Today’s blog post will be a little bit different! We wanted to showcase some of our case study research and writing skills. Here’s an analysis that Steff conducted on Airbnb a few months ago. If you want us to conduct a case study on your brand or business, feel free to contact us via any of our listed platforms.
The purpose of this report is to critically analyse and evaluate Airbnb using strategic management principles. The specific objectives include analysing Airbnb’s mission statement using Sufi and Lyons’ (2003) nine components, using the growth-share matrix to assess the company’s corporate level strategy, using Porter’s (1986) strategies framework to identify and assess Airbnb’s generic business strategy and undertaking a SWOT analysis to assess the threats and opportunities of Airbnb in order to provide recommendations for strategic improvement. The report commences by looking into the vision, mission and culture of Airbnb, followed by identification and discussion of the organisation’s strategy. This will include the corporate level strategy, generic business level strategy and an analysis of the organisation’s threats and opportunities. Next, an analysis of the organisational core/distinctive competencies will be conducted, including how Airbnb builds value. To conclude, a summary of the report will be given, along with the advantages and disadvantages of Airbnb’s business strategy as well as recommendations to the CEO for future improvement.
1.1 Airbnb organisational background
Airbnb is a short-term property rental marketplace (Case-8, 2019). Users/guests can make their bookings through the Airbnb website or app, ranging from room rentals to entire homes (Zervas et al., 2017, cited by Case-8, 2019). Prospective guests can filter search results on the Airbnb website or app according to attributes such as destination, dates, size and cost (Guttentag & Smith, 2017, cited by Case-8, 2019). The idea for Airbnb came from two university graduates who had converted their house into an ‘Air Bed and Breakfast’ by offering short-term stays on mattresses where accommodation was scarce. Since its conception, Airbnb has allowed listings in over 81,000 cities spanning 191 countries (Case-8, 2019).
2.0 Vision, mission and culture of the organisation
2.1 Vision and mission statements
The vision and mission statements serve as the foundation upon which organisational values, strategy, targets, objectives, evaluations and outcomes can be built (Kaplan & Norton, 2004). While the vision of an organisation serves to provide a realistic, credible and attractive view of the future of the organisation, the mission conveys the organisation’s purpose (Taiwo et al., 2016). The vision statement provides guidance and inspiration to internal stakeholders such as employees and suppliers (Taiwo et al., 2016). On the other hand, a mission statement communicates to customers what the organisation does, who it does it for and how it does what it does.
Airbnb’s vision statement is “belong anywhere”, which implicates that the company seeks to go beyond the geographical limitations in relation to providing services for guests (Chesky, 2017). Moreover, this statement hints at global presence and domination; a reflection of the organisation’s leadership potential within the hospitality and tourism industry. Two components can be extracted from this vision statement, namely belonging and international presence. The organisation has succeeded in establishing a worldwide network interlinking hosts and service providers for overarching purpose of providing customers with the feeling that they belong (Oskam & Boswijk, 2016). Furthermore, the management of the organisation acknowledges the significance of implementing consistent values and principles in all of its geographical markets (Oskam & Boswijk, 2016). In doing so, the organisation has been successful in creating a diverse global community with distinctive Airbnb characteristics.
Airbnb’s mission statement is “to live in the world where one day you can feel like you’re home anywhere and not in a home, but truly home, where you belong” (Chesky, 2017). Table 1 below shows an analysis of Airbnb’s mission statement
2.2 Organisational culture
Airbnb’s founders recognised from the outset the importance of a “strong and supportive culture” (Case-8, 2019, p. 742). The organisational culture is built upon the core values statement, “champion the mission, be a host, simplify, every frame matters, be a ‘cereal’ entrepreneur and embrace the adventure”. As can be inferred by these values, Airbnb has a clan culture. Deeply connected with the organisational culture are the values which underpin the mission and vision statements, namely belonging (Culture Amp, 2015). The organisation’s commitment to these values are strengthened by its founders who, until 2013, interviewed every prospective employee (Case-8, 2019). Nowadays, it remains the case that applicants must undergo a ‘core values’ interview wherein they are assessed according to their compatibility with the organisational culture (Economist, 2017, cited by Case-8, 2019).
As Levy (reported by Culture Amp, 2015) states, the organisation is committed to its belief in transparent, two-way communication within the organisation. The Air-Family holds bi-weekly meetings with its global staff through live stream, where everyone is encouraged to ask questions, contribute thoughts and ideas (Culture Amp, 2015). This is a feature of the clan culture which orients toward collaboration and focuses on flexibility as well as internal maintenance (Yazici, 2011). In addition, the company has a “ground control” group which purports to bring the culture to life. The team overlooks the workplace environment, internal communications, employee rewards and company events (Culture Amp, 2015). This demonstrates the thoughtful and caring culture that Airbnb aims to foster by paying attention to employees in a way that is culturally relevant. In this aspect, Airbnb acts consistently with the corporate social responsibility theory of a healthy organisational culture (Rishi & Moghe, 2013). As a result, it is evident that Airbnb’s workplace culture is integral to the company’s success. In particular, researchers have found a variety of positive implications relating to clan culture including increased workplace engagement (Reis et al., 2016), job satisfaction (Lund, 2003), commitment to the organisation (Kim, 2013) and positive organisational growth through leveraging human capital (Pandey, 2019). Overall, clan culture has positive implications on the organisation’s growth and future success.
3.0 Strategy identification and discussion
3.1 Corporate level strategy
According to Hill and colleagues (2007) three levels of strategy, the corporate level strategy is the topmost, involving the strategic decision-making and conduct pertaining to organisational objectives. These may include acquisitions, resource allocations and strategy coordination (Hill et al., 2007). At the corporate level, strategy concerns direction, portfolio and parenting. The three strategies under direction include growth, stability and retrenchment. From Case-8 (2019), it can be seen that the growth strategy underpins Airbnb’s direction, in particular, horizontal growth. This strategy is adopted when the organisation’s perceptions of resource availability and financial performance are high. As Case-8 (2019) explains, Airbnb has continuously expanded into new geographical areas as the organisation appears to be evolving from mere accommodation-sharing into a comprehensive travel and tourism company (Case-8, 2019). Additionally, Airbnb recently began partnering with companies such as Hyundai and Domino’s Pizza for its entry into the business travellers’ markets (Case-8, 2019). Moreover, Airbnb showed intentions to target more wealthy travellers in 2017 as evidenced by its purchase of Luxury Retreats and other transactions of expensive luxury urban and resort properties (Case-8, 2019).
Growth can be further categorised into diversification and concentration (Iocobucci & Rosa, 2005). While the former involves adding new markets, products or services to the existing business, the latter focuses on a single industry. As evidenced by the Case-8 (2019), the long-term vision of Airbnb is to eventually evolve from accommodation into a comprehensive travel organisation. Thus, the long-term growth strategy is one of diversification. However, the short- and medium-term plans involve merely expanding market share within the non-hotel accommodation industry as demonstrated through Airbnb’s portfolio expansion. Hence, the short- and medium-term growth of Airbnb follow the concentration strategy.
Applying the growth-share matrix (Henderson, 1970), Airbnb’s short-term rental business can be labelled ‘star’ which has high market share and market growth. On the other hand, Airbnb’s new portfolio additions, Luxury Retreats and the new luxury properties are ‘question marks’, meaning that the organisation has not yet decided what to do yet. Case-8 (2019) also mentions its other tourism and travel booking options which can be labelled as ‘dogs’ as they make up marginal profits and are currently weak within its market.
3.2 Generic business level strategy
Porter’s (1985) generic strategies framework categorises the different business level strategies that organisation utilises to gain competitive advantage. This framework is illustrated below in Figure 1.
Figure 1:Porter’s (1985) generic business level strategies.
Because the company does not cater specifically to niche markets within the industry, the ‘focus’ strategy can be ruled out (Porter, 1985). Airbnb follows both a differentiation strategy and cost leadership strategy. The cost leadership strategy establishes competitive advantage by undercutting the prices of competitors (Porter, 1985). As stated in Case-8 (2019), the low costs of Airbnb are beginning to worry hotels. In comparison to hotels which have high operating fees, Airbnb has low costs associated with providing accommodation, allowing it to provide guests with quality rooms at low prices. On the other hand, Airbnb’s differentiation approach is executed by providing consumers with a novel, distinctive way of booking accommodation (Porter, 1985). In doing so, the organisation can effectively create brand loyalty in consumers if it maintains the perceived quality of its service.
3.3 Threats and opportunities
Along with other successful tech start-up companies, Airbnb is often termed a ‘disruptor’. The disruptive innovation theory was conceptualised and popularised by Christensen (1997). Under Christensen’s (1997) theory, a disruptive product is one that transforms an entire market, oftentimes to the degree which destroys previous market leaders. A disruptive product may underperform in the beginning in relation to the prevailing products’ key performance features, but are beneficial in other ways, such as low-cost, conveniency or simplicity (Guttentag, 2015, cited by Case-8, 2019). Consequently, the new product targets the lower end of the market or creates new markets which have restricted growth and profit opportunities. Larger companies are initially quick to dismiss disruptors as they are content in dedicating themselves to larger, more profitable markets. However, they continue with minimal product improvements whilst disruptors continuously improve over time, attracting an increase in customers (Christensen, 1997).
Applying this theory to Airbnb, it can be seen that the existing hotels and motels have traditionally dismissed Airbnb as a threat. An explanation for this is that Airbnb generally cannot match the service experience or professionalism that hotels and motels provide. Moreover, Airbnb has highlighted that it is not a hotel and that it can coexist with them. As such, Airbnb implies that its operation is merely to expand the overall demand for accommodation rather than directly taking market share from hotels (Gallagher, 2017, cited by Case-8, 2019). As Airbnb continues to expand, the organisation’s risk management has become increasingly complex. At the same time, competitors have placed Airbnb’s activities under increased scrutiny (Case-8, 2019). At the same time, there are also opportunities for the organisation to enter into the luxury, high-end markets and the case study demonstrates that Airbnb is currently diving into this, with its investments in Luxury Retreats and expansion of expensive luxury resort properties. However, there is a threat here that the organisation might alienate its existing core travellers.
Where competitors are of relatively equal size, there materialises a risk of intense competition as one competitor seeks to gain dominance over the other (Porter, 1985). However, Airbnb has indicated that it does not intend to compete with hotels but rather coexist. Nonetheless, it cannot be dismissed that Airbnb is slowly driving demand for hotels down. As reported by Gerdeman (2018), in the cities where Airbnb has the largest market share in the United States, hotel bookings have decreased by 1.3 percent and accordingly, hotel revenue has decreased by 1.5 percent. In retaliation, hoteliers such as Mariott, Hyatt and Wyndham have diversified their chains in response to Uber’s effect on the industry (Case-8, 2019). Furthermore, where there is little to no differentiation in markets, it’s easy for consumers to switch between competitors which increases rivalry (Johnson et al., 2008). However, Airbnb distinguishes itself from hotels through offering home-line accommodations, convenience and exclusive supply which provide it with competitive advantage (Case-8, 2019).
While Airbnb might currently lose out to hotels in terms of service and facilities, Airbnb offers alternative benefits such as convenience and cost savings. Accordingly, Airbnb has contributed to the significant decrease in the popularity of hotels and motels, and those that remain are forced to continuously innovate in order to retain their target markets (Gerdeman, 2018). In this aspect, there has been increase competition by resourceful and knowledgeable competitors. In particular, US-based companies such as TripAdvisor, HomeAway and Booking Holdings pose the most significant threat, having acquired and steadily increasing their non-hotel accommodations (Case-8, 2019). Another significant threat to Airbnb is increased legislative restriction on its activities (Case-8, 2019). Opposition to the organisation is particularly prevalent in large cities with limited access to affordable housing (Case-8, 2019). Already, large cities with previously huge growth potential for Airbnb such as Barcelona and New York have legislated to make short-term rentals difficult. For example, New York now outlaws short-terms rentals without permits unless the host is present (Case-8, 2019). Moreover, market leaders in the hotel industry are becoming increasingly technologically innovative, with the implementation of new infrastructure which supports faster Wi-Fi, smart technology and even robots (Morgan, 2020). Combined, these increase the threat of substitution of Airbnb for competitors.
4.0 Analysis of organisational competencies
4.1 Core/distinctive competencies
A competency is any activity that a business does successfully (Mooney, 2007). Organisations develop competence through skill building and experience which is translated into proficiency in its internal performance (Garvin, 1993). Competencies can be categorised as either ‘core’ or ‘distinctive’. The former is a capability that is central to an organisation’s value-generating activities (Mooney, 2007). The latter is a capability that customers can see and perceive as superior to the competencies of other firms (Mooney, 2007). When an organisation possesses many distinctive competencies, these can be transformed into competitive advantage, allowing it to be more profitable or increase market share.
In order to determine the sustainability of an organisation’s competencies, they must meet the VRIN test criteria (Massingham, 2019, p. 418): 1) valuable; 2) rare; 3) inimitability; and 4) non-substitutable. Applying the VRIN criteria to Airbnb, the organisation entered into the non-hotel accommodation market with a business model unlike any other. Its low cost, efficiency and focus on belonging are central to the organisation’s strategy, mission, visions and values. Having the advantage of first mover advantage, its recognition and popularity make it something that rivals lack. Moreover, due to it being the company that disrupted the industry, it has received global recognition (Case-8, 2019). This level of brand recognition and unique focus on belonging makes it a core competency which is difficult for competitors to imitate. As Airbnb continues to expand and capture a wider travel and tourism market share, the organisation will be increasingly protected against the threat of substitution.
4.2 Value-building
Airbnb builds value for both the people providing the rental properties and the people renting them. In particular, guests and hosts are matched according to their requirements whilst also mitigating risks (Gobaud, 2015). Specifically, hosts are guaranteed insurance which eases their minds about potential property damage and destruction. At the same time, the organisation’s high hygiene standards and rating system affirms hygiene standards for guests (Gobaud, 2015). This helps hosts more easily manage short-term rentals whilst providing guests with experiences that are more personalised than what hotels can provide (Reinhold & Dolnicar, 2017).
5.0 Conclusion
5.1 Summary
Airbnb’s integrated business strategy has been the key to its success. It is evident that the vision and mission of the organisation inform the other aspects of its business, including its organisational culture, growth strategy, cost leadership and differentiation strategies, core/distinctive competencies and value-building.
5.2 Advantages and disadvantages
The cost leadership strategy is beneficial in terms of increasing Airbnb’s market size, reducing competition and reducing financial threats (Porter, 1985). Not only is the cost leadership strategy profitable, the market size will also increase (Banker et al., 2014). The nature of Airbnb’s target market has remained constant over the years – preferring products at a low cost and high quality. As the recognition and popularity of Airbnb continues to grow over the years, the organisation will enjoy increased profits (Banker et al., 2014). Moreover, the cost leadership strategy increases the difficulty for new entrants, thus allowing Airbnb to continue enjoying its leadership position (Valipour et al., 2012). However, the cost leadership strategy is always going to be temporary (Jyoti et al., 2015). Other competitors may adopt a similar technique and reduce their prices, too. Furthermore, focusing on the price can mean that the company loses sight on the evolving needs and preferences of consumers.
One key benefit of the differentiation strategy is customer loyalty (Vera, 2016). For Airbnb, this goes for both guests and property owners. Airbnb’s differentiation strategy effectively resolves problems within the market and all parties are satisfied. Another benefit is that there is no perceived substitute considering that the organisation focuses on the quality and nature of the service (Arens & Hamilton, 2018). While competitors may have a similar product, Airbnb’s differentiation strategy focuses on the elements of its service that its competitors do not yet have. This may explain why the local companies such as in China, Europe and North America have not yet captured the global reach that Airbnb enjoys (Case-8). However, an important disadvantage is that the service’s perceived value may decline over time (Cattani et al., 2017). Therefore, it is pertinent that Airbnb stays attuned to new developments that may affect consumers’ needs and motivations.
5.3 Recommendations
The opportunities and threats analysis reveal that while Airbnb’s luxury resorts are an attractive method of expanding the organisation’s market share, the competition surrounding luxury resorts is high. There lacks a distinctive quality which differentiates Airbnb from the other luxury resort providers and hotels. Furthermore, there is concern that this expansion risks alienating the organisation’s existing consumers (Case-8, 2019). Another significant threat is the high threat of substitution resulting in high intensity of competition within the market. While it is true that Airbnb currently enjoys the position of being a market leader, Case-8 (2019) highlights the looming threat that companies such as TripAdvisor and Expedia are posing. Moreover, various other companies are flooding the market with similar offerings albeit none have yet attained the market reach that Airbnb possesses.
In response to the threats and to take advantage of the opportunity, it is recommended for Airbnb to further develop the tourism and travel booking functions of its business. This will allow the organisation to capture a larger portion of the market whilst also strengthening its differentiation strategy; by providing value-adding services that its competitors are not yet able to do (Koschmann & Sheth, 2018). This also increases efficiency for renters as Airbnb will act as the one-stop travel and tourism service. Consequently, it is likely that brand loyalty will be strengthened (Mody et al., 2019).
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