AIRBNB
STRATEGY
ANALYSIS
[23 R D NOVEMBER 2018]
THU ANH THI BUI
SI: 6119126
Table of Contents
1.0 Executive Summary ................................................................................................................... 3
2.0 Introduction .............................................................................................................................. 3
3.0 Business Background ................................................................................................................. 3
4.0 Current Position ......................................................................................................................... 3
4.1 Porter’s 5 Forces .................................................................................................................................. 4
4.1.1 Intensity of rivalty: .............................................................................................................................. 4
4.1.2 Potential threat of entrants: ............................................................................................................... 4
4.1.3 Potential threat of substitutes: ........................................................................................................... 4
4.1.4 The bargaining power of buyers: ........................................................................................................ 5
4.1.5 The bargaining power of suppliers: ..................................................................................................... 5
4.2 VRIO .................................................................................................................................................... 5
4.2.1 Valuable ............................................................................................................................................... 5
4.2.2 Rare ..................................................................................................................................................... 5
4.2.3 Costly to Imitate .................................................................................................................................. 5
4.2.4 Organized to Capture Value ................................................................................................................ 6
4.3 Strategy Lenses .................................................................................................................................... 6
5.0 Strategic Analysis And Choice .................................................................................................... 6
6.0 Recommendations: .................................................................................................................... 8
7.0 Conclusion ................................................................................................................................ 10
8.0 References ................................................................................................................................ 11
1.0 Executive Summary
This report provides an analysis and evaluation of the current strategic position for Airbnb. Methods of
analysis include Porter’s Five Forces and VRIO tools which focus to examine micro-environment of a
company. It then analyses applicants of strategy direction and choices adapting to its surrounding
environment and finally the alternative actions are recommended based on strategy choices.
2.0 Introduction
Johnson et al. (2017) defined strategy as “the long-term direction of organization” while Chandler
(2013) described strategy as ”the determination of the long-run goals and objectives of an enterprise
and the adoption of courses of action and the allocation of resource necessary for carrying out the
goals”. The following section will analyse Airbnb’s strategy position in term of their micro and macro
perspectives using Porter’s Five Forces framework and VRIO analysis along with identifying strategy
lenses as the tool for their strategy position identification. After that, generic strategy choices namely
cost leadership, differentiation and the grand strategy matrix will be concerned. Alternative
suggestions applied for strategic issues will be included in the next part of the essay. Finally, an analysis
of Airbnb’s strategy plan will be concluded at the final part of the report.
3.0 Business Background
Airbnb is a trusted community online marketplace that connects people that owned real estate
properties and travellers interested to rent short-term lodging. It was founded in August 2008 and
based in San Francisco, California. Airbnb operates under simply business model, which offers value for
both hosts and travelers (guests). The C2C platform from Airbnb enables hosts to collect rental money
when a traveler selects their listing. Airbnb site offers customers variety of lodging offerings regarding
locations, experiences, prices to choose from. Beginning with the idea of offering Bed and Breakfast to
rent for an international design conference coming to town, Airbnb is now rising the most developing
travel company in the world with $30 billion valuation and ranks the second most valuable private firm
in the US, following by Uber. Airbnb is regarded by the press as “a phenomenal disruptive innovation”
(The Economist 2017).
4.0 Current Position
The emergence of peer-based business model has recently entitled people to become micro-
entrepreneurs, gaining money from their unused property and free time. This sharing economy has
seen spectacular growth in variety of businesses, user numbers and social interactions. (Kathan et al.
2016). The hospitality industry is not an exception, Airbnb as the pioneering and leading home-sharing
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business, their achievements have gained awareness globally. Airbnb was valued as “deta-corn:” of $31
billion dollar by 2017, assessed by global unicorn club (enterprises with more than $10 billions of
valuation). The company ranks fifth in the unicorn tracker, following by e-commerce companies and
stands second most valuable private firms in the US, after ride-sharing business, Uber. (The Economist
2017). Airbnb’s core mission is to make their customers feel like belong to anywhere in the world.
“Belonging has always been a fundamental driver of humankind. So to represent that feeling, we’ve
created a symbol for us as a community”, CEO Brian (2014) quoted when describes Airbnb logo standing
for four elements, people, place, love and “a” in Airbnb. (Clifford 2014)
According to Johnson et. al (2017), “the strategic position is concerned with the impact on
strategy of the surrounding environment, the organization’s strategic capability, stakeholder and
culture”. The following section will analyse business environments including Porter’s Five Forces and
Value Chain.
4.1 Porter’s 5 Forces
Michael Porter first described the five forces in Harvard Business Review (1979) and later in his book
Competitive Strategy: Techniques for Analysing Industries and Competitors” (1980). Porter’s Fice
Forces as a framework of assessing and evaluating the competitive strength and position of a business.
The theory is based on the premise that there are five forces that determine a market’s competitive
strength and attractiveness along as the company and their competitors’ competitive position. The five
forces are supplier power, buyer power, threat of substitution and threat of new entrants. (John et al.
2017)
4.1.1 Intensity of rivalty:
Competitors among the market is always the greatest threat in five competive forces. The intensity of
competition stays moderate in this case. Airbnb was almost the first to pioneer this business model,
however, there are some companies already imitated and developed this model in different market.
Other existing companies such as Expedia, [Link] and Tripadvisor are competing with Airbnb in
the same area (Norah 2018).
4.1.2 Potential threat of entrants:
On the surface, it seems like there haven't appealed many barriers to entry and compete with Airbnb.
The capital requirement for opening an online travel service like Airbnb is significant. For any company
with intention to get into the business, both access to the number of venture capitals and outstanding
brand equity to capture demands and requirements of the hospitality market. Therefore, the threat of
new entrants for Airbnb is considered low and flexible (Lunden 2015).
4.1.3 Potential threat of substitutes:
The risk of substitutes is regarded medium since switching costs does not exist and guests are able to
substitute the company by traditional hotel experience. Facing Airbnb’s significant development, its
competitors would easily apply the same business concepts. More specifically, Homeaway emerges as
greater threat to Airbnb as they can offer same level of pricing and locations which turns it into an ideal
alternatives in the market (Lunden 2015)
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4.1.4 The bargaining power of buyers:
According to Luden (2015), the negotiating power of buyers with regards to Airbnb is considered high
although the variety of offerings regarding locations, price and experiences makes Airbnb highly
demanded in the market, consumers are more sensitive to safety and security issues, leading them to
go for other options in the market. Furthermore, there is no negotiating options on site for users,
however, having purchasing power in the alternatives of price, location and experiences available for
consumers to choose from can correspondingly be widen their accommodation options and helps them
determine on the lodge fit their budget.
4.1.5 The bargaining power of suppliers:
The power of Airbnb’s suppliers is limited since the property otherwise would go unoccupied. Not to
mention Airbnb control the connection between hosts and guests has made hosts difficult to rent out
their properties not having alternative payment methods besides Airbnb app.
4.2 VRIO
The second tool will be using to identify Airbnb’s strategy position is VRIO tool was developed by Barnet
(1991), which is an analytical technique relevant to the valuation of the organisation’s resources and
capability and therefore the competitive advantage. VRIO is an acronym from initials of analysis
dimension names which are Value, Rareness, Imitability and Organisation. According to Barney and
Hesterly (2010), a firm can only attain competitive advantage if business’s resource or capability meets
all four requirements.
4.2.1 Valuable
Beginning from a transparent, creditable and trustful platform, Airbnb has managed to depend on user-
produced listings and contents. By the mean of that, Airbnb facilitate and give assistance to hosts’ value
creation, thus multiplying that value exponentially. Airbnb charges hosts 3% service charge for each
booking on top of 6-12% of the reservation fee (Michael 2015). Airbnb offers value to both parties
equally that guests can engage different experiences with cheap price while hosts have the opportunity
to make money by renting out the property they already owned.
4.2.2 Rare
Besides the focus on personalizing the guest experience by their variety and uniqueness of property
listings, the newly updated Airbnb mobile application has upgraded their personalisation into the next
level. With this update, Airbnb has reengineered its search functionality to be more individualised.
Travellers will see more results in connection with their unique preferences. (eHotelier 2016)
4.2.3 Costly to Imitate
With the high capital ventures, Airbnb proved to be real threat to any business intending to imitate,
not on the consumer side of the business but on the development side. The key factor that differentiate
their competitors is innovation which is considered extremely expensive and time-consuming to
imitate.
4.2.4 Organized to Capture Value
Realising the quality accommodation pictures will affect decision-making of users, Airbnb hires
freelancer photographers to support hosts, the profit in return received remarkable high. Moreover,
Airbnb also provides operational guidelines to assist non-professional hospitality managers (hosts) to
build relationships with their guests.
4.3 Strategy Lenses
According to Johnson et al. (2017), the strategy lenses aim to explore strategic issues into different
perspectives. In considering different problems in the company, it is vital to take critical approaches
into more than one strategy lens. The application of variety lens is adopting new ideas from people in
and around the organisation. Being the first running C2C business model into hospitality industry,
Airbnb evidently showed uniqueness by forming original idea into billions worth business. Besides,
Airbnb puts attention on personalising customers’ experience by placing characteristics, styles and
cultures into the accommodation which differs themselves from other repeatable model like hotel
experience. In order to encourage the variety in the room listing, Airbnb has offered supports to hosts
in term of decorations, customer service, guests’ management, etc. Moreover, realizing the importance
of enhancing the quality of the photos, co-founder Joe Gebbia hired freelancing photographers to take
high-resolution pictures for customers listing properties, resulting in the significant increase in weekly
revenue not long after the project. (Lehr 2015)
An experience strategy, on the other hand, is the collection of activities the company chooses
to deliver based on cognitive models which are the basis of their experience. This strategy lens is
applied when comes to expanding stage of the company. Airbnb origins with their mission “to create a
home anywhere in the world for people who live outside their home and still feel like they are at home”
(Airbnb 2018) When Airbnb first expanding their business to China, the company face several
difficulties in regards to local legislation, one of those is the boundary for identity verification due to
the acquiescing to China’s local data storage laws. Airbnb correspondingly proposed a number of
initiatives following by Apple’s data restoring plan in China, Airbnb Plus which is launched in Shanghai,
contains higher bracket of listings and hosts are in better training to ensure their brand equity. Nathan
Blecharczyk, Airbnb chairman in China emphasized the mission of creating a home to the world and
bringing magical travel experience to China travellers (Lehr 2015)
5.0 Strategic Analysis and Choice
“Strategy choice is a systemic strategy theory which is built on a concept of interaction in which
organisations adapts their environment in a self-regulating and cybernetic method to achieve their
objectives”, defined by Johnson et al. (2017). Porter has considered three generic strategies which an
organisation can utilise to maintain its dominant position. They are cost leadership, differentiation and
focus.
The prime generic strategies applied by Airbnb is the mixture of differentiation and cost
leadership. C2C business model that Airbnb constructed is considered differentiated from the tradition
business model which creates value for both parties and fill the demand and supply gap in the market.
Not to mention the key element for the sustainable advantage is applied technology. By generating
software ranked in the top ten most creative mobile applications in the world, Airbnb evidently poses
a great threat to its competitors. When it comes to cost leadership, beneficial from its application
technology where transactions are made conveniently through mobile application and website, the
company is capable of obtaining high revenue at low costs. This is clearly demonstrated by $1 billion in
revenues made in 2013 due to this strategy (The Economist 2017) In contrast to hotel companies, while
a considerable amount of capitals need to spend on variable and fixed capabilities, the cost advantage
easily separates Airbnb from its competitors.
In addition, building a grand matrix strategy is beneficial for the company to examine the ability
to develop and expand in the market. The matrix is based on two vital elements which are market
growth and competition position. These two components structure a four-quadrant matrix wherein
the company can be. The matrix can be adapted to designate the suitable strategy options based on
the current state of the business. Figure 1 shows distribution of alternative strategies within each
quadrant. Figure 2 demonstrates the position of Airbnb in the Grand Strategy Matrix.
Figure 1: Grand Strategy Matrix
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Rapid Market Growth
Weak Competitive Position Strong Competitive Position
Slow Market Grow
Figure 2: Airbnb position in Grand Strategy Matrix
Locating in Quadrant I of the Grand Strategy Matrix, Airbnb appears to be in an excellent strategic
position. The first quadrant relates to the company which is flourish with the rapid market growth. By
locating in this advantage position, it is advised to concentrate on current markets, for example, market
penetration or market development. However, the best strategy to endorse in this case is
diversification due to its capability to reduce the risk related to the slender product line. (Johnson et al
2017)
6.0 Recommendations:
Based on Airbnb’s vision, mission and strategic issues, the following recommended strategy is
designed to enhance the competitive position in the market, achieve the majority of market share
from the existing markets, such as USA, Europe, China, etc. along with penetrate the existing market
and diversify in related business. “Ansoff growth matrix assist organisations to map strategic product
market growth”. The Ansoff Matrix was founded by H. Igor Ansoff, is the strategy tool that help an
organisation determine its product and market growth. This is generally determined by whether new
or existing product/market is focused. The Ansoff Growth Matrix contains four elements which are
market penetration, product development, market development and desertification (Johnson et al.
2017)
Current Products New Products
PRODUCT DEVELOPMENT
MARKET PENETRATION In product development strategy, new products
In this strategy, exploiting existed are launched into existing market.
resources by the mean of greater Airbnb’s recent acquisitions links directly to
marketing efforts will increase the strategic goal of creating Trips and Experience
market share from the current market. service which guests can purchase their whole
Utilising all the mean of marketing trips in one app which includes flight ticket,
Existing Markets
platforms, such as social media, banner, local transportation, city tours and restaurants.
poster creates awareness to target In addition, realising the importance of
market. secure and safety, Airbnb should examine
Managing intense advertising credit scoring and background checks by
campaigns where popular and mega developing identity verification technology
events or sponsoring events will along with concentrate on studying and
familiarise audiences to Airbnb and investigating guests’ and hosts’ behaviour by
increase revenue for local hosts during hiring psychological experts. This action
event period. prevents any unexpected circumstances which
harm both parties’ safety.
Concerning customer feedbacks and
frequent complaints assists Airbnb improve the
quality of services.
MARKET DEVELOPMENT DIVERSIFICATION
An organisation trades its existing This strategy involves an organisation trading
New Markets
products to new markets in this growth new products to new markets.
strategy. This strategy involves in It is recommended that Airbnb should build
expanding the business model globally. partnership with tour operating companies to
Airbnb has successfully penetrated into support company in managing flights,
West Europe and China’s market. The transports and managing touring schedules.
following step is to expanding the More specifically, making partnership with
market in Middle East and Africa. Uber will help arrange transportation for
Acquisition of small local business helps guests.
the company adopt the culture Moreover, in order to emphasis on wealthy
difference and enable the strategy audiences, acquisition of luxury hotel
processes steadily. operations is significant to improvement of
Airbnb’s accommodation inventory. This
particular listings offer high-end villas,
apartments with outstanding services.
7.0 Conclusion
From the analysis of strategic position, Airbnb is referred as one of the most innovative companies in
the hospitality industry. Airbnb’s valuation enable it to gain competitive edge over other competitors.
This position of a company can be evaluated using framework of Porter’s Forces Five and VRIO
analysis of Jay B. Barney. Michael Porter’s methods which are differentiation and cost leadership are
vital to define dominant edge over giant firms in the industry. The prime element of Airbnb is service
innovation which is non-existed in the tradition hospitality industry. Therefore, creativity is suggested
to be the key player in developing product and penetrating market. Moreover, acquisition of small
and low cost business assists the company expanding the market in other areas such as Africa. It is
suggested that Airbnb position in luxury and experiences market is not compatible to main
competitors, Expedia, Tripadvisor, thus, the acquisition relating to trips experiences and luxury
services are recommended to broaden its market and put more concentration into targeted
audiences.
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8.0 References
Airbnb (2018) Belong Anywhere [online] available from <[Link]
anywhere/> [11 November 2018]
Barney, J. and Hesterly, W. (2010) Strategic Management And Competitive Advantage.
Chandler, A. (2013) Strategy And Structure. Mansfield Centre, Conn.: Martino Publ.
Clifford, C. (2014) Airbnb, Why The New Logo? [online] available from
<[Link] [17 November 2018]
eHotelier (2016) Airbnb Updates App To Focus On Personalisation [online] available from
<[Link]
personalisation/> [15 November 2018]
Johnson, G., Scholes, K., Whittington, R., Angwin, D. and Regner, P. (2017) Exploring Corporate
Strategy. 11th edn. Harlow [etc.]: Pearson Education
Kathan, W., Matzler, K. and Veider, V. (2016) "The Sharing Economy: Your Business Model's Friend Or
Foe?". Business Horizons 59 (6), 663-672
Lehr, D. (2015) An Analysis Of The Changing Competitive Landscape In The Hotel Industry Regarding
Airbnb.
Lunden, I. (2015) Onefinestay, A High-End Airbnb Rival, Confirms $40M Raise From Intel Capital, Hyatt
And More [online] available from <[Link]
and-more-pour-40m-into-onefinestay-a-high-end-airbnb-rival/?guccounter=1> [17 November
2018]
Michael (2015) Airbnb And The Sharing Economy: Creating Value For Everyone – Technology And
Operations Management [online] available from <[Link]
the-sharing-economy-creating-value-for-everyone/> [15 November 2018]
Norah, L. (2018) Airbnb Alternatives: The Best Sites Like Airbnb - Finding The Universe[online]
available from <[Link] [22 November
2018]
The Economist (2017) Among Private Tech Firms, Airbnb Has Pursued A Distinct Strategy[online]
available from <[Link]
airbnb-has-pursued-a-distinct-strategy> [23 November 2018]
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