Revenue and Profit Drivers

In airbnb
• How is the firm likely to generate revenue through this
innovation?

Airbnb with listings in over 65,000 cities spread out in more than 191
countries, Airbnb’s reputation and revenues have rapidly grown. The
primary source of Airbnb’s revenue comes from service fees from
bookings. Depending on the size of the reservation, guests are required
to pay a 6-12% non-refundable service fee. A more expensive
reservation will result in lower service fees for guests. Airbnb reasons
that families or groups with larger reservations can save money for
other travel expenses. With every completed booking, hosts are also
charged a 3% fee to cover processing of guests payments. When a
reservation is booked, guests pay the service fee unless the host
cancels or retracts the listing. If the reservation is altered, Airbnb adjusts
service fees to accommodate users.

• What is the basis of its profitability?

With lodging more accessible than ever thanks to mobile computing, the
sharing economy continues to expand rapidly. Airbnb have taken
advantage of technological innovations to create platforms that connect
individuals to exchange everyday needs. Airbnb doesn't own any
property and doesnt have overhead of maintaining these properties.
There is no risk of loss, if a few properties are not rented out.
Airbnb doesn't offer goods or services to the individual. Instead, its
platform connects individuals who want to transact business with each
other. Due to a large number of bookings, Airbnb’s revenue continues to
grow while only charging a minimal service fee.

As per the reports available for 2017, Airbnb made profit of close to
$100 million.
 Nature of the Innovation
• What is the likelihood that this innovation will be
successful?

• Will it have a disruptive effect on the industry? If so, how

will the disruption occur?

Companies like Airbnb in the sharing economy don't provide individuals

directly with goods and services, but make their money by connecting
buyers and sellers. This model has the potential for continued revenue
growth.

Airbnb started as low-end disruptor, providing cheap and basic

alternative to hotels. Initially it wasn't noticed at all by the Hotel industry
as it wasn't targeting the customers staying in high end hotels. But with
time, they kept on adding features and growing the user base.

Recently they have under scanner of lawmakers, and especially the

hotel industry, have been concerned that long-term rental units are
being converted into de facto hotels — thus driving prices in the rental
market and increasing competition for hotels. The $1.1 trillion hotel
industry has an annual budget of $5.6 million dedicated to lobbying. In
2016, the American Hotel and Lodging Association presented a
“multipronged, national campaign approach at the local, state and
federal level,” according to the New York Times, and effectively
declared war on Airbnb.