Airbnb was founded in 2008 as an online marketplace to connect travelers looking for an authentic, unique place to stay with hosts that had extra room to rent. Airbnb operates as an intermediary, matching these two distinct customer segments.
The company has a radically lighter cost structure than the hotel chains with which it competes, because it does not own any of the rooms it lists on its website, nor does it manage a large hospitality staff. Airbnb’s main costs are platform management and marketing, which explains how they have scaled so quickly.
The success of Airbnb’s business model is based on a resource-light cost structure. It found an innovative way to partner with owners of idle assets (empty rooms) and help them monetize those assets via their matchmaking platform.
Airbnb differs from other matchmaking sites like booking.com or hotels.com, in that travelers associate the listed properties and rooms with the Airbnb brand as if it was a traditional hotel chain.
Identify the Most Costly Resource in your Business Model or Industry
The most costly elements in the hotel industry are the properties, their maintenance, staff, and services. Also, when hotel rooms are not rented out on a given night, they are a sunk cost. The hotel industry is very capital intensive.
Identify Asset Owners That Could Provide You with the Required Resource
Airbnb recognizes that many property owners have idle assets (unused bedrooms, apartments, beach houses, etc.) that are relatively difficult for an individual to rent out continuously for short periods of time.
Develop an Innovative Value Proposition to Acquire Resources from Partners
Airbnb offers property owners the opportunity to become hosts to generate extra income (average $924/month in 2017).90 Airbnb gives hosts access to a pool of travelers through the platform and relieves one of the biggest pains for property owners.
Compete on a New Cost Structure
Airbnb competes on a much lighter cost structure than hotels, because it owns no hotels, nor employs cleaning or service staff. Airbnb’s operational costs are mostly platform management, marketing and promotion, and other host and traveler support activities.
For Airbnb to be attractive to hosts, it needs a large pool of travelers. Developing this “other side of its platform” is a key success factor in the value proposition to hosts.