Why Airbnb Hosts’ Revolution Will Fail

Why Airbnb Hosts’ Revolution Will Fail

Airbnb is the world’s leading aggregator of short-term rentals. It provides a platform that brings hosts and renters into equilibrium. As Covid-19 spread its rampage, decimating business systems through human hibernation orchestrated via lockdowns, Airbnb, like other sharing companies such as Uber and Lyft, has suffered.  The company recently raised $2 billion new funding at a valuation of $18 billion, down from $31 billion in 2017. The firm also fired 10% of its staff, about 1,900 people.

Competition from these new direct-booking websites represents the latest challenge for Airbnb, which has endured a tough 2020. The company had lined up bankers to lead a public offering, which would test whether Airbnb could live up to its $31 billion private market valuation from 2017. But as the coronavirus decimated travel around the world, the company instead raised $2 billion in new debt funding at a valuation of $18 billion and announced major cost-cutting initiatives, including plans to lay off 25% of its staff, or nearly 1,900 employees.

But those are just part of Airbnb challenges. A business-redesigning problem for Airbnb is the revolution of the hosts on its refund policy, commission rates and other factors. As part of our Mini-MBA, I received a question to address what to expect since this involves a critical part of our theme: digital growth. Our members are building parallel businesses in this domain and want to understand the structural framework which can give them success.

Here is the deal: the hosts’ revolution will fade because what they have is supply. In the digital age, what matters is not who controls supply, but who controls demand. Supply is largely infinite as there are many ways to get to the web, and because it is infinite, users congregate to platforms to help them navigate and make sense of the web. 

In 1980, before the digital age as we have it today, the most powerful people in media were newspaper publishers. They were the people you needed to reach to get your message to the world. They decided what everyone read on the dailies and they were powerful. They controlled supply and by controlling supply, they shaped everything including advertising.

Fast track today, there are many ways people can get news online: Twitter, Facebook, LinkedIn, etc.  Magically, supply has become unconstrained and unbounded making the entities producing the contents largely not valuable. What becomes valuable now is the platform which controls the users. So, Google which organizes it, Facebook where people can read them, etc are dominant. As a result of dominance, advertisers now prefer to advertise on Google, Facebook, etc over the original producers of the news, the newspapers, as the end users (readers) are on the platforms.

It is the same construct that will make individual hosts’ websites fade in the age of Airbnb. Airbnb controls the users in a world of largely unbounded supply. Not many will prefer to be visiting each website to know how each performs, to book short-term stay, when there is a platform where they can sort hosts based on key metrics of interests. And provided that Airbnb has the users, the small hosts who want to build their independent websites will be insignificant to change the overall trajectory. At the end, they will fade. The big ones or consortium may try but their impacts will be local and will not have any major impact on Airbnb business. Yes, you can decide to block Google from archiving your site; I am not sure Google cares.

So, if you are building a business that is similar in concept to what Uber, Airbnb, etc, your core differentiation is the user experience. You must control the users to hold the hosts or owners of the original raw material. If you do that, you have protected the castle. Of course, making supply happy is critical as you need them to get the users in your platform under the positive continuum of network effects: the more the supply, the more the demand, and the more the supply, and the loop continues. But when you have reached an inflection point, with a critical user base, supply loses power. 

In summary, this revolution is a waste of time and will fail.

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5 thoughts on “Why Airbnb Hosts’ Revolution Will Fail

  1. You don’t compete against Facebook by building a site similar to Facebook, same goes for Google. The real threat for Airbnb is external, just like what Covid-19 is doing to it now, it’s never about mushroom platforms trying to extract handful of customers, they can only destroy some value, without really gaining traction.

    Digital platforms are built to have only category kings, both general and niches; it’s never about ‘everyone is invited’. Once the separation is achieved, the also-rans will run out of oxygen.

    Nice insights.

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  2. The Digital platform is a continuous business transformation process affecting every aspect of man. Bringing it home to the Energy segment because your focus has been on the ‘Digital Masters’. what kind of digital revolution (in the form of the Ubers or AirB&Bs) will happen in the oil and gas industry? Just for reflection

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    1. One of our portfolio firms works with MNCs, big industrial and filing stations to digitize. It brings visibility on all aspects of energy chain using IOT and sensors.
      Efleet Fuel-Track is a compact special tanker-truck GPS/ GSM-GPRS module dedicated for use on tanker-truck application. The device is intended for remote monitoring of fuel level in compartments of fuel trailer (semi-trailer), remote supervision of tanker-truck movement, monitoring of tractor (truck) fuel consumption and tanker-truck status. https://eonsfleet.com/solutions/fuel-tanker-content-monitoring

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  3. Platforms like Airbnb provides some kind of comfort such as escrow to the user (demand) that might be quite difficult to do with the individual websites trying to feed off the effect of the crisis.

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