Strategic Analysis of AIRBNB

Subject: Company Analysis
Pages: 10
Words: 2817
Reading time:
11 min
Study level: PhD

Executive Summary

The disruptive venture introduced by AIRBNB was completely unpredicted owing to its uniqueness. To provide clear and succinct coverage of the transformative nature of AIRBNB, the paper delves into the various segments of customers in the hospitality sector. Furthermore, the analysis looks into the distinct characteristics of the various types of tourists. From the analysis, it emerges that the main types of clients that form AIRBNB’s market comprise house owners and travelers. According to the report, it is clear that house owners list their facilities on the portal provided by AIRBNB. The portal is accessible for both the hosts and the clients who wish to spend their time in the facilities. Porter’s five forces model reveals that while the bargaining power of suppliers and the threat of new entrants into the market dominated by AIRBNB is low, the power held by consumers is high. The new competitors who have just entered the market are gradually decreasing the dominance enjoyed by AIRBNB and increasing the buyers’ ability to switch and enjoy services that best suit their expectations. Increasing competition, shifting client demands, and the changes in the marketing environment are some of the components that may change the future of AIRBNB.

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Introduction

The hospitality industry has continued to experience spontaneous growth regarding consumers and service providers. Essentially, the diverse demands presented by clients in the industry triggered a rise in the number of hotels introduced to meet these needs. Hotels, motels, condominiums, and cottages have all emerged with the intent of satisfying customer requirements in the hospitality industry. One such new entrant is AIRBNB Inc. that has become a dominant service provider in the market. Although the company entered the market around 2008, it has quickly grown to become one of the leaders in the hospitality sector. To understand the role that AIRBNB plays in the hospitality sector, it is important to study the market segment in the hotel industry as well as the disruptive nature of AIRBNB Inc.

Market Segments in the Hospitality Industry

Business Travellers, Backpackers, and Couples

Business travelers comprise the first segment of hospitality clientele. Although this segment was uncommon in the past, it has gradually become one of the classes of clients targeted by hotels. The increasing number of individuals traveling on business trips has attracted service providers in the sector of hospitality, and hence, compelled them to develop services that target this market. Notably, business trips sponsored by companies or undertaken by businesspeople are on the rise. Dumitrescu and Fuciu, (2015) allude that on many occasions business travelers do not focus on the price of services, but instead, look for quality. Thus, high-end hotels target this segment of consumers in their quest to win the market share and manage the competition. Unlike some travelers who do not want to undertake any activity while on holiday, these individuals are on business. Therefore, they need all the requirements that befit the ‘office away from office’ demands. Laptops, internet access, printers, and, in some cases, fax machines play a role in elevating the quality of services provided to these types of clients.

Consequently, backpackers are adventure-seeking individuals. While business travelers spend most of their time in hospitality facilities and leave once they complete their assignments, backpackers are on holiday and usually stay for relatively long periods. Moreover, these tourists, love places that are close to attractions since most of them like adventure and quality time as they unwind and enjoy their vacation. The segment of clients does not pay lots of attention to the nature of accessories such as laptops, printers, and other requirements provided for business individuals. The low demand for these gadgets takes effect because a majority of backpackers may be on holiday and want to be free and away from any business or workplace engagements. One of the unique elements associated with solo travelers is the little time that they spend in a hospitality facility (Dayour, Kimbu & Park 2017). Essentially, backpackers utilize a large part of their time exploring tourism attractions and socializing with others in these destinations or in the city.

Couples comprise another segment of clients targeted by hospitality facilities. Newlyweds, families traveling without their children, as well as lovers, make up this class of customers. Just like business consumers, this type of client uses their resources on quality services in place of product price. As such, high-priced services provided to them have a close link with their respective qualities. In effect, couples love spending time in places within the hotel although they can occasionally visit attractions. Candle-lit dinners, soothing ambiance, and high-quality room services are among the components that the coupling type of travelers require. Dumitrescu and Fuciu (2015) explain that in several modern hotels, it is possible to find a honeymoon suite designed to meet the demands of couples who wish to spend their time in the facility. The presence of honeymoon suites in these facilities indicates that this category of clientele is beginning to attract the attention of service providers in various parts of the world.

AIRBNB Business Model and its Main Market Segment

The inception of AIRBNB in 2008 has transformed the hospitality industry by linking travelers with various accommodation facilities around the world. The model utilized by the company comprises an application installed by users on their smartphones and a well-designed website. Therefore, potential clients can use their smartphones or computers to check the several destinations and accommodation facilities listed by hosts. These facilities vary from apartments and cottages to beach houses rented out by owners for a specified period. Additionally, the company has established a platform where past consumers share reviews about their experiences. Using the model where hosts and clients share their information on the Internet or via a Smartphone application, AIRBNB has become a significant player in the hospitality industry (Guttentag 2015). Its model is high-end and is similar to that introduced by companies such as Uber, which connects car owners with people in need of transport services.

Fundamentally, the nature of the business model used by AIRBNB Inc. and its type of services leads to a conclusion that its main target segments comprise hosts and travelers. In essence, the company targets the two segments using its app and a website that facilitate the exchange of information between the two entities and initiate an eventuality where the entities enjoy mutual benefits. While travelers get a place to stay when they are on holiday or business trips, hosts get additional income from the venture. Intensive scrutiny of the company’s application and website reveals that it indeed targets the two segments of clientele in the market. Ert, Fleischer, and Magen (2016) assert that while travelers who spend time in the hospitality facilities listed by AIRBNB are clients in enterprises, the facilities, on the other hand, fall under AIBNB’s category of consumers. Remarkably, both hosts and travelers consume the company’s connection and listing services.

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Assessing AIRBNB Microenvironment Using Porters Five Forces Framework

An analysis of AIRBNB Inc. provides a clear indication that the major players that make up the company’s strategic group are service providers and travelers. The connection service provided by the company to the two parties is a factor that has enabled it to rise and have a well-structured distribution model that spreads across 190 countries. With a well-instituted distribution model, the firm enjoys a high market share, customer loyalty, and has a famous brand. Porter’s five forces model is integral in analyzing the AIRBNB’s microenvironment. The model includes forces such as the threat of substitute products, competition, the threat of new entrants, and the bargaining power of suppliers and customers.

The Threat of Substitute Products and Competition

Presently, AIRBNB does not have a serious threat in terms of substitutes. However, the threat is high because clients are not likely to incur any costs in case they decide to switch to competitors who are slowly entering the market. Dobbs (2014) explains that when the switching costs are low in a particular market, the threat of substitutes is high. The explanation coins the vulnerability of AIRBNB to alternative products. Moreover, if owners of accommodation facilities decide to introduce platforms where travelers access their services and make timely reservations, AIRBNB may witness a drop in its profits. Essentially, while several clients visit the AIRBNB website to review various facilities listed by the firm, an introduction of similar organizations by hospitality enterprises or by other interested parties presents a significant threat to the company.

Subsequently, the company has not experienced serious competition. The high income required to run an online hospitality venture similar to that of AIRBNB discourages many potential competitors. Another challenge that makes competition complex for new entrants in the brand popularity that AIRBNB enjoys in the market. However, some companies have popped up and are gradually challenging the dominance exerted by AIRBNB. Companies such as Expedia.com, Tripping.com, HomeAway.com, and OneFineStay.com have become a serious threat to AIRBNB (Oskam & Boswijk 2016). OneFineStay.com, for instance, has established listings in more than 10,000 cities that include London and New York. One of the factors that differentiate the company from AIRBNB is the quality of its services. In an attempt to add value to its services, OneFineStay.com brings additional skincare products to the rooms and cleans the house before and after the visitors leave.

The threat of New Entrants and the Bargaining of Suppliers and Customers

Another important force outlined by Porter’s model in assessing a company’s strength in the market is the threat of new entrants. While it appears easy to set up a website and look for listings, the process of establishing an enterprise similar to that of AIRBNB is complex and expensive. The expensive nature of the venture is a phenomenon, which explains a low level of rivalry witnessed in the project introduced by AIRBNB. Consequently, AIRBNB experiences low bargaining power and pressure from its suppliers. Zervas, Proserpio, and Byers (2017) note that limited platforms, which facilitate a connection between house owners and travelers, decrease the bargaining power of AIRBNB suppliers. Due to the online nature of the company’s business, individuals who list their houses find it difficult to form a union that can increase their power to negotiate a fair deal.

Principally, unlike the case of suppliers, customers intending to use AIRBNB services have higher bargaining power. This power enjoyed by customers stems from the vast varieties of facilities listed by the firm and its competitors such as OneFineStay.com. The current accommodation facilities listed by AIRBNB exceed 3 million, a figure that broadens the scope of choice for customers using the company’s website or application (Kavadias, Ladas, & Loch 2016). The several listings availed by the firm make it possible for potential clients to make a choice that does not affect their financial abilities while giving them maximum utility.

The Strength of Each Force

The two forces that are evident from the analysis of AIRBNB Inc. are the house owners and the travelers. The two parties have different strengths, which center on their bargaining power and the nature of their participation. As aforementioned, house owners, who comprise the major service providers of AIRBNB, have a low strength owing to the absence of unity that could otherwise improve the manner in which they air their requirements. In effect, house owners, who want to rent their houses, provide their prices and wait for potential clients to purchase their services. Very little space is available for house owners to decide on how much a client should pay and the other terms of business. The only power that the service providers have is on the period that a client can stay in their premises.

Consequently, the second party, which is the customers of AIRBNB, has high strength. The high power linked to the clients revolves around the availability of other firms providing substitutes and similar products. As such, if AIRBNB does not provide services, which match their expectations, they can easily switch to competing firms. Liu and Mattila (2017) explain that the presence of alternatives in a particular market compels dominant enterprises to work hard in order to retain their share of consumers. Failure to align itself with the demands presented by its customers can trigger a switch to competitors that include OneFineStay.com.

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Competitive Advantage and Value Creation in AIRBNB

Brand popularity and a great deal of networking have played out to be the major competitive advantages for AIRBNB. Its early entry into the market has made the company win the loyalty of several tourists who wish to stay in unique places that provide thrilling experiences. The rising popularity of the company made it surpass the 3 million listings and spread across 190 countries around the world. The 3 million listings that the company has is an advantage that makes it a leader in the market and is among the factors that complicate the field for a majority of its competitors. Furthermore, the company has a strong network that utilizes a website and an application that is easily accessible to all types of tourists.

Fundamentally, AIRBNB uses the internet to add value to its services. Some of the features that AIRBNB has worked to achieve in its quest to improve the value of its products comprise efficiency, low pricing, and convenience (Sthapit & Jiménez-Barreto 2018). As such, the services offered by the company are efficient and inexpensive. The low prices match the demands of many tourists who value their money and want to enjoy their time while limiting their expenditure. Moreover, the services provided by the company are easily accessible anywhere as long as the location has an internet connection. Therefore, clients who wish to enjoy the services offered by AIRBNB can log into their accounts and make their reservations at their convenience without disrupting their schedules.

The Future of AIRBNB

AIRBNB is likely to experience challenges in its micro and macro environments in the future. The increasing competition and challenges in the marketing environment all play a role in complicating the competitive advantage currently enjoyed by the company. In the microenvironment, competition, the changing consumer dynamics, and unpredictable technological advances are among the factors that may change the face of operation in the tourism sector. According to Oskam and Boswijk (2016), the current dominance associated with AIRBNB took effect because of its early entry into an unexploited niche in the market. Thus, continued innovation by some companies and the changes presented by consumer demographics can lead to innovations that may make the services presently offered by AIRBNB redundant.

In the context of microenvironment politics, economy, technology, and the environment are some of the issues that are likely to affect the future performance of the company. The modern world is experiencing numerous changes in its political, social, legal, economic, and technological sectors. The changes have seen the entry of the Asian continent into the category of dominant economies, political instabilities in some countries, especially in Africa and in the Middle East, and conflicting laws governing tourism in various countries. For instance, AIRBNB has incurred fines in New Orleans, Barcelona, and New York for its non-compliance with tourism laws in the respective regions (Guttentag 2015). Therefore, failure to align itself with the changes in the microenvironment may trigger unexpected fines, reduce its market share, and lead to loss of positive reputation.

How I Can Sustain Profits in the Face of Rising AIRBNB Dominance.

As the CEO of a three-star hotel in the EU, some of the measures that I will take in order to respond to the rising dominance of AIRBNB include investing in technology and studying client expectations. Essentially, AIRBNB has used technology to outsmart the services provided by accommodation facilities. The services introduced by the company are in line with client expectations regarding price and experiences, a factor that several hotels and motels overlooked for a long time. Thus, the entry of AIRBNB filled a gap in the tourism industry and, as such, led to its dominance in the market. By working on technology, I will achieve efficiency in service delivery and improve access and convenience, which is what modern clients expect from service providers. Moreover, my focus on understanding client expectations will help me in developing and modifying services that we offer to match their expectations, a feature that AIRBNB utilized to win the loyalty of its present consumers.

Conclusion

The entry of AIRBNB into the hospitality industry instigated a unique and unexpected disruption. The distinct manner in which AIRBNB undertakes its operations made it a game-changer in the provision of accommodation services. Unlike several start-ups that focus on the provision of accommodation to travelers using ordinary facilities, AIRBNB developed a platform where house owners and potential clients interact and enjoy exclusive accommodation services. Instead of targeting accommodation facilities, the company strived to give travelers a unique experience, which entails accommodation in facilities rented out by owners in various parts of the world, a phenomenon that completely transformed the hospitality industry

References

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