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Airbnb Porter Five Forces Analysis

Founded in 2008 when two designers decided to share host of three travellers looking for a place to stay, now it has expanded and millions of hosts and travellers can choose to create a free Airbnb account so that they can list their space or book a unique accommodation anywhere across the globe. Basically, Airbnb has made it possible for hosts, travellers, and locals to share their experiences, passions, and interests. Besides, Airbnb maintains and verifies personal profiles, listings, and smart messaging system so that both hosts and clients can communicate in a smooth uninterrupted way around the clock.

With over 3 million lodging listings across the world, Airbnb offers a virtual marketplace for lodging and hospitality service that empowers individuals to lease or rent short term accommodation that may range from vacations, apartment rentals, hostel beds, homestays to hotel rooms.  Airbnb doesn’t own any properties but acts as a broker that receives percentage commission fees from both the guest and the hosts in conjunction with every booking.

Visitors can search for lodging services via a variety of filters that may include dates, lodging type, location, and price. Airbnb can be accessed through the Airbnb websites or mobile applications for iOS, Android and Apple Watch.

Airbnb App helps travellers to easily search for available properties by entering details about where and when they would like to travel. Besides, they can upgrade their search by:

  • Fee ‚Äď range from minimum to maximum
  • Size ‚Äď number of beds, bathrooms available
  • Room style ‚Äď whole place, joint room or secluded room
  • Amenities ‚Äď types of amenities available such as internet connection, pools, kitchen among others
  • Property type ‚Äď Kind of property they need such as houses and apartments
  • Host Language ‚Äď Can be French, Germany, and English, etc.

The main reason for Porter’s Five Forces Analysis on Airbnb is to determine the competitive advantage as well as the strategies it employs to reach more travellers. According to Porter, the competitive nature of the industry can be seen as a combination of five strengths:

  • Rivalry among existing competitors
  • The threat of new entries
  • The threat of Alternative products
  • Negotiating power of suppliers
  • Negotiating power of customers
  1. AirbnbPorter Five Forces Analysis: Rivalry among Existing Competitors

This is the greatest among Porter’s five competitive forces. If a firm pursues a strategy that provides a competitive advantage over the rivalry companies, it is going to be successful. Rivalry among existing companies that provide the same services as Airbnb is either moderate or low. There are many high-quality Airbnb competitors with excellent networks and websites that are similar to Airbnb websites.

Websites such as Expedia.com, Tripping.com, OneFineStay.com, and HomeAway.com are working around the clock to overthrow Airbnb from dominating the market. For instance, OneFineStay.com has inevitably caught the attention of Airbnb shareholders. This is a 5-year old London startup firm that has run as an upmarket Airbnb service while renting out some of the most expensive apartments and homes to tourists in major cities around the world whenever the owners are away.

Presently, it is operating in London, Paris, LA, and New York with more than 10,000 homes under its care. In fact, the houses found on its site are much classier than those found in Airbnb websites yet with regular charges on OneFineStay property being slightly $600 a night. Besides, OneFineStay washes each property before one settles and after they leave and also offers linen and skincare products like hotels do. The company also has the responsibility to market the properties on varies platforms.

It’s no doubt that OneFineStay is giving Airbnb a run for its money by expanding further into the market with the recent announcement of $40 million new funding from various top financiers. With more investment coming in from Intel Capital and Hyatt Hotels, OnaFineStay is said to be penetrating into the market in more than 100 capitals across the world.

­­­­­­­­­­­­­­­­To handle the threat from existing competitors, Airbnb has simplified its existing system in terms of tenants Airbnb lodging and accommodation provides in terms of payment ad booking. Even though there is still an issue whereby room providers are declared illegal for not remitting taxes as hotels do, Airbnb is hopeful that its customers will remain loyal.

  1. AirbnbPorter Five Forces Analysis: The Threat of New Entries

Often the threat of new entrants to the industry is dependent on the existing entry obstacles coupled with the reaction of existing competitors that can be foreseen by the fresh entrants. When the hurdle is large or if the new entrant assumes that it will face violent resistant from the existing companies, the threat of entry of new entries will certainly be low. The main sources of barriers for new entries include product differentiation, cost of changing suppliers, economies of scale, indirect costs, capital requirements, and access to distribution channels.

New entries to the business come along with new capacities and desire to gain market share hence putting pressure on costs, prices and the rate of investment that is viable to compete. If the threat of new entries is high, the existing companies have to hold their prices down or otherwise boost investment to discourage new competitors.

For Airbnb, the threat of new entries into the market is taken to be weak and flexible. In a nutshell, it’s like there are not many barriers to entry, therefore, any website can pop up and compete with Airbnb. Nonetheless, Airbnb has not only been around for more than ten years, but it is also well financed and runs in almost 200 countries across the world. For any new entrant that poses a serious threat, it has to first access millions of dollars to venture into this business as well come up with great branding equity to capture the needs and demands of various clients besides competing with Airbnb.

Besides, Airbnb has added an efficient mobile payment to ease transaction, hence wading off competition from new entrants. Moreover, it has refined the performance of its systems so that they are faster and appealing to the customers.

  1. AirbnbPorter Five Forces Analysis: Negotiating Power of Customers

Influential customers can capture more values by forcing the prices down while demanding for more services of better quality drives the costs up thereby playing the business participants off against one another. All this is done at the expense of the business profitability. Nonetheless, customers are powerful only if they have to negotiate leverage comparable to business participants, especially when they are price conscious or using their clout mainly to pressure price reduction.

The negotiation power of consumers higher if purchased is a standard product or not differentiated. Under these circumstances, buyers have an upper hand to bargain a sale price, warranty coverage, and accessory package up. Besides, buyers bid strength is greater when the bought product is standard or different.

In relation to Airbnb, the negotiating power of customers is currently high due to the broad range of services they can choose from such as location, price, and host ratings. Economic growth has played a role in improving the tourism and hospitality industry across the country. In comparison to other available options like hotels and motels, Airbnb is considered as a cheaper alternative for most travellers.

Even though clients have no platform of price negotiation of the apartments or rooms with the host on Airbnb website, they have an alternative of choosing from various prices and styles available thereby quickly deciding on the resident they will settle minus hurting their pockets.

  1. AirbnbPorter Five Forces Analysis: Negotiating Power of Suppliers

The negotiation power of suppliers can be a threat to a company like Airbnb that is getting input from suppliers in case of dependence on a single supplier which extends as time goes by. Suppliers are often used as negotiating power against industry players with the threat of raising prices or even reducing the quality of products or services bought.

As such, a stronger supplier can easily suppress the profitability to maintain pace with the increase in the cost. However, a supplier is powerful if;

  • It is concentrated than the industry it supplies to
  • The supplier does not entirely depend on the company for its revenues
  • Industry participants are faced with shifting costs in changing suppliers
  • No substitute for what the supplier group provides
  • The supplier provides inputs that are differentiated
  • The supplier can credibly threaten to integrate forward into the industry

In relation to Airbnb, the negotiating power of suppliers is negligible since it controls both the supplier and the clients. This makes it difficult for individuals trying to rent out their apartments or rooms with no other alternative way to connect with customers using the Airbnb website or App.

In Airbnb, the supplier is the host who provides an apartment or a room to travellers; they are the individuals that run the business. Since the hosts form the basic level they provide the potential customer services that are required. On its part, Airbnb works closely with the hosts so that they can avoid problems with the clients. Even though there is no comparable union for these suppliers to work together to place demands on Airbnb, Airbnb nonetheless, provides the hosts with the freedom to determine the condition to their customers while following specified regulations and brand principles.

The suppliers (host) can decide to alter the price depending on any particular situation. For instance, rents are special and often focus on unusual places for a high volume of visitors thus providing a wide range of prices for all types of travellers.

  1. AirbnbPorter Five Forces Analysis: The Threat of Alternative Products

Whenever there is a high threat from an alternative product, the industry profitability is on the receiving end. Alternative products or services serve to limit the industry’s profit potential by placing a lid on the prices. If for whatever reasons, Airbnb doesn‚Äôt distance itself from alternative products or services it is likely to suffer in terms of profitability and eventually growth potential.

To identify products or services of substitution is simply done by looking for products that deliver the same function as the products in the current industry. For instance, the alternative products in relation to Airbnb the alternative products include traditional hotel, B&B, hostel, and couch surfing. The alternative products put an upper limit on the price which can be set prior to consumers moving to replace the product. As such, the threat of alternative product can be measured by the market share that the product captures and the company’s plans to improve the capacity as well as market penetration.

The threat of alternative products is higher when or if:

  • the product offers attractive price-performance trade-off to the incumbent products
  • the customer‚Äôs cost of switching to the alternative is generally low

The alternative products that compete with Airbnb can be categorized into the following groups:

Hotels ‚Äď Airbnb considers these as the most competing products in the market that are growing at a much faster rate. Besides, they are readily available and well-known by most travellers to stay. Since Airbnb come to existence, the hotels have realized the shift in consumer preferences owing to the availability of the modern social-oriented products, homier settings, and even more functional applications.

In order to counter the growing nature of Airbnb, hotels have created and refined their portfolios by adding brands that are intended to look more enticing and appealing to millennial clients and those who prefer fewer services and more connectivity, be it technologically or shared space.

Hostels ‚Äď These are other alternative products that tend to be attractive for most backpackers travelling alone and prefer a better way to meet like-minded travellers. This is because hostels offer accommodations that provide an ample opportunity for social interactions in a communal setting. Besides, they are more youthful, inexpensive and offer an intimate vibe compared to a traditional hotel or apartment.

More often than not, hostels offer communal breakfast, weekend party occasions, and rooftop cinemas that create a charming setting to attract as many travellers as possible, especially those who would rather forego modern amenities like pools, exclusive room service and customer service that are mostly provided in other alternative products.

Couchsurfing ‚Äď Founded in 2004, this web platform provides hostess across the world to present their sofa or a place to stay for oversees persons free of charge. Supporting a global community of over 10 million people across over 200,000 capitals globally, it doesn’t have any standard listing since hosting is purely optional and voluntary. But why do budget travellers prefer couch surfing?

  • There is a possibility of getting free lodging all around the world
  • A visitor can prefer a host based on location which enables them to stay downtown as compared to a low-priced motel a stone throw away.
  • Most couch surfing individuals are interesting travellers who wish to teach and share life encounters with their host. It is this trait that makes their travelling even more exciting and may end up turning some of their hosts into long term friends.

It can be said that the threat of alternative products is pretty high since the switching costs are non-existence for individuals who use Airbnb. They can easily choose these alternatives without any consequences.

Moreover, Airbnb has continued to provide convenience and comfort to not only tenants but also the speciality providers. As such, Airbnb is confident that customers will continue using their favourite service providers- Airbnb.

Airbnb: Gaining Competitive Advantage in a Competitive Business Environment

The 21st-century development of industries is marked with increasing competition. Development of Airbnb is entirely driven by the information system in order to serve its customers better each day. Certainly, businesses that don’t develop with regarding information systems are gradually left in the dust by clients as they feel they are ineffective and less interactive. The marketplace provides so many comparable and virtually identical structures and services that can meet the ever-growing demands of clients.

Airbnb’s systems and operations have withstood the test of time even when it was declared bankrupt back in 2009. It has fairly managed to dust itself off and proved to survive through any tribulations and challenges that it encounters in the business world. The kind of services Airbnb offers were previously used by economical travellers who sought for low-cost places to stay whenever they toured a particular city. However, today most business travellers, as well as professionals, are visiting the Airbnb website for exclusive and unmatched memories.

Even though there are various specific hurdles associated with utilizing a standard economy system like Airbnb, it is no doubt that Airbnb is working towards mitigating them in order to continue enjoying a great online service experience.

Porter’s Five Forces is a simple yet powerful tool for businesses to understand the competitiveness of their business environment. With a better understanding of the competitiveness nature of the business, a business may take fair advantage of its strong position or improve on the weak points while avoiding taking the wrong strategies in the future. Certainly, Airbnb has taken good advantage of its strong position in its business niche while improving on the weak positions making its competitors a run for their money and space in the marketplace.