The Airbnb business model is relatively simple: it allows homeowners to monetize unused space and provides trustworthy, unique, and often price-competitive housing alternatives to renters.\u00a0 The business is a classic example of indirect network effects.\u00a0 Value is created for homeowners when there is a large enough population of potential renters on Airbnb to give the homeowner access to a consistent flow of travelers visiting the local area. Similarly, value is created for renters only when there is a sufficient number of homeowners on the site to provide coverage of many different cities one might travel to and provide several options in that city.\u00a0 When scale is reached on both sides of the platform, both homeowners and renters are able to capture value via a match between accommodation availability and the renter\u2019s desired time\/location\/capacity.\u00a0 The value of the network grows as more renters and more homeowners join the platform.<\/p>\n
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Growing the network<\/strong><\/p>\n So how did Airbnb do it? Well, for several years the founders struggled, but eventually found a clever way to attract both property owners and renters.\u00a0 The founders knew that Craigslist was a large competitor that attracted the same target demographic (someone looking for a non-traditional housing experience).\u00a0 So, to tap into Craigslist\u2019s scale, Airbnb discovered a way to essentially allow owners to \u201cmulti-home\u201d their properties to list both on Airbnb and on Craigslist.\u00a0 Not only did this lower the barrier for a property owner to list on Airbnb, but Airbnb also received a lot of attention from renters because the properties tended to be nicer and have higher quality images than a traditional Craigslist posting.\u00a0 This strategy allowed Airbnb to reach a large number of renters \u2013 those who were searching for housing on Craigslist\u2019s website \u2013 and a large number of property owners at once. Airbnb also leveraged Facebook\u2019s social network to build its renter base.\u00a0 They tapped into Facebook Connect, which, when enabled, allowed renters to see friends who had stayed at a homeowner\u2019s home and were friends with a homeowner.\u00a0 It also allowed renters to search for properties by more granular characteristics, such as undergraduate institution.\u00a0 These measures helped to foster a sense of trust, assuaging concerns and making potential renters more likely to use Airbnb.<\/p>\n The two charts below provide an example of how both number of guests and number of listings have grown in similar patterns over the past 5 years, demonstrating the value of indirect network effects. In 5 years, the number of individuals staying in an Airbnb has grown from essentially zero to 15+ million people. Demonstrating a similar trend, Airbnb listings have grown from 50,000 to 550,000 from 2011-2014.\u00a0 No doubt the growth in users spurred more renters to list properties, and the increase in property options drove more users to join Airbnb.<\/p>\n <\/p>\n \n Industry response<\/strong><\/p>\n Airbnb is a clear disrupter in the hospitality industry, and hotels and legal professionals alike are taking a keen interest in the company\u2019s operations.\u00a0 For now, hotels have largely responded through legal channels, and regulators have differing opinions on how to treat and tax the company.\u00a0 Airbnb currently is not subject to the same hospitality taxes and regulations that hotel are; however, Airbnb has surpassed many of these large hotel chains in size\u2026cue the tension.\u00a0 As the legal battles continue, hotels will be looking for ways to further differentiate their services from those of Airbnb.<\/p>\n Source: growthhakers, forbes, businessinsider<\/p>\n","protected":false},"excerpt":{"rendered":" In 2008 Airbnb\u2019s founders were having difficulty raising funds for their new idea and were turned down by many Silicon Valley investors when trying to raise a mere $150,000. No doubt part of investor skepticism revolved around the difficulty inherent in two-sided marketplaces and businesses that rely on indirect network effects for success. So what is the value of Airbnb\u2019s indirect network effects and how did they scale the business? And now that Airbnb has reached a large scale, how has the traditional hotel industry responded?<\/p>\n","protected":false},"author":37,"featured_media":866,"comment_status":"open","ping_status":"closed","template":"","categories":[379],"class_list":["post-865","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-networkeffects-growth-airbnb"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/competing-with-network-effects\/","yoast_head":"\n![\"users\"](\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/09\/users-300x300.png\")
<\/p>\n![\"owners\"](\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/09\/owners-300x238.png\")
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