Leading for Strategic Advantage

MGMT90204

Assignment 2: Research Report

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

2

TABLE OF CONTENTS

Introduction ...................................................................................................... 3

External Environment ....................................................................................... 4

Global Market - Technological, Social And Legal Drivers ............................. 4

Australian Market - Porter’s Five Forces Analysis ........................................ 5

Internal Environment ........................................................................................ 9

Swot Analysis ............................................................................................. 12

Strategy Formulation ...................................................................................... 13

Strategies In Global Market ........................................................................ 13

Strategy In The Australian Market .............................................................. 15

Strategy Implementation ................................................................................ 17

Force Field Analysis ................................................................................... 17

Evaluation ...................................................................................................... 19

Conclusion ..................................................................................................... 21

References .................................................................................................... 22

3

INTRODUCTION

Airbnb Australia is owned by the American company - Airbnb Inc. Started as

a website, airbedandbreakfast.com now named Airbnb. It was founded in

August 2008 and headquartered in San Francisco, California (Passport 2017,

p. 4). Airbnb operates under the online accommodation booking Industry in the

Australian market. It facilitates the efficiency of accommodation booking by

offering a common e-platform to hosts (suppliers) who can rent out spare rooms

or houses, and guests (customers) who plan to book accommodation.

Moreover, it connects latent demands of people that are seeking a broader and

affordable range of accommodation and those who are willing to rent out spare

space, through which Airbnb tapped into a formerly hidden market. Furthermore,

Airbnb offers an unusually wide range of accommodation option as their

planned strategy, ranging from tree houses to trailer accommodation in unique

locations and ambiences. By employing a ‘pay-per-booking’ model, Airbnb

earns a 3% commission from the hosts and between 6% to 12% commission

from the guests (Passport 2017, p. 4). Since its arrival in Australia in 2012, the

company has witnessed an increasing brand awareness and rising revenues

(Tarrant 2018, p. 23) as a result of great strategic planning and implementation.

This report aims to describe, analyse and evaluate the strategies behind

Airbnb’s success by examining Airbnb’s external and internal environment,

as well as strategy formulation and implementation.

4

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).

5

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

2017 (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

6

overall past five years (Figure 1). A weaker economic growth may indicate that

the whole industry will run into a bottleneck which will lead to fierce competition

for Airbnb (Tarrant 2018, p. 3).

Figure 1. Industry Data Figure

The bargaining power of buyers (customers) describes the effect that

buyers (customers) have on the profitability of company, which is medium for

Airbnb (Porter 2008, p. 30). It is mainly because that the special living-

experience sharing model is considered as the personalized services of Airbnb

compared with other competitors (Edelman & Luca 2014, p. 4). However, the

7

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

8

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.

9

INTERNAL ENVIRONMENT

Airbnb following the idea of offering travellers a home away from home has

become one of the most popular accommodation solutions for traveller around

the world, especially among young travellers. Analysing the resources which

contribute to the sustainability of a firm’s competitiveness is a major area of

strategy management (Porter 1985, p. 67) and it helps us to understand the

advantages and weakness of a company. According to Barney (1991, p. 111),

the classification of resources can be sorted as physical capital which includes

technological resources, geographic location etc.; human capital, such as

training, experiences etc. and organizational capital which are reporting

structure, team relations etc. Similar to Barney, Grant (1991, p. 13) argues that

resources can be identified as financial resources, physical resources,

technological resources, human resources, reputation and organizational

resources. Barney also argues that the resources of a company can be

categorized into four types as valuable resources, rare resources, hard-to-

imitate resources and hard-to-substitute resources. Applying the work of

Barney and Grant, this report is going to analyse the resources possessed by

the travelling accommodation provider Airbnb.

According to the statistic of financial times, Airbnb has generated a revenue of

over $100 millions with a booking growth of 150%. It is also stated that in 2017

10

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 44.8

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

11

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.

12

SWOT ANALYSIS

Source: Passport 2017 & MarketLine 2018

Strength

- High market share and brand awareness on a global scale;

- Variety of accommodation and services

Weakness

- Low market share and brandawareness in Australian market

- Limited control over the guest experience;

- Vulnerable loyalty of hosts and guests

Opportunity

- The prevalence of sharing economy and e-commerce;

- The potential of underpenetrated market (e.g. Asia Pacific includingAustralia)

Threat

- Increasingly intensive competitionfrom other platforms

- The pressure of the local legislations

SWOT

13

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

14

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).

15

Strategy in the Australian Market

According to the external and internal environment analysis, Airbnb further

implements differentiation strategy in the Australian market. This strategy is

applied in accommodation sharing economy to building a sense of community

and infuse culture value, which differentiates Airbnb from traditional

accommodation industry in Australia. In addition, despite Airbnb possesses a

low market share in the Australian market, it is predicted to become more

popular in the whole industry. This situation could be attributed to their

differentiation strategy, which can differentiate itself from other competitors,

such as Booking.com or Expedia Australia (Tarrant 2018, p. 4). Additionally,

Airbnb utilizes focus strategy in specific segments, such as tourist and

millennials (Marketing 2017). According to the previous research about Airbnb

users’ constitution, there are roughly 60% of all guests who have ever booked

on Airbnb are millennials (aged between 18-35) (Tarrant 2018, p. 23).

Therefore, Airbnb regards this segment as a valuable group and continue

furnishing services which can attract more millennials with their good selection

of locations/variety of areas, offering more opportunities to gain the experience

of local culture, providing opportunities to meet people from different area and

making them feel part of the local community (Airbnb 2016).

16

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.

17

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

18

Airbnb around Australia with an average booking of 15 times for each host over

the financial year (Deloitte 2017, p. 11) resulted to the boom of the Australian

tourism. Tourism accounted for 3.2% of national income, estimated to

contribute $53 billion to Australian GDP from 2015 to 2016 (Deloitte 2017, p.

14). In addition, the exclusive living experience attracts customers attention,

especially for the millennial groups. They desire the in-depth local experience

by living among the local communities and receiving guide information from

local people. This directly resulted in a numerous demand from both the

domestic and international tourists as well as the Australian hosts.

On the other hand, due to the threat of Airbnb, traditional tourism industry

impedes Airbnb from entering the market. Various fixed-costs apply to

traditional hotel industry, such as maintenance cost, operating taxes and the

human resources expenses. However, Airbnb uses a peer-to-peer network, so

that the cost can be controlled by the company for Airbnb does not own the

properties that are listed online and the operating cost through the online

platform has less fixed-cost compared to physical hotels (Passport 2017).

Moreover, due to the law’s incompletion on levying the tax for Airbnb hosts,

traditional industry will raise more problems to challenge the inequality exists in

the horizontal competition. Thus, it may lead the government to accelerating

supervision for Airbnb.

19

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

20

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).

21

CONCLUSION

In summary, based on the analysis of external and internal environment, this

report has elaborated the planned and emergent strategy of Airbnb. It has also

examined the formulation and implementation of cost-leadership, differentiation

as well as focus strategy during its market entry and penetration. From the

evaluation above, if Airbnb is still able to strictly follow the right direction and

adjust timely according to the environment, its market share and brand equity

will be expected to rise domestically and globally.

22

REFERENCES

Airbnb 2016, Airbnb and the rise of millennial travel, viewed 20 April 2018,

<https://www.airbnbcitizen.com/wp-

content/uploads/2016/08/MillennialReport.pdf>.

Airbnb 2018, Cancellation Policies, viewed 11 April 2018,

<https://www.airbnb.com.au/home/cancellation_policies?guest_fee_polic

y=grace_period_48_hours>.

Airbnb 2018, How does homeowner's insurance work with Airbnb?, viewed 14

April 2018, <https://www.airbnb.com.au/help/article/296/how-does-

homeowner-s-insurance-work-with-airbnb>.

Airbnb 2018, Your safety is our priority, viewed 11 April 2018,

<https://www.airbnb.com.au/trust>.

Allentrepreneur 2009, Travel like a human with Joe Gebbia, co-founder of

Airbnb!, viewed 14 April 2018,

<https://allentrepreneur.wordpress.com/2009/08/26/travel-like-a-human-

with-joe-gebbia-co-founder-of-airbnb>.

Aufmann, C 2016, Designing for trust, viewed 14 April 2018,

<https://airbnb.design/designing-for-trust>.

Barney, J 1991, ‘Firm resources and sustained competitive advantage’. Journal

of Management, vol. 17, no. 1, pp. 99-120.

Coldwell, W 2014, Airbnb's legal troubles: what are the issues?, viewed 20 April

2018, <https://www.theguardian.com/travel/2014/jul/08/airbnb-legal-

troubles-what-are-the-issues>.

23

Community Center 2018, A global community of hosts like you, viewed 14 April

2018, <https://community.withairbnb.com/t5/Community-Center/ct-

p/community-center>.

Crook, J 2017, Airbnb launches payment splitting for group trips, viewed 14

April 2018, <https://techcrunch.com/2017/11/28/airbnb-launches-

payment-splitting-for-group-trips>.

Deloitte 2017, Economic effects of Airbnb in Australia, viewed 20 April,

<https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Economi

cs/deloitte-au-economics-airbnb-.economic-effects-in-australia-victoria-

010517.pdf>.

Edelman, BG & Luca, M 2014, Digital discrimination: the case of Airbnb.com,

Harvard Business School, Boston.

Grant, RM 1991, ‘The resource-based theory of competitive advantage:

implications for strategy formulation’, California Management Review, vol.

33, no. 3, pp. 114-135.

Hook, L 2018, Airbnb marks first full year of profitability in 2017, viewed 10 April

2018, <https://www.ft.com/content/96215e16-0201-11e8-9650-

9c0ad2d7c5b5>.

Legalvision 2016, Is Airbnb legal in Australia?, viewed 20 April 2018,

<https://legalvision.com.au/is-airbnb-legal-in-australia>.

Lin, HY, Wang, MH & Wu, MJ 2017, ‘A study of Airbnb use behavior in the

sharing economy’, International Journal of Organizational Innovation, vol.

10, no. 1, pp. 38-47.

Marketing 2017, Airbnb Australia’s head of marketing on strategy and why

Australia is one of the brand’s most important markets, viewed 20 April

24

2018, <https://www.marketingmag.com.au/hubs-c/airbnb-interview-

sponsored-hallam>.

MarketLine 2017, Company profile: Airbnb, Inc., viewed 17 April 2018,

<http://advantage.marketline.com.ezp.lib.unimelb.edu.au/Product?ptype=

Companies&pid=75E7EF7F-48E9-4D11-9331-8BEE945B8BD1>.

Molla, R 2017, Airbnb is on track to rack up more than 100 million stays this

year - and that’s only the beginning of its threat to the hotel industry, viewed

12 April 2018, <https://www.recode.net/2017/7/19/15949782/airbnb-100-

million-stays-2017-threat-business-hotel-industry>.

Momentum 2016, The surprising success of Airbnb, viewed 14 April 2018,

<https://www.business.uq.edu.au/momentum/surprising-success-airbnb>.

Porter, ME 1980, ‘Industry Structure and Competitive Strategy: Keys to

Profitability’, Financial Analysts Journal, vol. 36, no.4, p. 30.

Porter, ME 1985, Competitive advantage: creating and sustaining superior

performance, Free Press, New York.

Porter, ME 2008, The five competitive forces that shape strategy. Harvard

business review, vol. 86, no. 1, pp. 25-40.

Ryerson Today 2016, Why tourists choose Airbnb over hotels, viewed 14 April

2018, <https://www.ryerson.ca/news-events/news/2016/10/why-tourists-

choose-airbnb-over-hotels>.

Statista 2018, Number of Airbnb users in the United States from 2016 to 2021,

viewed 10 April 2018,

<https://www.statista.com/statistics/346589/number-of-us-airbnb-users>.

Tabakoff, N 2018, Airbnb pulls in $1bn from Australian business, viewed 20

April 2018, <https://www.theaustralian.com.au/national-

25

affairs/treasury/airbnb-pulls-in-1bn-from-australian-business/news-

story/93a3d29210a88e073fd7f613f6dda9aa>.

Tarrant, N 2018, Online travel bookings in Australia, viewed 12 April 2018,

<http://clients1.ibisworld.com.au.ezp.lib.unimelb.edu.au/reports/au/industr

y/default.aspx?entid=4163>.

Thomas, J 1985, ‘Force field analysis: a new way to evaluate your strategy’,

Long Range Planning, vol. 18, no. 6, pp. 54-59.

Walters, N 2017, What is Airbnb's valuation right now?, viewed 14 April 2018,

<https://www.fool.com/investing/2017/11/30/what-is-airbnbs-valuation-

right-now.aspx>.

Zervas, G, Proserpio, D & Byers, JW 2017, ‘The rise of the sharing economy:

estimating the impact of Airbnb on the hotel industry’, Journal of Marketing

Research, vol. 54, no. 5, pp. 687-705.