Business Unusual

Airbnb - The accommodation company that does not own any rooms

InterContinental is the largest hotel chain in the world with 710 000 rooms. It was founded in 1946, so it grew by about 10 000 rooms per year for every year it has been around.

Managing all those rooms prior to the web 2.0 without owning them would have been impossible.

Now if InterContinental had grown at the rate that Airbnb has been growing it would have almost 13 million rooms. The crazy thing is, Airbnb does not own a single room.

A reminder again of the three criteria that seem to cover all of the businesses that fit into the business unusual definition:

  • they look after a customer need rather than a business need first
  • they are able to beat the industry leader thanks to technological innovation
  • they create a market that has no or limited regulations as a result

You could also say that they often don’t appear to be in the business it appears they are in. Airbnb is a web platform for showcasing and managing recommendations and handling the booking and payment for accommodation; they are not in the traditional accommodation game at all.

Launched in 2008, they have reportedly over 1.5 million listings in 190 countries. There are 9400 listings in South Africa, making it the biggest on the continent.

The seven year old company is reportedly worth R350 billion.

It started when designers Joe Gebbia and Brian Chesky were short on rent and a design conference in San Francisco for Industrial Designers saw the city’s hotels jam packed.

Business for the hotels was good and when business is good you don’t worry about who can’t get a room.

But these two designers, not hoteliers did. They rented their own home and thought there must be thousands of others willing to do the same.

For three years after 2010 Chesky did not own a home, he simply rented via Airbnb as a way to keep experiencing their service for himself.

That is not to say it was an instant hit. Their official launch at SXSW Interactive in 2008 got two bookings and Chesky was one of them.

The rest though is history and they, like many other business profiled here, tap into two big trends:

  1. Ownership is becoming outdated for items you only need occasionally. This is the basis of the sharing economy and covers everything from cars to rooms, offices, software and increasingly such items as music and entertainment. The idea is not to buy these things anymore, but to just hire them for the time you need them.

  2. Ever improving web platforms that make sharing easier and more cost effective.

If there is an industry that can kick itself (and there are more than one) then the trusted newspaper publisher had the golden ticket all along and missed the opportunity of a lifetime when the internet launched.

Sharing news online was certainly a massive opportunity but reduced information to a low price commodity.

The low price commodity that newspapers should have used was overlooked and may have spared them the rapid decline in revenues - classifieds.

The original online version is Craigslist, which started in 1996. While companies like Airbnb are specialists they are effectively a classified listing for those with rooms to rent and for those looking to rent one.

Now that is a big story the newspapers missed.

Airbnb's income comes from fees charged to owners for bookings ranging from 6% to 12% of the accommodation cost with an additional 3% for credit processing.

They booked their 1 millionth booking in Feb 2011 (three years after their 1st launch) and the 5 millionth booking 11 months later.

The 10 millionth booking camefive months after that.

In 2015 alone that number is at 30 million.

In South Africa, the most expensive listing is for a 12 sleeper villa in Clovelly costing R97 000 per night.

A fairy tale it would seem, but criteria three of business unusual involves the law and Airbnb and services like it have faced their fair share of trouble.

First from outright bans for short term rentals and rentals in residential areas to dealing with renters that trash the homes they are staying in or hosts that don’t deliver what is promised.

South African hosts and renters don’t have much other than the rating to decide if the deal will be a good one and, before the issues are resolved, there is likely to bans and fines for transgressions while a more comprehensive set of rules can be drawn up to regulate the new industry.

There are about 20 competitors and Airbnb have acquired a good few of their competitors to help grow in new markets. It is about to make a move into one of the biggest markets there is - China.

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