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Based on the analysis of external, internal environment and SWOT of Airbnb. It is clear that Airbnb is becoming one of the most popular online-booking.
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Strategy Analysis on Airbnb Giannina Chiavetta 844302 Xinyi He 823491 Xiaoci Lu 892062 Sanditi Rao 894277 Juan Wei 807199 Yuan Liu 773270 Zicheng Wang 817545 Word Count: 3, 297
EXTERNAL ENVIRONMENT Global Market - Technological, Social and Legal Drivers With the opportunities offered by technological advances, e-commerce has developed greatly, enabling Airbnb to launch as an online platform (Zervas, Proserpio & Byers 2017, p. 687). Additionally, there is an increasing demand for mobile applications along with the increase of mobile customer base. Both the popularity of e-commerce and the development of smart devices has contributed to Airbnb’s rapid growth (MarketLine 2018, p. 14). E-commerce has influenced not only how organizations operate and make a profit, but also how people access the goods and services they need – their consumption habits. Today, consumers are more likely to embrace online purchasing and sharing economy – share and rent things instead of owning them, which can also stimulate greater demand (Lin, Wang & Wu 2017, p. 39). While some governments encourage accommodation sharing by improving the standardization and regulation, such as China (Passport 2017, p. 37), Airbnb is considered lawbreaking by the regulators in many countries and cities including Australia (Passport 2017, p. 10). In this case, Airbnb has to strive for friendly policies and mutually beneficial relationship with governments proactively to expand in these marketplaces (Passport 2017, p. 7 & 33).
Australian Market - Porter’s Five Forces Analysis Porter’s Five Forces is a framework which consists of industry rivalry, bargaining power of suppliers , threat of new entrants , bargaining power of buyers (customers) and threat of substitutes (Porter 2008, p. 25). These five factors can not only analyse the current competitive environment for companies in their industry, but can also develop and optimize their future planning of marketing strategy. In a major study, the industry rivalry is considered as a primary factor of fierce rivalry for companies (Porter 2008, p. 27). From 2013 to 2018, the industry rivalry was high for Airbnb in Australia market, because there is a large amount of competition for Airbnb. For example, Expedia Australia, Booking.com Australia, Webjet Limited and Lux Group Limited respectively occupied 28.1%, 25%, 12.8% and 5.8% of market share in the online travel bookings industry in 2 017 ( Figure 1 ). However, Airbnb only took up 2% market share in Australia (Tarrant 2018, p. 23). In fact, Airbnb set up the first Australian office recently in November 2012 although it was founded in 2008 in the US (Tarrant 2018, p. 23 ). In other words, Airbnb needs more time to improve their brand awareness in the Australian market, especially for Australian customers who are concerned about the reasonable legislation of Airbnb (Tarrant 2018, p. 23). In addition, the industry revenue slightly decreased in 2017, which was lower than
whole industry in Australia has a huge customer base which is very price- sensitive for booking online (Tarrant 2018, p. 9). They are more likely to switch their booking platform options based on the price, despite the fact that it is difficult for them to gather all the information they need to give a full evaluation on the various accommodation choices (Tarrant 2018, p. 11). Additionally, as an American private company entering the Australian market recently, Airbnb does not have very loyal customers base, which means that it is easy for the customers to choose others on travelling bookings options. Due to a large number of potential input suppliers who find difficulty selling directly to customers in online travel bookings industry, the bargaining power of suppliers for Airbnb is low (Tarrant 2018, p. 8). In the Australian market, it is hard to find companies with similar operating model, which like Airbnb for most house-owners. Hence, Airbnb may have more negotiation power to easily switch to other suppliers, especially when Airbnb can create profit and value for them. According to the industry report, there are two viewpoints to support our argument that the threat of new entrants for Airbnb is medium. Firstly, for the new entrants in the online travel bookings industry, there is no paramount barrier to enter this industry due to the existing brand presence established by current industry players (Tarrant 2018, p. 4). In addition, the industry has been
experiencing rapid growth recently which may boost numerous industry establishments catering to consumer demands (Tarrant 2018, p. 7). Secondly , as a new company in the Australian market, Airbnb may face a formidable barrier to gain more loyal customers than others, because of their low brand awareness in Australia (Tarrant 2018, p. 23). Therefore, the threat of new entrants for Airbnb is medium in the industry currently. The threat of substitutes is medium for Airbnb in Australia. One reason is that the price of Airbnb is lower than others which offer same conditional resources, such as hotels, motels and hostels (Edelman & Luca 2014, p. 6). Their customers may want to obtain much better values at the same price. The other reason is that Airbnb shares customers’ living experience online which differentiates them from other market choices available to the customers.
Airbnb started a $1 funding round at a valuation of $30 billion with investors from General Atlantic and Andreessen Horowitz (Hook 2018). These are considered to be enormous contributions to Airbnb’s financial resources. With the investment, the company has the financial resources to expand and provide more services for the users which can increase the customer's loyalty. The financial resources are a valuable resource for Airbnb. Another valuable resource for the company is its huge user base. Airbnb has more than 44. million registered users in the US. in 2016 and it is estimated that the company will have 60 million within the US by the end of 2021 (Statista 2018). In 2017, the company achieved 100 million guests globally (Molla 2017). It is also a resource that is hard for other companies to imitate, for it takes years of development to achieve such a huge user base. Airbnb offers a low-cost method for people to travel. It provides service to protect the interests of both the host, who offers accommodation and the guest, who hires the place that is being offered, such as refund policies, insurances etc. (Airbnb 2018). These services ensured both parties that the company is reliable and trustworthy to use. Airbnb gained a good reputation with their operating strategies such as SuperHost program, which labels those well- reviewed hosts differently to ensure the users psychologically while booking the accommodation. These services attributes to the reputational resources which
built a trust between the company and the users. This is a valuable resource and a hard-to-imitate resource for Airbnb. Technological resource is a vital resource for Airbnb. Airbnb is operated online which makes it easy for both the hosts and the guests to access to information and communicate. With the website of Airbnb, guests are able to book accommodations anytime in any place around the world. The technology of Airbnb provides convenience to both party. All of these are achievable because of the technological equipment and information engineers that the company possesses. By analysing the internal resources that Airbnb holds, we can conduct that the company has a huge financial resource generated both from revenue and from investment. As a technological company that offers a platform for sharing accommodation, it is important for the company to maintain a well function of their servers as well as the services that they offer.
STRATEGY FORMULATION Strategies in Global Market Based on the analysis of external , internal environment and SWOT of Airbnb. It is clear that Airbnb is becoming one of the most popular online-booking platforms recently both global and Australian market. Throughout the whole development of the company, Airbnb mainly operates three strategies of Porter’s generic strategies, which are differentiation , cost leadership and focus strategies (Porter 1980, p. 30). However, it is noticeable that the differentiation strategy is considered as the most important strategy for Airbnb to successfully obtain a unique status in the whole online booking industry. For example, Airbnb will design a personal website for both suppliers and booking customers in the way of ‘build your own site’, which includes some personalized pictures and comments from their hosts, as well as closely interact their customers with a unique peer-to-peer platform of experienced sharing (Allentrepreneur 2018). By using this strategy, Airbnb gained an outstanding position than other competitors in the global market. Airbnb also implements focus strategy in communities. For instance, Airbnb always sets up community centres, which can connect with other hosts, sharing their stories and asking for advice, as well as getting information from groups (Community Center 2018). It aims to target some specific groups of hosts or
customers, particularly satisfying their needs. In addition, Airbnb takes cost leadership strategy by the lower price of accommodation for targeting the price-sensitive customers (Edelman & Luca 2014). Based on the three strategies above, Airbnb primarily utilizes a planned strategy for implementing in the global market. They have promoted according to these strategies in many regions of different countries via its online-booking accommodation business, which aims to expand global market share for the company and increase their brand awareness for more potential customers. For social media, Airbnb creates social media platforms on blogs, apps and social media networks, such as Twitter and Facebook etc., which are planned to use ‘media box’ get value for Airbnb in a long term (Crook 2017). Also, Airbnb hires professional photographers for the hosts to provide quality images for their renting rooms to post on the booking page in order to attract guests. Besides for those, to solve the payment dilemma in group trips, Airbnb launched Payment splitting function in November 2017 (Crook 2017). However, due to some special situations, Airbnb also tends to change from planned strategy to emergent strategy. For example, Airbnb faced the insurance issue, which may not be able to secure the interest of the host in case of certain damages to homeowner’s property. Therefore, Airbnb launched the Host Protection Insurance in 2016 (Airbnb 2018).
However, several issues still occurred with the incompletion of local legislation for sharing economy although Airbnb’s business was comparatively mature when entering the Australian market. How Airbnb responds to those problems will clearly reflect their application of emergent strategy. Tax avoidance has recently aroused attention from Australian Taxation Office (ATO). The income from the Airbnb short-term holiday stay has to be taxed, while many avoid doing so due to lacking a firm regulation of the industry (Legalvision 2017). In terms of this, Airbnb’s public policy leader, Brent Thomas claims that “the company will go canvassing extensively for adjusts to tax laws, to protect hosts are not stung by punitive CGT and other tax liabilities (Tabakoff 2018)”. Therefore, in this case, it is in both parties’ favour to negotiate a deal on the legislation term to achieve a win-win situation.
STRATEGY IMPLEMENTATION Force Field Analysis Force Field Analysis has been broadly used by organization development practitioners to plan and implement organizational changes, which involves Driving forces and Resisting forces to maintain an equilibrium (Thomas 1985, p. 55). As for this case, Airbnb in both global and the Australian market, the driving forces involve numerous demands from hosts and guests, for which the preferences on travel accommodation various from consumers. While in the meantime, the resisting forces from local government regulation and the obstacle from traditional accommodate industry still exist ( Figure 2 ). Figure 2. Force Field Analysis for Airbnb in Australian Market Within driving forces, Airbnb has become a trend among guests seeking for leisure or business. In 2015-16, over 800,000 stays were booked through
EVALUATION Based on the analysis of strategy formulation and implementation above, the success of Airbnb began by creating a new segment of customers who are willing to rent rooms in another people’s house, providing them with a platform where hosts and guests can meet each other. However, it is expected to expand their business to a bigger and substantial market, which may include the vacation rental etc. People prefer to choose Airbnb, not only because they offer lower prices than hotels, also they provide a significant variety of accommodation which can fit most kinds of traveller’s needs. In addition, consumers will become much free on booking rooms online currently. Therefore, the Peer-to-Peer accommodation can completely transform the model from the tradition to conventional hospitality. For company’s strategy, Airbnb has made different from others, although the model of renting another person’s place existed before. However, Airbnb focuses on solving issues, providing trust for their customers. For example, Hosts were concerned about the idea of letting a stranger to live inside their houses, whether with others or alone. Prejudices and fears about the guests have been one of the biggest challenges Airbnb had to face. By using their implementation of strategy, Airbnb attempts to manage all issues based on
reviews from both host and guest. Airbnb has created a source of competitive advantage which makes them different from others, continuing to provide hospitality services to more than 2 million guests per month (Aufmann, 2016). A research conducted for Ryerson University (Ryerson Today, 2016) show that more than 89 percent of the Airbnb users were “satisfied” or “very satisfied” with their latest Airbnb stay, and more than 90% of them were “likely” or “very likely” to recommend Airbnb to their friends and family. In addition, over the 60% of the users indicate they were “very likely” to hire accommodation services through Airbnb within the following year (Ryerson Today, 2016). Thus, Airbnb is becoming one of the largest hospitality companies in the world (Momentum, 2016). Additionally, the successful strategies of Airbnb have gained more than 190 countries around the global markets with the value over USD 31 billion in 2017 (Walters, 2017).
