The development of information and communication technology (ICT) and the formation of the platform market have created a new economic paradigm called a ‘sharing economy’ that shares personal possessions with others, Airbnb is one of the most representative examples (Kathan, Matzler, & Veider, 2016). Amid the topic of the fourth industrial revolution, in which offline ownership is “converged” with the online world, and people, objects, and spaces are “connected,” the size of the global shared economy market is estimated to grow from $15 billion in 2014 to $335 billion in 2025 (PwC, 2015). Therefore, a critical analysis will be derived from Airbnb’s transformative effect, which is part of the sharing economy, in the form of a breakaway from the traditional market structure following short-term rapid growth.
In this essay, the outline of brief descriptions of what Airbnb is will be addressed first, and the company’s history of development. Next, it will be analyzed of Airbnb’s business model as well as the Internet ecology that makes up Airbnb comes out. Lastly, in terms of politics and social, Airbnb’s transformative impact on our society will be addressed.
What is Airbnb?
Airbnb is a shared accommodation service launched in San Francisco in August 2008. Accommodation-sharing platform companies are contributing to the expansion of the market, overcoming limitations arising from inter-person transactions by engaging in various stages of transactions, as well as through the transfer of information between individuals (Gutentag, 2013). In other words, Airbnb works in the form of providing services in residential buildings rather than building facilities for the purpose of providing accommodation services in the existing accommodation industry, such as hotels, condos, and pensions, creating new markets and building disruptive innovations.
Among the various lodging-sharing companies present in the market, Airbnb has an unrivaled position, with unique content (services) such as uploads of eccentric spaces such as huts, shipboard houses, igloos, and conical tents being one of the main factors. In other words, the accommodation list they provide is not only used as a stage that reveals the individuality of the hosts but also provides travelers with the opportunity to have a new experience.
Furthermore, Airbnb also works as a community-based online platform. They set up the concept of ‘Connection‘ as one of the indicators created to reflect missions that allow anyone to feel a sense of belonging anywhere.
Connection reflects the meaning of the first visit between countries and regions, and the connection between hosts and guests through the Airbnb platform implies cultural exchange, unlike general accommodation use. Since they are communities where individuals with unique personalities gather around common values, all users in the community can accept, interpret, and experience these values in different ways while pursuing the common value of belonging.
Historical developments of Airbnb
The composition of Airbnb’s business ideas began with Joe Gebbia and Brian Chesky. In 2007, they got the idea at the annual International Design Conference in San Francisco, realizing that all rooms were booked. In February 2008, Chesky’s former roommate, Nathan Blecharczyk, became the third co-founder of a new venture, which named AirBed & Breakfast, as chief technology officer.
In the early stages of business, because it was in the form of renting a room, not an entire house, there was no big difference from the already existing markets such as Couchsurfing and Backpackers. Even Airbnb was introduced to the Wall Street Journal and TechCrunch in 2008, but it was time to improve their business model as the imports were too small to attract investors’ attention. Subsequently, following the advice of Paul Graham, Founder of start-up incubator “Y Combiner,” co-founders went to New York, where customers are located, meet customers in-person to gather feedback and learn.
As a result, it has been transformed from a room rental service with a landlord to a service that allows the entire house to be rented. They began to grow exponentially by providing services that allowed guests to live in houses that wanted to live or experience local life. Furthermore, competition between the hosts began to intensify in 2009 as the cumulative number of guests increased more than seven times a year (Guttentag, 2013). Expanding in parallel with the number of guests, Airbnb’s listings increased rapidly, “with a list of 50,000 at the end of 2010, 110,000 by the middle of 2011, 200,000 by the middle of 2012 and 300,000 by early 2013” (Guttentag, 2013, p. 1198). The lists are from 40,000 cities across all countries, with a quarter of the list being reserved records from the continental United States (Guttentag, 2013). “The proportional increase in international bookings cases represent the company’s apparent focus on worldwide expansion, which has included establishing offices in places like Paris, Sa˜o Paulo, and Moscow” (Guttentag, 2013, p. 1199). Today Airbnb is a huge company that offers accommodation in 191 countries.
Airbnb’s Business model
According to Bieger and Reinhold (2011), ‘The business model is a versatile management concept that describes how actors – such as entrepreneurs, business units, firms, or groups of businesses – create, capture, and disseminates value’ (p. 27). Airbnb is a “smart platform in a digital cloud-based business model” (Forgacs and Dimanche, 2016, p. 510) that utilizes peer-to-peer (P2P) network services, enabling connections between two distinct groups along with different characteristics. Interaction through the platform is attractive to users as it is easy to search, low transaction costs and two distinct groups (buyers and sellers) trade on the platform at the same time (Dolnicar, 2017). ” Airbnb business model as a peer-to-peer sharing eco-facilitators ” (Dolnicar, 2017, p.35), which creates constant value from the community and is a win-win situation in both directions. As Airbnb is “an exemplar of peer-to-peer sharing economy facilitator” (Dolnicar, 2017, p.35), it constantly generating value from the community and co-prosperity in both directions. Furthermore, in a two-sided market structure such as Airbnb, the higher the number of users in a particular server, the higher the value of the service and user.
Airbnb serves as a platform that connects two groups:
- generate profits while providing unused or underutilized space
- Experience the lives with locals at a lower price than existing accommodation such as hotels
In terms of Airbnb’s revenue structure, it serves as an intermediary for people to share their homes, and in the process, by connecting hosts and guests, they earn 6-12% of the booking service brokerage fee per case.
- 6- 12 percent of service brokerage fees will be collected from guests on a reservation basis, which will be used to operate Airbnb sites and provide customer service.
- The host sides also pay Airbnb 3% service fees to cover expenses incurred in depositing the user’s payment to the host and deducts from the payment. The cost of an agreement with an insurance company for the safety of both hosts and guests can be a foundation for higher revenue in the future.
Airbnb’s Internet Ecology
As ecology means the interconnection between the cycle of life and everything in the natural world, internet ecology reflects the interaction that the systems built on information technology engage in communities that work together and support each other. Airbnb’s Internet ecology, a smart platform formed on a digital cloud basis, includes users, suppliers, owners, regulators, partners, and competitors.
The diagram below shows Airbnb’s Internet Ecology:
Airbnb’s Transformative Impact on Society
Airbnb, a short-term lodging rental site, is threatened with risks and legal problems due to conflicting information. In essence, there is an argument that the production of goods and services that are not covered up or regulated by public institutions from Airbnb enables illegal rental activities as ‘unofficial parts’ (Gutentag, 2013). According to New South Wales (NSW) parliamentary inquiry, “only 12 NSW councils currently have rules allowing homeowners to lease their properties for short-term stays through web sites through space other than designated places” (Vukovic, 2016). However, many illegal cases are found under the current law of earning profits through short-term leases without special permission. Moreover, in order for the owner to legally rent an apartment for a short period of time, they must reside in the property and pay a tourism tax if they rent a house during their vacation. However, there are many cases where several hosts in Airbnb are found to be illegal without following residential guidelines.
As covered in the Business Model section, Airbnb relies on a P2P structure for its apparent front-end interface. However, the matching method (P2P connection) of hosts and guests and pricing accommodations are operated centralizing. The concentration of the control systems results in the fixation of the discriminatory structure of economic benefits or negative consequences of social discrimination through algorithms.
Airbnb was embroiled in a controversy over racial discrimination when a paper written by Edelman and Luca from Harvard Business School, published in 2014, was officially released. The two scholars proved through empirical analysis that Airbnb’s ranking algorithm is differentiating black people in many ways. They argue that when black hosts provide rooms, they set or offer a lower price, while black travelers who visit the rooms charge higher prices. To prove these facts, the two researchers analyzed 6,400 messages obtained by running 20 accounts (Edelman & Luca, 2014).
- Research Method:
- Of the 20 accounts, half were created by non-black names, and the other half by black names.
As a result, with a difference of approximately 8%, the account of the non-black name obtained 50% accommodation approval, but the black name account obtained 42% (Edelman & Luca, 2014). In other words, the operating system of Airbnb appears to enable hosts and guests to order, accept and reject accommodation requests in a discriminatory manner against race and sexual orientation by evaluating each other’s digital profiles (Cheng & Foley, 2018). Therefore, Edelman and Luca point out that algorithms based on the decision-making process can “inherit previous decision-makers’ prejudices and may simply reflect the widespread biases that persist in society at large that contain preexisting patterns of exclusion and inequality” (Barocas and Selbst, 2016, p. 671).
The scalability of the platform is infinite. Airbnb is expanding its field by offering a variety of travel packages to experience the local culture, including sports, art, and food, beyond its role as a broker for accommodation. Innovative technologies that will support its scalability are also advancing. However, once the responsibility of the platform itself is established, the value of sharing based on trust will be able to grow together. It can also be expected that if efforts to accurately understand the dynamic nature of the platform and institutional support are in place to match the changing social trends, a new order will be created for the establishment of a secure system worldwide as well as the increasingly ambiguous technology market on the border.
Airbnb Outlines New Policies to Combat Racism Accusations. (2016). Retrieved November 23, 2020, from YouTube website: https://youtu.be/bDOzfXCxe-8
Airbnb, The Unique Airbnb Fund. (2020, March 10). The Unique Airbnb Fund | Only On | Airbnb. Retrieved November 23, 2020, from YouTube website: https://youtu.be/xVn4oGvr9qI
Airbnb, What is Airbnb? (2014, November 24). What is Airbnb? | Travel Tips | Airbnb. Retrieved November 23, 2020, from YouTube website: https://youtu.be/dA2F0qScxrI
Barocas, S., & Selbst, A. D. (2016). Big Data’s Disparate Impact. SSRN Electronic Journal, 104(3). https://doi.org/10.2139/ssrn.2477899
Cheng, M., & Foley, C. (2018). The sharing economy and digital discrimination: The case of Airbnb. International Journal of Hospitality Management, 70, 95–98. https://doi.org/10.1016/j.ijhm.2017.11.002
Dolnicar, S. (2017). Peer-to-Peer Accommodation Networks. https://doi.org/10.23912/9781911396512-3454
Edelman, B. G., & Luca, M. (2014, January 10). Digital Discrimination: The Case of Airbnb.com. Retrieved November 22, 2020, from papers.ssrn.com website: https://ssrn.com/abstract=2377353
Forgacs, G., & Dimanche, F. (2016). Revenue challenges for hotels in the sharing economy: facing the Airbnb menace. Journal of Revenue and Pricing Management, 15(6), 509–515. https://doi.org/10.1057/s41272-016-0071-z
Guttentag, D. (2013). Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector. Current Issues in Tourism, 18(12), 1192–1217. https://doi.org/10.1080/13683500.2013.827159
Kathan, W., Matzler, K., & Veider, V. (2016). The sharing economy: Your business model’s friend or foe? Business Horizons, 59(6), 663–672. https://doi.org/10.1016/j.bushor.2016.06.006
Reinhold, S., & Dolnicar, S. (2017). The Business Model. Peer-to-Peer Accommodation Networks. https://doi.org/10.23912/9781911396512-3601
so. (2017, August 4). Airbnb Business Model : What makes Airbnb so successful? Retrieved from YouTube website: https://youtu.be/WzGhFmiB9G0
The Rise of Airbnb: From Airbeds to Billions. (2011). Retrieved November 23, 2020, from YouTube website: https://youtu.be/1Tc9YScMtN8
Vukovic, D. (2016, October 16). Airbnb set to benefit from calls for streamlining short-term home letting rules. Retrieved November 23, 2020, from www.abc.net.au website: https://www.abc.net.au/news/2016-10-16/inquiry-finds-nsw-homeowners-should-be-allowed-to-lease-rooms/7936984
해외광고] Airbnb – Belong anywhere. (2019, December 11). [해외광고] Airbnb – Belong anywhere. Retrieved November 23, 2020, from YouTube website: https://youtu.be/pYZJlZJYcmQ