Essay on Airbnb

The hotel industry is a mature and saturated industry that generally requires firms to maintain substantial overhead (high fixed costs), substantial capital property, and brand reputation to successfully compete for fluctuating market shares. As a result, rivalry is high and there is little room for new entrants in the fiercely competitive and economically sensitive hotel industry. In some geographical locations, even suppliers can pinch firms in the hotel industry driving up cost and decreasing cost advantage. Consumers have gained some power in recent years by using online “best rate” websites on smart device apps such as “hotel tonight”. Effectively, capturing the required share of demand (to create economic profits) in the hotel industry is difficult at best. Until recently, substitutes in the hotel industry have been almost non-existent. Competing with the hoteling industry (as a substitute) without owning a chain of high cost hotels seemed impractical until three entrepreneurs introduced and established a disruptive concept call Airbnb (Air Bed & Breakfast). Airbnb has created a blue ocean market that enables almost anyone who owns sleeping space to become a competitor to hotels and traditional Bed and Breakfast establishments. Airbnb’s web based hoteling application enables customers (who double as suppliers) to rent (short term) privately owned sleeping space to anyone looking for an affordable place to sleep. The services provided generate revenue for Airbnb and their customers (a reported $500 million in transactions in 2011) by allowing them to rent (short term) otherwise vacant rooms, houses, sleeper couches, or anyplace a person can lay their head to sleep. Airbnb’s core competency is its ability to use technology to manage future customer’s property for rent and make it attractive and appealing to potential renters (guests). While listing a rental on their website is free, Airbnb charges a 3% fee to the property owners for all bookings and