Airbnb is a name that has become almost synonymous with the rental industry. The company rose to prominence after it disrupted the traditional hotel industry and has since attempted to dominate other sectors within the travel and hospitality industry. Let’s take a look at the Airbnb SWOT analysis to fully understand just how the company was able to achieve this.
A Brief Look at Airbnb
Airbnb is a major player in the rental and booking sector and has introduced an innovative model when it comes to rental services. The company is well known for its effective branding, and marketing itself as more than just a company that provides houses, but one which also provides the experience of home.
Through the use of strategic partnerships and acquisitions, the brand has quickly built itself to be one of the strongest and most rounded players in the market. It is involved in various areas, such as luxury rentals, food technology, home listings, and so on.
The company has been seeing strong growth over the last few years and has cemented its position as a dominant player in the market with a quarter of the market share. Let’s take a look at the strings, weaknesses, opportunities, and threats to this highly successful business.
Here are some of the competitive advantages enjoyed by Airbnb.
Airbnb Enjoys First-Mover Advantage
Airbnb was undoubtedly not the first company to attempt to introduce a novel business model into the hospitality industry, it was the first to do it successfully and at scale. The beneficial phenomenon associated with being the first popularly successful business in an industry is known as a first-mover advantage. As its name suggests, it comes with several perks.
First of all, first-movers enjoy a great deal of brand awareness, customer loyalty, and a positive brand association. This is because, initially, being the sole product on the market naturally creates a strong relationship between customers and the brand. It also gives the brand more time to build vital supply chain structures and partnerships, which gives them an advantage over future competition.
While these advantages typically do not last forever, by the time other significant players in the industry may have appeared, a first-mover company like Airbnb must have carved out a significant part of the market share as well as positioned its brand favorably.
It Takes Advantage of the Network Effect
The network effect is another helpful phenomenon within the business world. It describes a situation where the value and quality of a product or service increase when an increasing number of people utilize it. Airbnb is also a company that takes advantage of this phenomenon. This is because an increasing number of renters will attract more hosts to the platform, which in turn increases the available listings and attracts more renters.
Also, if enough people have positive experiences while using the platform, this will act as free marketing since they would recommend it to others. This eventually encourages hosts to put more effort into ensuring that customers have a positive experience with their services and, by extension, give positive reviews. All these eventually form positive feedback loops where growth promotes further escalation of the platform.
Innovative Business Model
One of the greatest strengths of the Airbnb company is the innovative business model which it introduced into the hospitality and rental industry. Airbnb is designed as a community-based, two-sided platform that helps facilitate listings and bookings between hosts and renters. The company does not own or manage any of the properties which it advertises, merely acting as a middleman in the rental process (while charging them a fee for this service).
There are several advantages to their business model. Firstly, their system allows the company to advertise a much wider range of properties than other traditional traveling agencies and hotel chains. Hosts are also not charged a fee for listing the property, only when the location is rented out. Hosts are also able to set their prices, allowing them to undercut the hotels since they do not have to worry about expensive overhead costs like maintenance, wages, booking fees, and hotel taxes. These cheaper prices are passed along to customers, thereby incentivizing them to choose Airbnb over travel agencies.
Customers, on the other hand, also have greater flexibility when it comes to renting options. Airbnb offers a range of listing options ranging from high-end luxurious locations to cozy one-bedroom listings depending on what the customer desires. This exposes renters to a broader range of experiences rather than being stuck with the stereotypical hotel experience, thereby enhancing customer experience.
Strong Branding and Effective Marketing
In the last few years, Airbnb has focused on promoting a new marketing campaign headlined“Belong Anywhere,” which is targeted toward creating a more inclusive and community-driven brand. The company explained that the primary motivation behind this campaign was to push the public’s perception of the company away from being merely a rental site to one that provides an authentic home-like experience.
This rebranding effort included a new logo (named the “Bélo,” which represents people, place, love, and the “a” of Airbnb), as well as a greater degree of customer interaction through their revamped distribution channels. The platform also added a “Discover” feature, which allowed renters to explore exotic listing locations through a collage of locations and rentals.
They Offer a Unique Traveling Experience
A vital part of the Airbnb brand identity is its ability to offer customers a unique traveling experience. Many times, hotels have been accused of offering stereotypical and artificial guest experiences. However, by using the services of Airbnb, guests can immerse themselves in the local culture by choosing to list options that are more deeply embedded within the community. This allows them to enjoy authentic holiday experiences as well as widens their worldview.
Airbnb promotes this in several ways. We have already mentioned their “Discover” feature, which exposes renters to potential locations in listing options, but they also have several other valuable features such as “Experiences” and “Places” pages. The “Experiences” page allows users to explore fun local activities which are available around the rental area, such as pottery, hiking, and camping. “Places,” on the other hand, inform renters of iconic locations such as amusement parks, monuments, and scenic restaurants.
The Company Is Publicly Traded
Airbnb is a publicly traded company and therefore enjoys the advantages that come with this. For example, when the company went public in 2020, its shares gained 112% in just the first day of training. This IPO allowed the company to raise significant amounts of risk-free capital rather quickly, as well as improve its attractiveness to investors. Another advantage of this is that stock options are an excellent way for companies to compete in the labor market and hire the best talent.
Aside from the favorable media coverage offered by such public offerings, customers also have more confidence in publicly traded companies. Publicly traded companies are also audited more frequently and closely than private firms, allowing for greater transparency, credibility, and investor confidence as well.
From its humble beginnings in San Francisco, Airbnb has grown into an international brand with over 6 million listings, 4 million hosts, and 150 million users, who have booked over 1 billion stays in more than 100, 000 cities in over 220 countries. This level of global reach gives the company a significant competitive advantage over its closest rivals as well as the ability to cater to the needs of a wide range of customers through cheaper prices and more options.
Dual Rating System
The booking and hospitality industry is built on reputation and customer experience. Therefore, Airbnb introduced a dual rating system, which allows both renters and hosts to make mutual assessments of their experience.
This creates an incentive for both renters and hosts to be on their best behavior. This is because hosts with higher ratings will see their listings being utilized more often. On the other hand, notoriously troublesome renters will be rated poorly by the platform and may even be barred from using their services.
Strategic Partnerships and Acquisitions
Airbnb is a company well known for its strategic partnerships and acquisitions, with the company spending well over $700 million on building a strong network that allows you to capitalize on various supply chains within the hospitality industry. These investments include areas such as social platforms, online travel, and even food technology.
Some of the key purchases made by the company include HotelTonight (a travel agency and metasearch engine acquired by the company for $450 million in 2019), Luxury Retreats (a rental service that specializes in luxury rentals which the company purchased in 2017 for $200-$300 million), Accomable (a London-based holiday booking platform which the company acquired in 2017 for an undisclosed amount), and so on.
Healthy Balance Sheet and Gross Margin
Despite its not-so-distant struggles or profitability, Airbnb, for most of its history, has maintained a healthy balance sheet and large gross revenue. This is quite encouraging to investors and suggests that the company has strong potential for future growth due to its strong financial position. Also, the company has been posting steadily increasing revenues over the last few years, generating revenues of over $8.4 billion in 2022, a 40% YoY increase, and its first fully profitable year with a net profit of $1.9 billion that same year.
Here are some of the weaknesses of the company.
The Company Initially Struggled With Profitability
Although Airbnb was launched in 2008 and has raked in billions of dollars in revenue over the past few years, for an extended period, the company struggled with profitability and first managed to achieve an annual net profit in 2017, before briefly lapsing back into net losses the following year.
While this may be considered a normal part of the business’s development plan, with many businesses focusing on growth and achieving a significant market share even at the expense of profitability, it may be worrisome to investors. This is especially true because the company operates within a sector famous for its volatility and unpredictable nature, as evidenced by the downturn experienced in the industry during the pandemic.
Ever-Changing Legal Regulations
Airbnb introduced a relatively new business model into the hospitality and tourism industry. As expected, there was a prolonged period of confusion and lack of regulation due to the inexperience of the law with such a system. However, over time, new regulations have sprung up as lawmakers and other stakeholders within the industry have become familiar with both the direct and indirect consequences of such a business model.
While not all of these regulations may be detrimental to the success of Airbnb, uncertain future regulations create an unfavorable business environment that may scare off investors. For example, some cities have created legal frameworks burning the use of short-term rentals, such as Airbnb listings. While they may have credible reasons for this, it negatively affects Airbnb rentals in these regions.
Their Business Model Is Easy to Imitate
Even though Airbnb was the first company to introduce its business model into the hospitality and rental industry, it did not remain alone for long. The Airbnb business model is relatively easy to imitate, and it is cheaper for competitors to build on a business model which has already been designed. Therefore, the company now faces greater market share competition.
Some Hosts Charge Inflated Prices
Despite their focus on offering cheaper alternatives to the hotel industry, because Airbnb does not directly interfere with how the hosts price their properties, some hosts have been known to offer inflated prices when compared with the services offered. This affects customer experience negatively and creates a poor brand image for the company.
Claims of Fraudulent Activities
Airbnb’s rentals have been accused of being a part of several fraudulent activities. A popular example is what is known as bait and switch scams, in which a particular rental property will be listed for a price. Still, upon choosing the property, the renter will be redirected to a more expensive property listed elsewhere.
Other types of scams the company has been involved in include multiple listings, inaccurate descriptions of property, account hacking, the use of doctored images, fake customer reviews, and illegal payments made outside the platform. Also, some authorities have claimed that Airbnb’s are popular among criminal elements due to the reduced amount of scrutiny that hosts may put on their guests.
Accusations of Racial Discrimination
Airbnb has long been the subject of controversy surrounding accusations of racial discrimination against people of color and other minorities. A 2015 study from Harvard showed that individuals with names that sound like they may belong to a minority have a more difficult time booking on the platform. This caused significant controversy within the company and further encouraged them to tighten the non-discrimination policy when it comes to hosts. However, the stain of the scandal is still yet to fully fade, especially with more instances of hosts discriminating against ethnic minorities and people of color.
Poor Search Engine Optimization
One complaint that many users have had is difficulty in finding Airbnb listings from a search engine. The top listings are more likely to be hotel reservations or travel agencies, with relevant Airbnb listings only being shown if the Airbnb keyword is inserted. This may suggest that the company needs to invest more in search engine optimization to ensure that its listings rank highly.
Lack of Quality Control
Since Airbnb does not own the properties which it advertises, you can only do so much to ensure quality control amongst its listings. The company has made some efforts to make sure that guests enjoy the very best experience. This includes things such as host identity verification, personally inspecting listings when possible, their dual rating system, enforcing accurate descriptions of the available amenities as well as providing 24/7 customer care services to travelers. However, despite all their efforts, there are still significant complaints about the quality of listings by hosts.
Let’s look at some helpful ideas which could drive further growth and development for Airbnb.
Expansion Into New Markets
While Airbnb is officially available in over 220 countries and 100,000 cities, its prominence within these regions differs significantly. As expected, most of its revenue is generated from its North American market. However, this exposes the brand to significant downturns in the economy of its major market.
The brand can make significant efforts to expand its markets in developing economies such as Latin America, the Middle East, and Africa. Also, even though the brand has a significant presence in Europe, especially the major cities like London, Paris, Rome, and Madrid, it is much less popular in other parts of Europe. This is unfortunate because Airbnb listings are some of the best ways to enjoy an authentic local travel experience.
Acquiring Further Strategic Partnerships and Acquisitions
Even though the company is well-known for its strategic partnerships and acquisitions, it can further invest in this area, allowing it to reduce competition and increase its competitive advantage within the market. This includes diversifying into other areas associated with the rental and hospitality industry as well.
Changes In How People Want To Experience Leisure Travel
Previously, when people spoke about leisure travel, they mainly meant prepackaged tours to well-known locations and staying at traditional hotel chains. However, a good number of people now want an authentic local experience that allows them to interact with natives and better understand the culture of the area they are visiting.
To do this, they will need an accommodation option that immerses them right in the midst of the natives and makes local attractions more accessible. Interacting with native hosts is also a great way to learn about the culture they are visiting instead of being subjected to prepackaged tours.
Increased Focus on Luxury Rentals
Just as some travelers are looking for more cozy and immersive rentals to enjoy an authentic travel experience, some renters would instead enjoy an exotic, luxurious holiday. By increasing the number of luxury listings the platform offers, Airbnb will be able to attract more potential renters from this niche as well as increase their revenue.
Invest In a Seamless Mobile Experience
Many users now make bookings directly from mobile devices. Therefore, by investing in a seamless mobile experience, Airbnb can enhance customer experience and boost bookings.
Let’s explore some of the potential threats to the Airbnb business model.
Due to the success of Airbnb, many other businesses within the hospitality industry are trying to copy their business model. This will lead to increased competition from rental services, rental agencies, and hotel chains. This competition reduces the market share of the company, driving down profits and eventually constituting a significant threat to its continued success.
The travel industry is one which is strongly dependent on the situation of the economy. The struggles faced by various sectors associated with travel and hospitality, such as aviation, rentals, and entertainment, expose the vulnerability of the industry. Airbnb relies on strong positive economic indicators to promote growth and significant downturns such as those caused by pandemics, recessions or war, or a threat to business.
Decreasing Acceptance of Home-Sharing
The aftermath of the Covid pandemic has left a visible mark on the home-sharing culture. Certain people are now reluctant to rent out their properties on Airbnb due to health and safety reasons. Hopefully, as more people around the world are fully vaccinated, and this stigma and fear associated with COVID-19 die down, this trend may also reduce.
Negative Guest Experiences
The hospitality industry is built on positive experiences. Therefore, negative experiences both on behalf of travelers and hosts are a significant threat to the success of the Airbnb business model. Include altercations between hosts and renters, posts canceling reservations, fraudulent listings, overpricing, and so on.
User Data Security Leaks
Airbnb maintains a vast database of user information such as credit card details, rental details, and background verification information. Therefore, a leak would be catastrophic to the reputation of the company as well as expose them to potential lawsuits. Also, user data privacy is one of the most critical contemporary issues within the business world today. There have been accusations that companies such as Airbnb, which maintains such large databases of personal information, could potentially use this information to profit off of their customers.
Airbnb is more than just a rental company. They are major disruptors within the industry and changed how we view leisure vacations, rental accommodations, and the meaning of an authentic holiday experience. The business is showing no signs of slowing growth with strong financial indicators as well as successful marketing, and is well poised to remain a dominant figure in the industry for years to come.