Airbnb Inc. is an American vacation rental company, which provides whole flats and cottages to people for their tourism stay. Airbnb is a listed public company that is successfully working in around 220 countries, of which Paris, New York, and Tokyo to be the most favored destination among tourists of Airbnb. The company is successfully standing in the market, having its revenue to be around 3 billion dollars. Here, let’s know How Does Airbnb Make Money?
Airbnb was founded by Brian Chesky, Joe Gebbia, and NathanBlecharczyk in 2008. The brand Airbnb stands for Airbed and Breakfast, and it primarily helps those groups of people who have to book whole property, maybe a flat or a house, as hotels don’t make them feel connected to each other because of the limited number of guests per room. Since 2008 the company has been successfully running to date because of its superior business model. Airbnb made a model where the owner of the property that is a Host and traveler, both help generate revenue. The Host or the property owner partner with Airbnb by listing their beautiful homes on its platform. Each booking by a traveler from Airbnb creates income, and the commission is given to the Host.
Business Model of Airbnb
Airbnb became famous among tourists because it is cheaper than many hotels in the same localities. Hotels have to cover many expenses like staff charges, electricity charges, food staff, and many more, which is why the room’s cost increases. In contrast, Airbnb has eliminated all the charges and started a cost-cutting business model called the sharing economy model. The terms sharing economy, peer-to-peer economy, collaborative economy, and on-demand economy are often used interchangeably.
- Sharing economy
Sharing economy is a free and global market where companies and contractors set short-term professional relationships. For example, various companies have been using freelancers to work on a particular project for a fixed span. Using this model, the business can choose a versatile and affordable skill set for a short period. There are many examples of sharing economy, out of which some are:
- Peer to Peer Lending
- Crowdfunding
- Ridesharing
- Co-Working
- Freelancing
- Sharing Resource
Out of which, Airbnb comes under the example of the sharing resource economy. Airbnb doesn’t buy actual property; people lend their property to tourists who search for cheaper property, facilitated by the platform known as Airbnb. The company provides a platform where owners and tourists meet, which helps lenders earn money while giving their new property to verified tourists via a verified platform. In return, it provides a cheaper alternative for hotels. Airbnb makes money from tourists as well as the Host or owner of the property. This model helps everyone to earn and fulfill their requirements.
- Why do Renters prefer Airbnb?
Airbnb is preferred by renters not only because it is cheaper or affordable but also because the Host provides a complete property with beautiful locations. The most important reason is that the Host offers exclusive household amenities.
- Why does Host prefer Airbnb?
The Host prefers Airbnb because they don’t want to get into trouble talking to people or locals about lending the property for rent. They don’t have a verified system where they can keep a check on the renters. Airbnb provides the Host with verified customers and tackles all the financial and booking management systems.
Various Services Offered by Airbnb
Airbnb, apart from typically giving the platform for use, provides various other services as well. From the services, they generate revenue for the company. The services include:
- Airbnb Experience
The company introduced Airbnb Experience, a different sector than the original idea. The renters in the location can participate in various other activities like cooking, fun activities, meditation and yoga, musical instrument learning classes, adventure, and the list goes on and on. All the activities are hosted by the local experts primarily led by locals only; a group of others will also be united, making the activities more fun. Every activity has a specific cost. They charge a 20% service fee to provide their platform, support, and most importantly, the assurance of the people you enroll to use the Airbnb Experience. Airbnb itself book their fixed service fee once the booking is completed.
- Airbnb Collection
Airbnb generally consists of properties like specific numbers of rooms to be booked in the whole property. There are travelers, who rather than book rooms, are in search of the entire property. Airbnb collection is a segment of Airbnb where the properties are already highlighted for travel, occasions, and family holidays. Travelers can access the element either by the filter or by using Airbnb Collection separately. The collection provides facilities like renters choosing amenities as per their wish, as per the type of the trip
- Airbnb Plus
Airbnb Plus, as the name suggests, the experience and the comfort of the renters are the main things that are taken care of. The Airbnb Plus consists of high-quality stays with amazingly rated hosts. The plus badge verified properties go through an in-person quality and cleanliness checks by the Host itself. The cost of Airbnb plus for a Host goes around a non-refundable application fee of $149, and for the renter, the price goes around $250 for a single night.
- Airbnbmag
Airbnbmag, an abbreviation of Airbnb Magazine, results from the collaboration between Airbnb Inc. and Hearst Corp. They are the leading American multinational media and information company. The product helps travelers and renters to make them feel about the property and locality beforehand; for that, they introduced a guidebook and named the Airbnb added new product Airbnbmag. The magazine is a guidebook and helps the traveler see the place from the eyes of localities. Airbnb charges $15 for each magazine.
Revenue Generation of Airbnb
As per the statistics, Airbnb successfully pooled 2.9 million hosts worldwide to register with the company. They have 7 million property listings and in 100,000 cities. Such a vast business is running in 220 countries. The company could generate a profit of 3.5 billion dollars by 2020, which drastically decreased because of the Covid-19 pandemic. The impact was such immense that the whole tourism industry is still not able to recover from it. The primary way to make money for Airbnb is just by playing the role of the middleman. Various factors come into play while deciding how much money Airbnb will make?
- The average number of guest
The number of guests plays a vital role in generating revenue for the company. The year average number of guests hosted by the particular owner is calculated, which affects the rating of the Host and the property.
- Listing number
The more the number of listed properties in the Airbnb platform, the more the revenue is made by the company. This will attract more renters, and renters will have choices about their suitability.
- The average rent paid by the renters
The Host can change the rent, and Airbnb will reflect that on its platform. There will be rates at which no renters are interested in that property, and there will be rates that attract most customers. How much Airbnb will earn also depends on the average rent paid by the renters. If the average rent paid is good enough, then the commission deducted by Airbnb will also be more.
Freelancers working For Airbnb
Renters and Host are some of the most critical parts for working Airbnb successfully. Furthermore, the third category that helps Airbnb generate revenues is Freelancers. It is imperative to present the property so attractively that renters choose the property by seeing it once. For this, Airbnb has various Freelance photographers working for them. The photographers personally visit the sites uploaded on Airbnb and take high-definition snaps of the property. As the more attractive the property will look, there will be a high probability that the renter will visit the property on Airbnb. The idea not only helps Airbnb make money but also helps the freelancers by paying them the money.
Charges Paid By Host and Renters
Airbnb helps to connect hosts as well as the renters via their platform. For this, the company charges a fixed fee from both of them. From the Host, Airbnb charges approximately 10%, and an extra 3% is also deducted when processing the payment by the guest. Whereas from the renters, the non-refundable charge is around 14.2% of the property’s listed price. The percentage is not fixed and varies from country to country. On average, a non-refundable charge goes from 10-12%. This is the primary way for Airbnb to generate revenue.
Funding Received by Airbnb
Apart from money generated by services offered by the company, the second way Airbnb receives money for the growth and successful running of the company is funding. Airbnb launched in 2007, and it was in 2009 when they received their first funding of $20000 by Y combinators. Y Combinators are known as startup accelerators, who provide seed funding twice a year. The first funding boosted the company’s motivation, as investors started to see a future. In 2010, the second funding of 7.2 million dollars was from Sequoia Capital, SV Angel, Greylock Partners, and many more. In no time, the company gave profits to the investors and completed their one-millionth booking in 2011, and in that same year, they received their third funding of 112 million dollars. The amount continued to increase as neither the business was stopping nor the investors. The funding then increased to 475 million dollars and a whopping two financing in 2015, the first one in June, and they received 1.5 billion dollars. In December of the same year, they received more than 1.5 billion dollars, making funding of that year 3 billion dollars.
IPO of Airbnb
Airbnb is a listed company in NASDAQ, with a symbol of “ABNB,” they priced the IPO at $68 per share. The company went public on 10th December 2020, making a solid debut of $146 on the first trading day. The 112% market debut made Airbnb a company worth 86.5 billion dollars. The immense gain given by Airbnb is because of the trust and future which people and the investors have seen in the business model of Airbnb. Within no time, the company’s market capitalization surpassed the capitalization of famous hotel brands Marriott and Hilton. As the Covid-19 pandemic almost damaged the economy of hotels and tourism, the IPO became a lifesaver in the hard times for Airbnb.
Moreover, as the world is recovering from the pandemic, people have to switch to Airbnb rather than hotels. The reason is because of the private, neat, and clean spaces provided by Airbnb. The stock surged to $212.68 per share on 12th February 2021, making a profit of 212% in just a short period.
Country Generating Majority Business
Airbnb is currently running in more than 220 countries, but there are few countries where Airbnb is making most of its money. Few countries that have given significant business to Airbnb are:
- United States
- United Kingdom
- Spain
- Italy
- France
Out of which, the U.S is the country that helps Airbnb make most of the money. It alone gave revenue of 33.8 billion dollars to the company, followed by France and Spain.
Conclusion
Airbnb Inc. works on a unique economy, called the sharing economy. They have introduced services that no other platform was providing. They have managed to take advantage of technology to help renters and hosts generate money for them. The significant earning way for the company is to charge the commission. Airbnb is a company that has stepped into almost every country. After the pandemic was fading, the revenue for the company again started to grow.
Frequently Asked Questions
- What is the current valuation of Airbnb Inc.?
The valuation of the company is around 75 million dollars.
- Which is more affordable, Airbnb or Hotels?
Most of the time, Airbnb is not cheaper than hotels; many factors decide the price.
- Who are the significant revenue-generating assets for Airbnb?
Host, Renters, or travelers and Freelancers are the ones who help Airbnb run their revenue-generating model successfully.
