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The Rise of Airbnb and the Sharing Economy

Questions:

Case study

Airbnb and the sharing economy

David Fleischman, University of the Sunshine Coast

Do you enjoy the experience of travelling? What is it about travel experiences that makes them unique and exciting? Is it the people you meet, or the places you stay? Airbnb is one service that claims to cater for the type of traveller that seeks experiences giving travellers an ‘authentic’ feel for a place.

Airbnb was founded in 2008, and was valued at over $2 billion dollars after only five years of existence.It is a website that provides a marketplace service where travellers can connect with local hosts of a destination who are offering a unique accommodation experience. Listings range from tree houses to castles, private islands, teepees and even water towers. There are also ‘normal’ houses and apartments available for bookings. In total, Airbnb listings offer accommodation in over 33 000 cities and 192 countries around the world. On a typical night, approximately 150 000 Airbnb guests connect and stay with different hosts all over the world. New York City boasts 23 000 accommodation listings, and Paris a staggering 24 000. In Australia, Sydney and Melbourne both offer around 1800 listings. To put that into perspective, the Hilton hotel chain offers approximately 600 000 rooms in total worldwide. It is obvious that Airbnb has unlocked a market gap that was previously untapped within the travel service industry.

Several factors have influenced the success of Airbnb. The growth of middle-class income in countries such as China, Brazil and India has fuelled an increase of travellers worldwide. Sociocultural trends in travel have also changed. Many consumers are now seeking more personal and intimate experiences when they travel. In addition, the poor economic climate, as a result of the global financial crisis in 2008, has driven people to seek income from alternative sources. Hence, we have seen the rise in popularity of innovative peer-to-peer (P2P) business models like Airbnb, which provide users with an opportunity to generate extra personal income. The culmination of these factors has been a catalyst for the emergence and growth of the ‘sharing economy’. In a sharing economy, the trust in the value behind services like travel accommodation has shifted from the corporate supplier to P2P transactions. Instead of corporate suppliers fully controlling value propositions and exchange, organisations such as Airbnb simply facilitate value propositions and exchange between users.

The business models utilised by Airbnb and other organisations benefiting from the emerging sharing economy have not been met with acceptance from all. Traditional suppliers of services like accommodation and car rentals are threatened by the potential of the sharing economy, and have been lobbying against P2P sharing services. In the case of Airbnb, opposing parties contend that Airbnb’s P2P sharing services are unregulated and unsafe for consumers, as they are not required to uphold the same legal standards and regulations as traditional accommodation suppliers.

(Elliott 424)

Elliott, Greg, Sharyn Rundle-Thiele, David Waller. Marketing including iStudy, 3rd Edition. John Wiley & Sons Australia,, 2014-07-01. VitalBook file.

Factors Driving the Success of Airbnb

New York, in particular, has come under scrutiny for violating the state’s occupancy code. In May 2013, a man was found guilty of violating New York’s illegal hotel law by renting out his apartment on Airbnb.Despite these contentions, Airbnb has continued its growth (with the potential of an additional $100 million in venture capital injections projected in the near future), and provides a number of measures to ensure the protection of its guests and hosts, as well as the quality of its services.

As trust is the catalyst for P2P service organisations, high standards of consistent security and protection for users are paramount. In most countries, Airbnb host listings are insured for damages of up to $1 million for every booking. Hosts are also encouraged to adhere to local laws and regulations, as they may be required to obtain a permit or legal permission for their accommodation offering. Extensive and easily comprehendible information and tips are clearly outlined on the Airbnb website for all hosts and guests. All personal information is kept confidential and is verified via electronic security systems through Airbnb’s website. Airbnb also provides a secure platform for all financial transactions between hosts and guests, along with an efficient 24/7 help service.

In addition to the safety and security initiatives of Airbnb, the high level of service quality also helps create a novel accommodation experience and consumer trust. Airbnb aims to create a social experience rather than just a search site for travel accommodation. This is what separates it from 425

other similar P2P services where travel accommodation may be sought (e.g. Couch Surfing or Gumtree).

As the excitement of the travel experience begins with a search of destinations, flights, activities and accommodation, Airbnb provides features that stimulate consumers while sifting through this information. From the moment the website is accessed, the consumer receives a feel for their chosen destination via photographs of the various types of accommodation that can be discovered. If they are travelling to one of the most popular destinations (e.g. Rio de Janeiro, London or New York City), users can browse accommodation using ‘neighbourhood guides’. These guides provide more detailed accommodation information based on attributes such as ‘trendy’, ‘quiet’ or ‘nightlife’ in distinct areas within a city.

Consumers can also create wish lists. The wish list feature provides an avenue for consumers to formulate a list and then compare their dream places to stay and visit. This can be shared with friends and used to create collaborative trips. Airbnb also creates themed wish lists for consumers seeking diverse experiences. For instance, consumers can view wish lists that centre on bespoke style architecture accommodation, romantic accommodation for couples or green accommodation for eco-enthusiasts. Moreover, wish lists provide another channel for Airbnb to engage and create relationships with their users. Essentially, consumers may visit the site just to update or explore wish lists, and not necessarily to search and book accommodation — ensuring repeat visits to the site.

Beyond some of the latter features is the notion of communicating P2P with another human being and establishing a genuine social connection. These social connections are what provide the authentic travel experiences that many consumers desire. And to think, all of these connections are built off a single common denominator — trust. Put simply, Airbnb and other similar sharing services have prospered by making users the regulators of trust. Guests and hosts have the transparent opportunity to rate each other, which helps instil integrity and confidence in the quality of service provided.

The service experience that Airbnb offers for travel accommodation is unique. While there will always be a segment of consumers who desire travel accommodation via conventional suppliers, the market of consumers seeking an inimitable travel accommodation experience will continue to grow. While there are still many unknowns about service organisations that centre on business models fuelled by the sharing economy, it is hard to contend with the future potential of organisations like Airbnb.

Questions

  • What makes Airbnb different from other service organisations in the travel accommodation sector?
  • Using examples, explain what features of Airbnb’s service fulfil the five dimensions of service quality. How do the features contribute to creating and maintaining long-term customer relationships?
  • How does Airbnb overcome issues that can emerge, given the unique characteristics of services (tangibility, inseparability, heterogeneity and perishability)? Provide examples.
  • What current and potential future challenges does Airbnb face as a service that centres on the emerging sharing economy?
  • Describe some innovative solutions and/or strategies that service organisations using P2P sharing business models can implement by understanding the extended services marketing mix.

Strengths of Airbnb

Reliability is one of the greatest strengths of Airbnb as the customers’ know that they can trust the company for the results that they have produced till date.

The professionals at Airbnb are very responsive and hence, they can expect a revert for any customer query in 24 business hours.

The customers are rest assured that they can get great quality stay if they opt for Airbnb

Airbnb doesn’t have a special process wherein they can check about the value that the hosts can provide. The quality of the service is decided by the service that company receives from the customer.

Lack of tangibility is one of the biggest problems as the customers cannot touch and feel the service that is provided by the hosts at the tourist location.

The company should undertake lot of marketing so that all the customers are aware of the existence of the business.

A method to check the quality of service provided by the hosts, should be implemented.

There are possibilities that the responsiveness of the hosts will be less and the management of Airbnb may not be even aware of this.

Lack of empathy is of the biggest threats. It is merely impossible for Airbnb to understand the requirements of customers as there is lack of personal interaction.

References

• Wikinut, 2010, The 5 Service Quality Dimensions, Viewed on January 28, 2015, https://business.wikinut.com/The-5-Service-Quality-Dimensions/.d-m.4b./

• UWSuper, The RATAR Model – Service quality dimension, Viewed on January 28, 2015, https://www.uwsuper.edu/cipt/exsite/upload/RATER_Model_table.pdf

• Sachdev, S, Relative importance of service quality Dimensions: A multisectoral study, Viewed on January 28, 2015, https://jsr-iimt.in/freesample/Relative.pdf

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