Benefits and Challenges of AirBnB

Airbnb is a renowned firm that facilitates commercial operations through the leasing of residential units which would in most cases include tourist accommodations. The company carries out its activities through the online marketplaces that are either owned under its name or affiliated to it. The functioning of Airbnb may be confused with that of online bulleting and traditional house-sharing boards. The reasons being that it offers a variety of services to both guests and hosts. Unlike the aforementioned boards, Airbnb has the obligation of providing insurance-like products and financial services to members who are clients and those wishing to be prospective customers.

The firm has been in the position to operate with either little or no oversight at all owing to the business model that it is using. Also, the model is the significant reason behind the success rate that is associated with the company to date thus dragging it to the forefront amidst the competition from Hyatt, Hilton and even Mariott. Undoubtedly, there are numerous hosts who stand to benefit from the routine activities that the Airbnb carries out.

Case scenarios are cities around the world that have been in the position to conceal not only the identity but also the location of commercial properties as a result of the assistance of Airbnb. If the aforementioned were not the case, there would be the possibility of converting affordable housing to online hotels that are unlicensed. The conversion has the effect of displacing long-term tenants from the properties they have been staying in for quite a long time. Also, if the case were to take place in Vancouver, it would be in violation of the by-laws put in place by the municipal council.

Airbnb

Question 1. A

The hospitality industry just like any other profit-maximizing industry has divided its market into different segments in order to fill all the niches effectively. Market segmentation is a vital tool that should not miss in any marketing mix strategy. The segmentation can be done on the basis of age, gender, income, place, and lifestyle of the target market of a business. The first segment under the hospitality industry is the food and beverage (Coopersmith 2017, p. 607). These two factors take up the first and second position in the consumer index rating every time. It is no surprise that food and beverage have the lions share in terms of the largest market percentage covered in the hospitality industry. Businesses like fast food joints, exclusive restaurants that offer a wide range of cuisines to the customers and clubs. The food and beverage segments provide a lot of revenue for the hospitality industry since just like the fast-moving consumer goods, it cannot be done away with. Food is a basic need that one requires to continue living (Guttentag 2015, p.1197). And even in the midst of adventure and travels, food and beverages are still unquestionable necessities. It is, therefore, a big plus for the hospitality industry for considering to have the food and beverage segment.

Accommodation segment. The earlier-mentioned segment hosts another basic human need which is the shelter. The hospitality industry provides accommodation in terms of hotels and lodgings for the target customers during their time of travel to various destinations that are far away from the comfort of their homes. Luxury five-star hotels with presidential suits, resorts and hostels are among the wide range of provisions available for clients to choose from. The third segment is travel and tourism. The hospitality industry is well known and associated with the travel and tourism sector as it proved transportation to the various attractive destinations desired by the clients (Francis and Sullivan 2018, p. 16). The industry has therefore taken the advantage of the fact that one cannot sightsee and not want to eat or sleep. Therefore, the hospitality industry has strategically selected these three segments that are related and work in a cycle to ensure that all wants are fulfilled.

Question 1. B

Airbnb is a company that provides hospitality services via the use of the online market. The company unlike the orthodox hotels that are known for offering hospitality services, does not own any luxury resort or hostels. Instead, Airbnb acts as a link between the hoteliers and the clients. This company does not deal with the hotels only but also offers both long and short-term home, apartments, holiday cottages and hostels. Airbnb has an application and a website with a list of hotels that customers can choose from then make payment via them and get accommodation (Razli, Jamal and Zahari p. 7832). It is considered to be a great disruption in the real estate and hospitality industries as it changes the norm of bookings and acquisitions of hotel rooms and homes. Airbnb has hosted about one hundred and nineteen countries in the world. The best way to define the Airbnb business model is that it merely resembles that of a broker who connects the buyer and seller of securities at a fee without being in contact with any of the customers (Lane and Woodworth 2016, p. 201). The process is simply completed by the need for a prospective client to set up an online account with Airbnb and then they can make all the necessary bookings for a hotel, hostel or home whose pictures have been succinctly provided in the website. Apart from just picking a package, there is the privilege of viewing whatever you have chosen.

The main market segments addressed by Airbnb are travelers and hosts. Travelers are the tourists who have traveled a far distance to see new places and experience different cultures. These people need a home away from home while they are in the process of fulfilling their pleasure. Therefore, with the travel and tourism being a segment of the hospitality industry, the travelers, in this case, are of great importance. Airbnb has definitely noticed this and put them as one of their main segments hosts as the second segment, refers to the hotel and homeowners who have free space and are willing to provide accommodation at a cost. Airbnb is a sought-after platform by many hosts owing to the fact that it is famous among the travelers. Hosts and travelers need one another in order for the equation to balance and so Airbnb has just identified two inseparable segments (Edelman and Geradin 2015, p. 293).

Question 2

Airbnb falls within the accommodations segment of the hospitality industry as its strategic group of business. This is due to the fact that Airbnb is concerned with making sure that the travelers connect with hosts who can provide them a place to stay. The microenvironment entails the internal sector of an organization. Factors that affect the business from in and hence are within its control. Airbnb’s microenvironment is therefore made up of the travelers who are the customers, the suppliers as the host and the employees. The customers are within the control of the business as Airbnb is in contact communication with them via social media. The company always seeks to get feedback on the services offered by the clients and improve on the complaints while humbly taking in compliments. The suppliers are also under great control by Airbnb as they need the company to be an avenue for accessing clients. Airbnb, therefore, has an agreement with the many suppliers it has to ensure they both mutually benefit. In matters employees, the company has skilled and competent staff. Airbnb has got three thousand one hundred employees who are well trained in technology and use of social media. Airbnb made sure that all the staff is competent in terms of online marketing as it was to operate an online market.

Michael Porter’s five forces model provide analysis of Airbnb through the use of his five forces that are critical in business evaluations. The threat of new entrants is medium for Airbnb. As much as there are no barriers to entry in the online hospitality market, the costs of starting up a fully functioning business are high. In starting up Airbnb, a capital injection of four billion dollars was used to get all the operations ready. This is not an amount that is readily available to most startups. Therefore, new entrants do not pose very significant threats to Airbnb due to the capital-intensive requirements of the industry.

Bargaining power of customers is low. This is because there are no alternatives that can satisfy their needs to the level of Airbnb. Another thing is that it is almost impossible to come together as customers and boycott Airbnb’s business as it is an online platform and identifying fellow consumers is a herculean task. It is not easy knowing when one will be online ad interested in buying the same service as you. The travelers do not get services from the same host due to the wide range of available hotels. This means that if one customer needs a reduction in prices that he or she thinks are high, another may be of a varied perception from the above-mentioned. The aspect of difference in view is brought about by the possibility of a difference in price and host and thus most customers may not have a common problem that gives them the unity to bargain against Airbnb.

The threat of substitutes is very high. This is due to the fact that there are no switching costs and thus a customer can move from Airbnb to the hotels directly. These hotels are what the customers are in need of and the only thing that the company does is to link them up and make it possible to have a wide coverage to choose from. Therefore, there are no expenses needed to facilitate consultation pertaining to the firm as it is considered a customer-care service by the Airbnb. Interfirm rivalry is low. Yes, there are companies that have come up to provide the same services that Airbnb does, but they do not have a strong market presence. Airbnb still dominates the market.

Bargaining power of suppliers is low. When we take homeowners that are willing to rent out their property, we realize that they cannot ask for too much as Airbnb is the only platform that they can use. Airbnb is, in fact, the first company that was thoughtful enough to put them in the same competition level as luxury hotels and resorts. There are no other viable platforms that can offer something better than the current deal since interfirm rivalry is also very low.

Question 3

Airbnb has a strong competitive advantage against its peers that enables it to get supernormal profits in the long run. One of the reasons for this strong competitive age is the low costs of operation. There are low priced packages on the website that target the young travelers who wish to travel but are financially constrained. Hence when Airbnb is co pared to other competitors like the hotels where one has to operate directly it becomes a better choice. It is the great alternative as there are homeowners who are willing to provide their residence at a fair price compared to the big hotels. The wide range of products offered on the Airbnb website is another competitive advantage. The diverse products offered exposes clients to a myriad of options to choose from. At the end of the day, one feels satisfied with the fact that he had an opportunity to make a choice after careful consideration.

Creation of income for local citizens with extra space in their homes. Airbnb has provided a source of extra income for homeowners with spare rooms to offer accommodation to the travelers. The move is a competitive advantage as the company has been able to add value to members of the society and please them to a level that it would take a lot of time and persuasion to convince them against working with Airbnb. Another advantage that Airbnb has is low labor cost compared to the hotels. Airbnb does not own any hotel and therefore has employed no hotel staff to assist clients. When it comes to the use of travel agents provided by the hotels, Airbnb is ahead of the rest as it has integrated maps on its website to assist the clients in locating the destinations they wish to tour. The costs of having room service providers and travel agents are zero in Airbnb.

Question 4

The competitive advantage enjoyed by Airbnb is going to be affected by a number of changes in the next ten years. Security and trust being at the top of the list. The current joy of being able to get accommodation in peoples’ homes at an affordable cost will soon fade away. By so doing, the demographic factor which is a macro environment of the business would be greatly affected. People have actually begun filing lawsuits against Airbnb due to discomfort experienced while staying with other homeowners thus denting the image of the firm and discouraging prospective clients. When staying at a hotel, the feeling of security and trust for the staff is more guaranteed as there are the property of the hotel and can get tracked in case of any wrongdoing. In the near future, the number of cases against homeowners will be on the rise and pose a threat to the competitive advantage that Airbnb is experiencing. Competition may be low at the present time, but in the next year the low rivalry advantage will decrease as the competitors of Airbnb are slowly gaining customers. Hotels are paying taxes for providing accommodation to travelers yet the homeowners under Airbnb program are not. There is a current resistance to this and soon the homeowners may have to succumb to the tax system. When taxes are imposed on the homeowners, it is very unlikely that most of them would like to take part in the business thus killing one of Airbnb’s competitive advantages.

Question 5

Being a CEO of a 3-star hotel in the European Union I would first use as many channels as possible to advertise and advocate for bookings. The purpose of the channels is to be able to counteract the large online presence that Airbnb has already acquired. This move would mean that I try to get my hotel as popular as those that have established a working relationship with Airbnb. Creation of more personal connections with clients. When clients come to my hotel, I make sure that the staff have one on one session with them so as to know their needs and expectations (Razli, Jamal and Zahari 2017, p. 78310). This will help the clients get more comfortable and be able to make their comments physically as opposed to the social media issues which may be an attack from other rivals for defaming my hotel. Apart from providing accommodation services, embracing the culture of the surrounding an environment and exhibiting it to the clients. This will help maintain clients, keep them happy, entertained and the revenue lines go up.

Conclusively, many industries have experienced disruptions and fall of giants all because of the internet. The hospitality industry is not an exception. Airbnb is a perfect example of what embracing the online world can do to your businesses. In order for the hotels to stay in business, they must find ways to get clients from Airbnb or risk being rendered jobless by small homeowners who do not even provide quality services to clients and are in business for leisure. Airbnb’s business also has a number of shortcomings that can bring the downfall of the business (Rice 2014, p. 88). The company has gained massive revenues since its inception. To continue doing so, it has to address the issues that coming up between the travelers and homeowners who have decided to provide accommodation. Make sure that due diligence is done and in case of any wrongdoing, the customers can be compensated and their satisfaction always granted first priority. In an industry where luxury is the keyword, customers ‘opinions and preferences matter a lot.

References

Coopersmith, J., 2017. The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World. By Brad Stone. New York: Little, Brown, and Company, 2017. 372 pp. Photographs, notes, index. Cloth, $30.00. ISBN: 978-0-316-38839-9. Business History Review, 91(3), pp.606-608.

Edelman, B.G. and Geradin, D., 2015. Efficiencies and regulatory shortcuts: How should we regulate companies like Airbnb and Uber. Stan. Tech. L. Rev., 19, p.293.

Francis, A. and Sullivan, E., 2018. Exploring Real Data A Look at Airbnb. Math Horizons, 25(3), pp.14-17.

Guttentag, D., 2015. Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector. Current issues in Tourism, 18(12), pp.1192-1217.

Lane, J. and Woodworth, R.M., 2016. The sharing economy checks in: An analysis of Airbnb in the United States. Retrieved February, 13, p.201 6.

Razli, I.A., Jamal, S.A. and Zahari, M.S.M., 2017. Airbnb: An Overview of a New Platform for Peer to Peer Accommodation in Malaysia. Advanced Science Letters, 23(8), pp.7829-7832.

Rice, G., 2014. Book Review—Creating With Confidence in a Fast‐Moving Environment. Global Business and Organizational Excellence, 33(3), pp.88-93.