Airbnb: Business Model, Market & Revenue System

airbnb
April 27, 2022

When it comes to traveling, people in various countries make it a point to do it on budget. Apart from this, they look for alternatives to increase their flexibility and gain more in return for their expenses. Airbnb has come into the limelight in the last couple of years as a platform to rent out primary residences as accommodations for travelers.

Through this platform, individuals can rent out their residences to earn an extra income. Additionally, travelers get the homely feel that hotels lack. With the thought of allowing them to stay at other’s homes, Airbnb has become a billion-dollar company today. It has transformed the way people to places with the flexibility of staying at others’ homes and getting a homely feel.

Airbnb has become one of the largest platforms, with over 1B+ guests booked through it till September 2021. Let us understand its business model and revenue structure.

What is Airbnb- History & Origin

Local crowds connect with travelers through Airbnb on the Internet. It allows hosts to register their free space (homes) and get additional income as a charge for rent. On the other hand, this platform also enables travelers to book spaces of their choice from local hosts which will save them money. Today, Airbnb exists in over 220+ countries around the globe and effectively caters to the on-demand travel industry.

The history and origin of this platform are worth knowing. Joe Gebbia and Brian Chesky are the founders of Airbnb. They were facing trouble in giving their rent and thought to earn some money. While researching, they found that hotel rooms were booked with a big conference, due to which there were lots of visitors in the city.

At this point, many youths saw an opportunity and offered airbeds and space with basic requirements and breakfast to visitors. They named it AirBed & Breakfast, and it gave birth to the idea. Further, a technical architect named Nathan Blecharczyk joined the team.

How Does it Function?

Airbnb works on the principle of sharing economy. It means it acts like an online market, wherein hosts connect with travelers for renting out their spaces. People register their homes with all details on this platform. Explorers can go through this listed information and choose the best suitable one. Therefore, it acts like a two-sided market that functions on the Internet.

On the one hand, it allows hosts to rent out their property to earn additional income, and on the other, it enables voyagers to enhance their stay with a homely feel and authentic experience. Apart from this, Airbnb categorizes its services under three heads.

Airbnb Plus

Under this, it offers a list of such properties that provide standard amenities at high rates.

Airbnb Experience

Under this type of service, hosts provide information to travelers regarding activities such as exploring local places, culinary skills, and more. As a result, voyagers will have unique experiences and lasting memories.

Airbnb Work Collection

Travelers can put a filter for work trips to get a suitable stay. It is beneficial for people traveling for work purposes.

Airbnb Business Model

Like Uber and other similar enterprises, Airbnb has a collector business model. It doesn’t consist of investing millions in building their properties and lodging networks, which is unconventional. It is a concept of an online platform wherein travelers and hosts come together and share their requirements. It means voyagers fulfill their need for accommodations, and hosts earn additional income by renting out their properties through this platform.

The Airbnb business model runs around hosts and travelers as its key assets. Moreover, they empower the model to main minimal costs. On this platform, hosts register their properties for stay, and travelers book them as per their needs. Here, hosts will get their rent, and voyagers will gain new experiences of exploring locals. Apart from this, Airbnb also includes high-resolution pictures of properties to enhance responses.

Airbnb Market Segmentation

We have seen what Airbnb is, it’s functioning, and its history. Now, it is time to take a look at its market segments that define the entire business model. The Airbnb Market Segmentation consists of three sections, namely, hosts, travelers, and freelancers.

Hosts

These are individuals who are keen on earning some income by renting out their properties. Also, if they have some extra space, they can list it out on the platform and get paid for allowing other people to stay for a specific period. While listing their homes, they need to provide a suitable explanation and amenities they will offer.

Moreover, hosts are eligible to determine the amount of rent on their own, along with the check-in and check-out timings. Having said this, they also have the right to reject or approve the request according to the traveler’s profile.

Travelers

These are the people who hunt for accommodation from locals through an application. They can search their space based on filters such as facilities, rates, no of members, location, and more.

Additionally, travelers can book their space and save more money when compared to hotel booking. When they reserve a place through an application or an online portal, they do not have to face any hassle.

Freelancers

Photographers cover a major network of Airbnb. They are the ones who click pictures of the property to be listed. The platform pays them directly. There are enormous photographers in the majority of cities around the globe.

The main purpose of having these photographers is to provide a clear idea about how the property looks. We already mentioned above that Airbnb offers high-definition pictures of spaces to travelers. As a result, it increases bookings and reactions on the platform.

How Does this Model Make Money?

As we now know, how Airbnb works, it is time to move to the money-making part. Yes, you read that right. Now, we will understand how this online platform makes income through the things we discussed above.

The revenue system of Airbnb is also known as the revenue model. It is simple and clear in its structure and functioning. The basic income generates from the fees charged to the hosts and travelers. Airbnb’s revenue model focuses on accommodation and listing.

Airbnb Cost Structure

The cost structure we will describe here will give you a clear understanding of the earning strategy of Airbnb.

When we speak about the charges, it takes a flat 10% from hosts on every booking. Apart from this, it also charges a 3% fee on the installment procedure of the traveler’s payment. This fee can increase for the Airbnb Plus listing, which contains higher rates.

Airbnb charges voyagers 6 to 12% of the fee as per the size and type of listing and size of bookings. It is to be noted that this charge is non-refundable for travelers. Moreover, the more expensive booking, the lower the fees are. Thus, a family or group booking can save bucks for other expenses on the trip.

This is the entire revenue system or structure of Airbnb through which it makes money.

Wrapping Up

Airbnb has come a long way to make it a billion-dollar company today. Its journey started with AirBed and Breakfast. This business platform has continuously evolved in the past years. It has consistently modified its business model and website, as it was the only means for bookings. However, now they have switched to having applications, which has made it simple for people worldwide.

With the increasing emergence and use of apps, mobile app development companies get more and more projects in this direction from various businesses. On the other hand, businesses are moving in the direction of mobile applications, as mobile app development cost has become a lot more affordable.

Airbnb has made it a lot easier for people to have affordable accommodations, as they save money with lower rates compared to hotels. A majority of guests on this platform proudly say that they spend the money they save from Airbnb. As a result, it has increased the number of bookings on this platform, thereby contributing to the economy.

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