airbnb Business Model – How does airbnb make money

Where do you stay when you go for a vacation to someplace? The most common answer would be a hotel. Because people think that they do not have any other options. So what do they do? They book hotel rooms in the places they want to visit. These hotel rooms are not cheap. In fact, staying at some hotels is way costlier than others. You are going to find good hotel deals all the time. Especially if it is a holiday season then you won’t be able to get accommodations for cheaper rates. This is because the hotels have to cash in on those days. So they will definitely not give you a room for an affordable price. This makes it hard for people to travel. Because not everyone has hundreds and thousands of dollars to spend on everything. There are many people that travel with a budget. 

These types of people are more interested in travelling and seeing places than enjoying the luxuries of a hotel. A large chunk of these people is the youth who love to travel but do not have enough money. If they keep saving money then they will never be able to go to all the places they want to visit. So these people definitely have to stay at places that provide them accommodations for cheaper prices. But this is not always a great idea. Because if you want to stay in cheap hotels then you will get what you paid for. You will not only be risking your health but also safety. There are many incidents that can tell you what a horrible decision it was to stay at a cheap hotel. But luckily there is a website which allows you to stay in the homes of people. It is Airbnb. 

What is Airbnb?

Airbnb is like an online marketplace for vacation rentals. Simply put, it is a place where people can rent rooms in other people’s homes in the city or place where you want to go for your vacation. You can choose rooms that you want to rent based on your preferences and budget. It is a very great way of traveling as it might save you a lot of money. The idea for the company came into the minds of the founders in an interesting way. So you all of you might know how costly it is to find a place in San Francisco. This something that the founders of Airbnb Joe and Brian were aware of. They were former high school friends who became roommates in San Francisco. Looking at the cost of living they decided to make money by putting an air mattress in their living room.

Joe and Brian wanted to turn the air mattress into a bed and breakfast. Soon they were joined by Nathan Blecharzyck who liked the idea. He became the third co-founder and chief technology officer of the company. So they created a website to offer their services. The current name of Airbnb is a shorter version of its original name. When the company was first founded it was called AirBed & Breakfast. The idea of this company was to provide short term living quarters for people who cannot find rooms for affordable prices or for those who can’t find rooms at all. The site was launched in 2008 and they got their first customers in the summer of that year. After a small investment and training by Y-combinator for a small interest Airbnb had a good business model. It shortened its name to Airbnb in 2009. Currently, Airbnb’s valuation is $31 billion.

Business model of Airbnb

If you are owning global hotel chains like Marriott then you will need to invest millions and millions of dollars to grow your business. This is because you have to find the place, buy the land, construct the property the way you want, employ people that fit your requirement so that you can provide the quality of service that your company is known for. If you just look at the process you will easily understand that this is a time taking one. Not only that, but it is also a business model that needs lots of money. You cannot provide your services to all the people. The only people who are going to stay at those places are the ones who are well off. So your business model has a limited amount of people as its target audience. This is where Airbnb has the advantage to cash in.

As mentioned earlier, all of these globally reputed hotel chains have to spend millions of dollars to build their property and brand value. But Airbnb doesn’t have to do any of that as it does not construct any buildings to rent out a room to people for short periods of time. Instead, it uses the properties of other people where travellers can stay. It acts as a mediator between the people who want to rent out rooms and the people who are looking for rentals in an area. Because of this Airbnb doesn’t have to spend millions of dollars to increase its reach. This also helps them in growing at a fast pace. The reason it became successful is that it allows people not only to book rooms but also connect with local people through their hosts. Travellers can look at the profiles and reviews before choosing a place.

How does Airbnb make money?

If you think that the process of making money for Airbnb is simple then you are absolutely wrong. See, it is not a traditional hotel where you can just go and book your room. It is an online platform where people can search for rooms for the prices they want. So it has its own challenges. Because it is an online platform and does not rent out their own property it cannot expect to make a lot of money from a single booking. It is also important for them that they have a wide range of options in their platform for the customers to choose from. Because not everyone is exactly looking for the cheapest place to stay in. Some people want to rent out a room that is actually a bit lavish. Most importantly they have to make sure that the room that is listed is not a scam.

Once all of this is taken care of they can make money through room bookings. So this is how Airbnb makes money. 

Commission from hosts

So by now, you might have understood that it makes money from the hosts who list out there rooms. But it is not like you can just list out a room if you have an extra one. There are a few things a host has to follow. One of the most important things is hygiene. The hosts cannot expect to rent out a room if it is in a poor condition. They have to be in a good condition for people to stay in them. The hosts have to provide things like soaps and good sanitation to the guests he is going to host. Most importantly they should be good and welcoming. Their rooms should have all the things that are specified on the listing. If the guests experience any type of inconvenience then the hosts may lose their payment. The host must ensure the safety of the guests.

The major advantage for hosts on Airbnb is that they can choose the price for which they want to rent out their rooms. This means that they can make the amount of money they want by renting out rooms. Listing a room for Airbnb is very simple. All you have to do is go there platform and sign up as a host. Once you do that you can list out the room you want to rent out with a description. You have to provide photos of the place and mention the address along with the price. Once your room is booked you have to wait for the guest to arrive to receive your payment. You will get paid after the guests spend a day at your place. Airbnb takes 10% of the total fee and it also charges a 3% processing fee. They also provide insurance to hosts.

Transaction fee from guests

If you think that Airbnb only charges a commission from hosts then you are totally wrong. Airbnb also makes money by charging a transaction fee to its customers. It charges anywhere from 6 to 12% of the total amount as a service fee. Not only that but it also adds tax to the bill depending on the tax laws of the places you want to visit. If you are thinking about cancelling your reservation then you have to think twice. Because once you confirm your booking your money will not be refunded. 

Airbnbmag and Business travel

The website is not the only way it makes money. Airbnb also makes money through a guidebook called Airbnbmag. They made this product to improve the experience of travellers. The other thing is Business travel which provides rooms with amenities that will allow people who travel for business purposes. Airbnb managers use this to travel to other places not only for business reasons but also to check out the quality of the services they are offering. 

Conclusion 

This is the business model of Airbnb. It makes money through the Aggregator business model. Airbnb has made it very easy for people to find accommodation at tourists for affordable prices. You can check out the business models of other companies on our site. For instance, you can look at the business model of Netflix that is completely different from this one. 

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