There was a time when holiday travel was out of reach for many people, mainly due to the exorbitant costs involved. But today, technology has mobilized mass travel in surprising ways. One tech company responsible for this massive shift is Airbnb.
Its business model has fueled the sharing economy, the success of which it banked on to drive business growth. And this strategy has delivered phenomenal results for not just Airbnb but also travelers seeking affordable lodging.
But Airbnb didn’t just change global travel. Its impact has far broader effects. Out of these, its role as a critical catalyst to mobilize local economies certainly demands a more in-depth look.
Airbnb: how it all started.
In 2007, two friends, Brian Chesky and Joe Gebbia, had no money to meet the next rent payment of their San Francisco apartment. Meanwhile, a design conference happening that weekend had filled up all the local hotels. So, Brian and Joe inflated three airbeds and offered their first Airbed & Breakfast to guests from out of town.
It sparked an idea that could help tackle two distinct problems: hotel accommodation was expensive for most travelers, and living expenses were high for many ordinary homeowners. So, Brain and Joe came up with a new way of lodging centered on the sharing economy. Soon, Nathan Blecharczyk joined the duo, and they set to work on Airbnb, which officially came into being in 2008.
The early days were a struggle for the three young founders who were testing a revolutionary business model. Airbnb was severely cash-strapped and was turned down by several investors who didn’t see much in the novel accommodation sharing concept. Undoubtedly, there was much to be figured out as the trio navigated unchartered territory. And they had to take extraordinary measures at times to keep the company afloat. Once, they even sold $40 cereal boxes to make ends meet.
But their days of selling cereal to raise funds were soon over. Airbnb started gaining traction as more hosts joined in and travelers found value in the peer-to-peer accommodation options. It mobilized budget travelers to explore new cities and countries while keeping their lodging costs low. Airbnb sparked affordable travel and took the very definition of accommodation beyond the standard, often expensive, hotel room.
But the impact of Airbnb’s business model is much broader than this. The company has become a catalyst of local economies, too, and has challenged local industries to rethink how they organize and do business.
Mobilizing local economies
Airbnb is essentially a technology business. It owns no property assets. Instead, it has digital platforms and tools that connect travelers with hosts. Today, it powers 4 million hosts in more than 220 countries, who have welcomed over 900 million guests so far.
But it’s no longer about home-sharing. The company caters to all kinds of accommodation needs, from apartments and entire homes to boathouses and even villas. Airbnb Plus includes in-person quality checks, thoughtful aesthetics, and consistent amenities for travelers seeking specific lodging standards.
It also caters to luxury travelers with Airbnb Lux, which offers uniquely designed homes, luxury amenities, personal trip designers, and tailored services like personal chefs and masseurs. The company has even become popular among business travelers.
But Airbnb is not all about enabling greater freedom to travel. Today, it’s disrupting local economies as a driving force of change.
Providing extra income
Needless to say, Airbnb has made it easier for hosts to rent out their properties. But more importantly, it’s created an income stream for those looking for extra cash. These are the students, single mothers, retirees, those who’ve lost their jobs, and low-income families that struggle every day to cover their monthly expenses. They can now rent out a spare room on Airbnb’s digital platform and earn a supplementary income.
According to one independent survey, most homeowners consider renting out their homes a lucrative proposition. For 82%, it’s a prudent way to earn an income from their property. This comes hardly a surprise when you consider the over $110 billion Airbnb hosts have made so far through the platform. That’s an average yearly earning of around $9,600. Of course, these hosts may not be able to charge high prices as hotels do. But Airbnb visitors certainly seem to stay longer. In New York, for instance, they spend 6.4 nights on average compared with the 3.9 days of hotel guests.
The company also offers a Host Guarantee and Host Protection Insurance to protect homeowners against any property damage or legal responsibilities in the event of a guest injury. These have helped ease any apprehensions hosts may have about inviting strangers to their homes. The result is increased participation to earn an additional income.
In addition, the company offers several options to help hosts boost their earnings. For instance, with Airbnb Plus, homeowners can charge a higher price by upgrading the standards and amenities of their properties. And with Airbnb Experiences, they could offer unique activities like a culture tour or local cooking and earn some extra cash.
Airbnb is also allowing local hosts to become part of national events of economic importance. For example, the company has signed a 9-year partnership with the Olympics Committee to provide guaranteed accommodation for its events. Such efforts will create earning opportunities for local residents who were previously left out.
Supporting local industry growth
Hotel guests typically spend their time at tourist hotspots nearby their hotels. But Airbnb is directing travelers to local neighborhoods with its home-sharing accommodation. And on average, 41% of the spending of these guests is going into the neighborhoods they are staying in. This has opened up new revenue streams for local businesses like restaurants, pubs, groceries, and retail shops located outside the traditional tourist districts.
Hosts play a key role in this shift. For instance, studies show that 92% of Airbnb hosts have recommended local restaurants and cafes to guests. And according to the company, their guests stay longer, too, and spend more on local industries than the typical hotel guest. For example, an Airbnb visitor to New York spends $880 at NYC businesses, whereas this figure amounted to just $690 for the traditional hotel guest.
This is a much-welcomed change for local businesses to become part of a growing travel sector.
Social support through crisis response
In 2012, Hurricane Sandy left many people homeless. So, Airbnb partnered with New York City to connect displaced residents with hosts willing to offer free lodging.
It did the same during COVID-19. In March 2020, Airbnb launched the Frontline Stay program, which allowed medical professionals, relief workers, and other first-responders to find free and subsidized accommodation through its platform. And one year later, it had provided 225,000 such lodgings all over the world. The company also introduced Airbnb Online Experiences—a live virtual event facility for homeowners facing financial hardships during the pandemic. It has enabled hosts to earn some extra cash until they could open up their homes for guests.
These initiatives have undoubtedly enabled local residents to get back on their feet faster and resume economic activities. But they have eased the workload and financial stress on local governments, too, particularly during times of crisis.
The Airbnb effect
The rapid expansion of Airbnb has disrupted local economies for both good and bad. So, while many have enjoyed its benefits, there are some who have experienced its adverse effects.
The hotel industry is perhaps the worst hit. Airbnb has provided technological tools and market access for ordinary homeowners to compete with hotel behemoths. It’s also forcing guests to re-evaluate their preferences. And today, for 60% of leisure travelers who have used both hotels and Airbnb lodgings, the latter has become the preferred choice. They no longer seem to care for the frills that come with a hotel stay. Instead, they’re placing greater value on affordability.
But it’s not all about price, either: Some travelers are booking villas and luxury homes on Airbnb’s platform. Clearly, the experience seems to count, too. At the end of the day, all these points to one thing: traveler expectations are changing fast and hotels must rethink their offerings if they want to remain in business.
Another industry Airbnb has disrupted is housing. Many homeowners find short-term bookings far more lucrative than renting out to long-stay tenants. In Manhattan’s Lower East Side, for instance, Airbnb full-time listings are generating two to three times the income of long-term stays. This has made long-term rentals hard to find and more expensive.
In certain neighborhoods in Spain, for example, this Airbnb effect has driven rents up by as much as 50%. It’s also leaving fewer homes for sale as landlords delist their properties and put them up for short-let instead. And this is driving up housing prices. Then in some cities, an increase in budget travelers is affecting the quality of life in residential neighborhoods: Short-term visitors are causing more noise and have less regard for keeping streets clean. As a result, local residents are moving out in search of more affordable and peaceful areas.
And home-sharing is posing issues for local governments, too, especially when it comes to regulating short-term lodgings and collecting taxes. They’re losing valuable tax revenue that they could have otherwise earned through hotels. But enforcing a workable tax regime for a new breed of Airbnb-style hosts is no easy task.
Undeniably, there’s much to figure out. But the fact that a technology business could drive this much economic disruption, for both good and bad, is certainly remarkable.
No doubt, a workable model that could benefit all stakeholders is essential. But when done right, business could be good for consumers, local citizens, industries, and governments.
Airbnb’s tie-up with the 2016 Rio Olympics is a good case in point. When a lack of hotel infrastructure threatened Rio’s ability to host 380,000 visiting spectators, Airbnb became an apt solution to welcome guests with authentic Brazilian hospitality. In the end, it was a win for everyone: for guests, hosts, local communities, and the city.
(Image courtesy: Airbnb)
