange rate if they want to pay
for their reservations in a currency other than the property's official one. Prices are
set by Airbnb. All revenue earned by hosts from taking reservations is subject to a
value-added tax of ten percent.
Airbnb's expenses can be broken down into three main groups: regular employee
compensation, initial and ongoing investment in technology, and payments to
independent photographers.

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 Via FourWeekMBA

Business Model Canvas of Airbnb:

1. Customer Segments:

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Airbnb’s customers can be segmented into two categories:
i) Hosts: They are the owners of the properties who offer guest accommodation
and welcomes them
ii) Guests: these are the travellers who are looking for a place to stay and have a
great stay experience

They can be further categorized base on their demographics and preferences:

i) By type: Family, couples, individuals and business travellers
ii) By location: Rural, sub-urban, cities
iii) By price: High end, cheap
iv) By space: Farm, Cottage, House. Studio etc.
v) By amenities: Wi-fi, kitchen, TV, pool, parking etc.
vi) By experience: Walkable distance to beaches, cities, restaurants, scenic view,
unique etc.

2. Value Proposition:
The following proposals provide value to the company's members (guests and
hosts).

For the Host:

i) Secure and straightforward property listing publication:

a) Hosts can advertise any property (commercial or private) as long as it complies

with Airbnb rules.
b) Earn extra cash by renting out their apartment to passing through passengers.
c) Complete control over date availability, pricing, and property rules.
d) Airbnb offers $1 million in home insurance to cover accidents and damages.

ii) Professional Services: Hosts might hire a professional photographer to take high-

quality images of their property.

iii) Communication: Communication is simple, and there are two-way reviews.

iv) Self-check-in: 

a) The host can send the visitor instructions on "how to enter" and an entry code
through email or text.
b) Customer service is available around the clock via call, mail, and chat support.

v) Organize Airbnb Experiences: Since April 2020, hosts of Airbnb Experiences have

already been making a lot of money, with several earnings of over $150,000 in a
single month.

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For the guests:

i) Save money: Airbnb offers excellent value for money.

ii) Simple to find and book: Guests may search and book from over 7 million
listings in 100,000 cities across 200 countries. On July 8, 2020, guests booked over 1
million future nights in a single day.

iii) Get a large property, which is ideal for large groups: They can select amenities
based on their preferences, such as a pool, kitchen, and washer. Instead of staying in
the same old hotel rooms, guests can enjoy a unique experience.

All members are subjected to a background check by Airbnb (hosts & guests)

iv) Self-check-in: It is an option that allows guests to check in at their leisure at any
time.

v) Payment Security

vi) Experiences: Explore far-flung places, learn about different cultures, and make
new friends from the comfort of their homes using Airbnb's virtual travel platform,
Online Experiences.

3. Key Partners:
Airbnb's foundation was built on a number of strategic pillars that continue to
support the company. All of the major players work together to create new,
promising avenues for the future. The initial number of Airbnb subscribers and the
kind of platform it provided for both guests and hosts were important to the
company's early success.
i) Hosts: Airbnb’s hosts can help the guests make the best choice by giving them all
the details they need to know about the property. Adventure-focused hosts provide
guests with details and tickets to activities like kayaking, cooking, wine tasting,
hiking, and more.
ii) Venture capitalists and investors: Capitalists and investors played a key role in
developing the foundations of the Airbnb business. Researchers invest vast sums of
money and time into improving the web platforms and applications that users
interact with. Y Combinators, Sequoia Capital, Google Capital, Tiger Management,
etc., are just few of the investors who have put money into Airbnb.
iii) Corporate travel partners and managers: Partners & Managers in Business
Travel Corporate managers aided in the day-to-day operations, as well as in the
attainment of the company's goals. Airbnb partners with insurance carriers to
protect hosts from financial loss due to accidents or damage to their properties.

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iv) Photographers: Freelance photographers that use their expertise to take stunning
photographs of the rental property.
v) Government: Airbnb has announced a new collaboration programme in 2020 that
would allow it to collaborate with government agencies, tourism boards, and non-
governmental organisations (NGOs) to boost domestic travel and the economy.
There are currently partnerships in place with organisations including Discover
Puerto Rico, the Bermuda Tourism Authority, the Bahamas Ministry of Tourism, the
US National Park Foundation, Visit Florida, Visit Denmark, the French Rural
Mayors' Association, the Hadong-gun in South Korea, and the Zhejiang Province in
China's Department of Culture and Tourism.
4. Key Activities:
i) Developers work to fix any bugs that can prevent members from using the
platform.
ii) Develop Host and Guest base through active sales and marketing.
iii) Establish a method for member screening.
iv) Controlling undesirable actions and potential dangers through enhancing
rules, enhancing customers' soft skills, and influencing the good actions of
both hosts and guests.
v) Safeguard members' personal information by keeping it confidential and only
disclosing it if members provide permission to do so. The requirements of a
rental space or an upcoming event are two good examples of such details.
vi) Preserve Service to Customers - In particular for the traveller, on-time
delivery and completion of all promised tasks are of the utmost importance.
Accomplishing a customer's request in a timely manner is crucial for Airbnb
to maintain a positive social media presence and prevent negative feedback.
vii) In order to help children with severe illnesses and veterans in need of medical
treatment, Airbnb has teamed with Make-A-Wish and the Fisher House
Foundation.
viii) Control Contracts - By harmonising listing agreements in that nation, Airbnb
may increase its brand's visibility and appeal to a wider audience, which in
turn increases the number of people who are interested in becoming Airbnb
hosts.
ix) Help Local Economies Grow: Airbnb's new "Go Near" campaign highlights
and directs guests to local attractions and businesses in an effort to boost local
economies. With addition, it has announced new partnerships with municipal
governments to aid in community growth.
x) Every company needs to prioritise its value proposition. Airbnb is constantly
trying to increase its user base by creating novel value propositions.
xi) Recruit and keep reliable workers.
5. Customer Relationships:
i) Airbnb's website and mobile app serve as the major self-service platform for
the company.

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ii) Customer’s preferences and search history are used to generate a list of places
to stay that are tailored specifically to them. The software can generate the
listings that travellers are most likely to be interested in by using basic
algorithms and filter preference systems.
iii) As a company, Airbnb recognises the importance of providing first-rate
customer service and support to its guests.
iv) Aids in crucial administrative tasks during the onboarding process.
v) any incidents, damages, complaints, etc., are acknowledged, and the
corresponding issues are managed.
vi) Steps to swiftly handle client issues gives hosts a leg up (help with "how to")
on their way to success
vii) Offers necessary resources and perks for exceptional hosts. Members who
host more than five houses or events each year are considered "super hosts."
viii) Through the City Portal, city officials and tourism groups can learn how
Airbnb operates and get the resources they need to continue providing hosts
with a positive experience.
6. Key Resources:
i) The Airbnb website and smartphone application
ii) Software developers, data analysts, and other scientists in the workforce
iii) They have millions of listings on their site, with user-generated content like
ratings and comments.
iv) Information and algorithms that have been captured
v) The availability of seed money to sustain the company's rapid expansion and
continued success.
vi) Partnerships with regional authorities, industry groups, and non-profits.
7. Channels:
i) The Airbnb website and smartphone application
ii) Software developers, data analysts, and other scientists in the workforce
iii) They have millions of listings on their site, with user-generated content like
ratings and comments.
iv) Information and algorithms that have been captured
v) The availability of seed money to sustain the company's rapid expansion and
continued success.
vi) Partnerships with regional authorities, industry groups, and non-profits.
8. Cost:
i) Expenses incurred during platform development and upkeep
ii) the price of infrastructure
iii) The expenses of sales and promotion
iv) Acquiring New Customers Cost
v) Wages for Staff
vi) Capital Costs

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vii) Construction and upkeep
viii) Transaction costs for credit cards
ix) Fees for insurance
x) Legal fees and office overhead
xi) Spending on rules and regulations
9. Revenues:
There are two key drivers of Airbnb's bottom line:
i) Airbnb's Host Fee (often between 3 and 5 percent) is the amount the host
must pay to list their space or event on the website. After the listing is
finalised, the commission is deducted. Additionally, experience hosts incur a
20% service fee.
ii) The Airbnb website charges a fee to each guest who books a room or Airbnb
listing, ranging from a few percent to twenty percent of the total cost of their
stay. Those are the costs associated with making a reservation (per room
charges)
iii) Cost of cleaning
iv) Paid Services
v) Occupancy
vi) Guest surcharges
vii) Exchange rate costs
viii) Prices subject to Value-Added Tax, Local Taxes, and Other Charges
ix) Users pay $19 to participate in a 90-minute-long online experience session,
such as a virtual magic show. The $19 is split between Airbnb and the online
facilitators of the sessions.

Airbnb’s competitors:
i) Vrbo: It is an industry veteran, having been established in 1995. The company
specialises in renting out private homes, condos, cabins, villas, yachts, and
even castles. About 16 million people visit it every month.
ii) Booking.com: More than 6 million private homes and flats, in addition to
hotels, are available through the massive internet travel service Booking.com.
More than a hundred million people visit the site every month.
iii) HomeToGo: It is a metasearch engine that compiles results from more than
600 different sources, providing access to over 18 million different deals in
over 200 different countries. The Berlin-based business bought Tripping.com
to establish a foothold in the US market.
iv) Google: Google has been expanding its footprint in the lodgings sector
through partnerships with online travel agencies and managers, and it now
also includes vacation rentals in Google Maps. Millions of Google's users can
access the listings at no cost to themselves.
v) Holidu: It is another Munich-based German aggregator, similar to
HomeToGo. More than 11 million people visit the site every month, and they

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 have access to more than 15 million products. As a matter of fact, it's quite
well-liked by Europeans, particularly those who speak German.
vi) Tripadvisor: Nearly half a billion vacationers visit Tripadvisor each month,
making it the most popular travel review site in existence. Since its inception
in 2000, it has amassed more than 800 million reviews of hotels, restaurants,
tourist spots, and more.
vii) Expedia: It is an online travel firm that allows customers to reserve hotels,
aeroplane tickets, automobile rentals, and tours and activities. The site is
geared toward vacationers who don't want to spend hours looking for the
best rates.
viii) Trip.com: It's the parent company of a lot of successful travel-related
businesses, including Skyscanner, and is therefore the most popular Chinese
online travel agency. The service has approximately 400 million members and
offers 1.2 million rentals across 200 countries.
ix) TUI Villas: It is a subsidiary of TUI Group, a global leader in the travel and
tourism industry. More than a thousand other sites will also feature its almost
300,000 listings.
x) Misterb&b: In excess of 250,000 hosts in over 135 countries make it the largest
gay lodging brand in the world. The website is exclusive to hosts who are
accepting of LGBT guests.
xi) Plum Guide: Because customers want only the greatest residences included
on their site, Plum Guide approves only roughly 3% of the applications they
get.
xii) Glamping Hub: With over 30,000 unique rentals such as treehouses, cottages,
and tiny houses, it is the go-to website for arranging a glamorous camping or
outdoor experience online. Those interested in nature and the outdoors are
the obvious target demographic.

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