Staying at a stranger’s place sounds all sort of wrong. But Airbnb has made it seem super-convenient and an excellent idea. Airbnb is one of the largest accommodation-sharing sites in the lodging and hospitality industry. Need to make a business trip or just on vacation? Airbnb will find you just the right place to stay without any drawbacks. Airbnb works as a broker company between the visitor and the host. It does not own properties primarily but connects two parties at everyone’s best interest.
Airbnb was founded by Brian Chesky, Joe Gebbia, and Nate Blecharczyk in 2008 when the founders found themselves unable to pay rent. The idea of having a decent mattress to sleep on and a good home-cooked first meal (bed and breakfast) turned into a facility of 7million home listings around the world and an average of 2 million guests staying per night. With total 750 million and counting guests till now, Airbnb stands strong with an approximate net worth of $40 Billion. So, the very question remains, how are they making money?
Product and Services of Airbnb
The prior service of Airbnb is holiday-home listing. As a broker website, it offers a two-way service. Some other services and facilities, it provides, are mentioned down below:
- Free listing opportunity for the host
- Customizable search engine (Search by dates, location, price, properties etc.).
- Host preferred pricing.
- Safety and security assurance.
- Additional commodities and requirement requests.
- Available service of experience and restaurant
- Airbnb Plus facility for a luxurious stay and travel experience etc.
How Airbnb Makes Money?
The study, also known as the revenue model of Airbnb, shows different revenue streams of Airbnb.
According to the Airbnb website, the company accommodates in more than 220 countries and regions. It works in almost 1,00,000 cities and manages a count of 160 million+ visitors every year. Its yearly revenue stands to be around $8 billion. It is not unusual for a company, which is worth $40 Billion and has accommodated 750 million visitors over its time-span. But how are they making all this money? What is the strategy that gets them going? Well, we are here to answer that. We know the Airbnb company is a two-way, peer-to-peer business model company. They work as a broker between the host and the guest and get the negotiation done on the best terms for both parties. Therefore, it is clear which revenue model Airbnb is keen to. They follow the “COMMISSION” revenue model. Let’s get on and discuss Airbnb’s earnings stream.
Commission Revenue Model
Commission revenue model dictates that the company earns its revenue from charging a percentage on the value of the service rather than charging a fixed amount. This has turned out to be an effective revenue-generating method for the Airbnb company. As mentioned before, the company works as a broker between the guest and the host. So, Airbnb earns its commission from both parties as well, how they manage to do so is described down below.
Systematic Commission Charge from Hosts
Hosts or owners can list their properties on the Airbnb website for free. They earn a decent amount of money by renting through the Airbnb facility. Through the process, Airbnb cuts its share of the commission. For every booking made through the website, it charges a 10% commission from the destination host. When the acquired visitation is done, the company charges a 3% commission as a payment processing fee. This may not sound much. But more than 7 million destination listings on Airbnb Inc. So, compassion earned from hosts is a significant source of their revenue.
Transaction/booking fee from Guests
Visitors/guests can find a decent place to crash while they are traveling for work or vacation. Exploring options and choosing a destination on the website is free of cost. But they have to make a secured reservation with nonrefundable service money. So that even if they cancel under unfortunate events, the company does not have to bear tax losses and also make a profit off it. Airbnb charges the guests 5% and up to 15% service fee, depending on the size of the reservation. This is their major source of revenue. For the Airbnb Plus service, the charges are much more decorated.
Experience and Restaurant Charge
Airbnb.Inc company has reached incredible success in a very short time span. They always aimed for the next level, thinking when it comes to their services. So, they wanted to offer their customers something more than just a mattress to sleep on or a good morning feast. Thus, they included experience and restaurant facilities. They provide the guests “Experience” as in adventurous, fun, creative and attractive activities around the destination to enjoy. The service charged up to 20% service fees. The company always makes sure that they deliver quality service. So, the money is well earned. The same goes for restaurants. They lead them to quality restaurants to the guest to pay a visit for food, accommodation, and they charge a fee according to the service provided. This is a fair source of their earning as well
Exchange Currency Fee and Taxes
Value-added tax and exchange rates are two significant issues while traveling. Airbnb takes care of it while charging the guests and hosts without troubling them. The company determines the amount of value-added tax and exchange rate processing fee, as They do all the hefty processing work while the guests just enjoy their stay. They earn quite a bit from this source.
Summarization of Airbnb Revenue Model
In fine, we can say that they have a very concrete model of making money, which worked wonders for them. The site had proven Itself as a phenomenon in the tourism, hospitality and the lodging background. Even though Airbnb Inc., is a private limited company, they have held their ground firm as one of the largest accommodations sharing websites. They earn their revenue through the commission revenue model. They planned to become a public limited company in 2020 and release their shares in the stock market, but that plan took a pause when the rising pandemic hit. Their net worth had come down to around $18 Billion as the hospitality market has turned grey at the time. Even so, the company still has plans for a shining comeback in the future. There are years yet to come of their success.
Related: How Paypal Makes Money? & How Does LinkedIn Make Money?
Reference
- https://en.m.wikipedia.org/wiki/Airbnb
- https://news.airbnb.com/fast-facts/
- https://www.forbes.com/sites/greatspeculations/2018/05/11/as-a-rare-profitable-unicorn-airbnb-appears-to-be-worth-at-least-38-billion/amp/
- https://www.statista.com/statistics/339845/company-value-and-equity-funding-of-airbnb/
- https://spendmenot.com/airbnb-revenue/
- https://www.washingtonpost.com/news/get-there/wp/2015/07/24/the-many-unseen-costs-of-renting-out-your-home-through-sites-like-airbnb/
- https://amp.theguardian.com/technology/2020/apr/04/how-the-covid-19-crisis-locked-airbnb-out-of-its-own-homes
This is Tabassum Nusrat Soti and she is a content writer from Bangladesh. She has been a professional writer for over 5 years now. and she has been working with The Strategy Watch for over 3 years now.
Writing is Tabassum’s passion. Let it be SEO-efficient blog posts, analytical articles, reviews, news articles, or ghostwriting stories, she has worked and thrived in all sorts of writing. She has always had a way with words and intends to write for a prolonged unforeseeable future.
Currently, she is doing her honors (BBA) at the University of Dhaka. Majoring in the background of Tourism & Hospitality Management, she is a skilled and proactive third-year student. Her business studies background helps her write business analytic articles for The Strategy Watch. She will always keep learning and achieving new levels of content writing because of her passion for writing and creating words.