How Airbnb Disrupted the Hospitality Industry

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In 2018, US consumers spent more money on Airbnb than they did on the hotel industry giant Hilton and its subsidiary brands, according to a report by second measure, a company that analyses anonymized debit and credit card purchases.

The only company to have made more revenue than Airbnb was Mariott, the world’s largest hotel company, which saw a steep rise in revenue after acquiring Starwood Hotel in 2016. 

Airbnb Vs The Hotel Industry

Source: Second Measure

In terms of consumer lodging US market share, Airbnb owns 20 percent of the market, which in itself is huge considering Airbnb is an upstart relative to the established hotel brand chains. 

With regards to the data used by second measure, what needs to be noted is that it only consists of spends made through personal US credit cards, which means people travelling from abroad or using corporate accounts have not been included. 

Since hotels tend to be more popular among business travellers, including them would have moved the spending numbers more in favour of hotels. But second measure’s data can still be used to infer that Airbnb is growing, leading to increased competition for hotels. 

Now that we know that Airbnb is growing to become a competitor to the hotel industry, let’s dive into how Airbnb makes money and how much money it makes, but before we do that, let’s look into the founding story of the company to understand what led to the idea of Airbnb in the first place.

Founding Story of Airbnb

The typical startup founding is rooted in reasons like founders wanting to solve a personal problem or wanting to take on incompetence in an already existing market. Airbnb, however, started because the founders were looking for a way to make extra cash.

Having moved from New York to San Francisco in 2007, Airbnb founders Brian Chesky and Joe Gebbia were having trouble paying their rent. Amidst their financial crunch, they realized that all hotel rooms in the city had been booked due to a design conference that had attracted a huge number of people. 

Recognizing the opportunity, they bought a few airbeds and created a very simple website (a blog with maps) called “Air Bed and Breakfast.” The idea behind it was to give people a place to sleep at night and offer them breakfast in the morning. When they launched the site, they got three visitors, each one of whom were charged $80 for the night.

Once the idea was validated, Brian & Joe invited their former roommate Nathan Blecharczyk, who was a techie, to join their team since Brian & Joe were both designers. 

The three got together to design a new website and launched at the SXSW festival, but they received only two bookings at the time. So, they changed the website again and launched in August 2008, not long before the Democratic Convention in Denver. 

With more than 20,000 people attending the convention, hotels were booked up to the brim, making 100 people stay in Airbnb’s but rise in bookings was short-lived. 

In order to keep the startup afloat, the three founders decided to sell presidentially themed cereals Obama O’s and Cap’n McCains during the upcoming November elections, making $30,000 in the process.

Airbnb got its first funding of $20,000 from YCombinator, an America based seed accelerator when they were still only making $200 a week from the business.

During their time at YCombinator, they visited New York, which was their biggest market at the time to figure out why they weren’t growing. On discovering that the listing photos weren’t attractive enough, they bought a camera and went door to door to take better pictures.

After that, the company started seeing some traction and began to grow. During this time, the company pivoted from focussing on shared spaces only to all types of accommodation.

By March 2009, Airbnb had 2500 listings & close to 10,000 registered users

Founding Story of Airbnb

Source: Funders & Founders 

Today, the company has more than 7M listings worldwide, with listings spread across 100K+ cities & 220+ countries. 

How Airbnb Makes Money

Airbnb primarily makes money through the following services that it has to offer:

1. Airbnb Stays

2. Airbnb Experiences 

3. Airbnb Adventures

4. Airbnbmag 

Airbnb Stays

Airbnb stays are what the company is widely known for. Using Airbnb Stays, homeowners & renters can make money by opening up their places to travellers looking for a different experience than living in traditional hotels. 

In exchange for facilitating the transaction, Airbnb charges most hosts 3% of the booking subtotal, but the fee might be higher in some special cases. On the other hand, guests are typically charged 14.2% of the booking subtotal, but the fee varies on the basis of a variety of booking factors. 

Airbnb Experiences

In November 2016, Airbnb went beyond its primary home-sharing offering and launched experiences, which are handcrafted activities designed and led by local experts, lasting a few hours on average. Experiences consist of a wide variety of activities like cooking classes with locals, meeting animals with animal experts & local shopping.  

While Airbnb takes a 20% fee from hosts based on the price of the experience, guests are not charged any fees. 

Airbnb Adventures

In June 2019, Airbnb launched Airbnb Adventures — an extension of Airbnb Experiences. While Airbnb stays are about travellers living in other people homes & Airbnb experiences are about experiencing activities with locals, Airbnb adventures go a step further, with local hosts providing guests with a complete travel experience that includes lodging, meals, and activities.

Similar to Airbnb experiences, Airbnb takes a 20% fee from hosts based on the price of the experience & guests are not charged any kind of fees. 

Airbnbmag

Launched in November 2016, Airbnbmag is a magazine that features stories from Airbnb hosts and travellers from across different cities of the world. At the time of writing, Airbnb is selling six issues of the magazine for $18. The magazine might not be a major revenue driver for Airbnb, but it functions as a top of the funnel customer acquisition strategy. 

How Much Money Does Airbnb Make

According to the Wall Street Journal, Airbnb posted a loss of $322 Million in the first 9 months of 2019. In the same period in 2018, the company had made a profit of $200 Million. So what is the reason behind these losses? 

According to a report by Vox, some recent large expenses like safety, tech, marketing, and acquisitions have affected Airbnb’s profits. With the company expected to IPO in 2020, these losses could hurt the company as it goes public. During its last funding round in 2017, the company was valued at $31 Billion.

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How Airbnb Disrupted the Hospitality Industry
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How Airbnb Disrupted the Hospitality Industry
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Airbnb makes money through the following services it offers: Airbnb Stays, Airbnb Experiences, Airbnb Adventures & Airbnbmag
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