Abstract

The case is about a San Francisco-based home-sharing website, Airbnb, which served as a platform for people to rent out their underutilized spaces. The idea for Airbnb, or Airbed and breakfast, was born in 2007, when some delegates to a conference held in San Francisco, found all the hotels booked and no accommodation available. Two friends, Brian Chesky (industrial designer) and Joe Gebbia (also a designer) decided to rent out extra space in their apartment to some of these delegates. In the process, they made more than US$ 1,000. This gave them the idea of taking the business forward and AirBed and Breakfast Inc. was incorporated in 2008. They were then joined by Nathan Blecharczyk, a technical architect. The website of the company was launched soon after. The website served as a platform between the hosts and the guests, and helped travelers find locals who were willing to rent them a spare bed and space. The underlying principle of Airbnb’s business model was the sharing economy where the hosts and guests were provided with a platform to contact each other. The transactions were mediated through the Airbnb website. The company generated revenue by charging commissions from the guests and hosts. Airbnb soon started attracting listings. But the company still found it difficult to progress and the revenue hovered at around US$ 200 a week in early 2009. The founders then decided to improve the website by replacing the photographs posted by customers with high resolution pictures. Meanwhile, they attracted investments from incubator founders and venture capitalists. The initial rounds of capital from venture capitalists helped the company grow its business. During one year — 2010 — the company witnessed a growth of 800%, with the bookings reaching 800,000 nights. By 2012, it was present in 30,000 cities across the world. In 2014, Airbnb was valued at US$ 10 billion. However, along with the growth came controversies. Airbnb’s growth posed a challenge to the established hospitality industry across the world. The impact was also felt by small hotels and bed & breakfast providers, who demanded levy of additional taxes on Airbnb. Experts said it had a huge impact on the housing market too with owners reluctant to let their properties out on rent, preferring instead to let them out through Airbnb. It was accused of distorting housing industry and impacting the availability of affordable housing. Advocates of sustainable housing called for a limit to be imposed on accommodation that can be provided through Airbnb. Some of the hosts complained about thefts, ransacking of properties by the guests. At the same time, guests complained about inconsistent service standards, and lack of safety and privacy. The company was also accused of violating the existing housing and tourism laws in several cities. Some of the experts warned that it would not be long before Airbnb would come under anti-monopoly regulations. With so many complicated issues dogging it, industry observers wondered whether Airbnb would be able to sustain its growth and continue to innovate in the coming years.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the emergence of innovative business models
• Study how innovative business models help companies grow and gain competitive advantage
• Study how innovation drives economic competitiveness
• Understand various concepts like disruptive innovation, sharing economy, and collaborative consumption.
• Identify the role of entrepreneurs in any industry and the challenges they face while establishing a startup

Keywords

Disruptive innovation, collaborative consumption, Airbnb, sharing economy, startup, service innovation, disruption, business models, marketplace platform model