With pandemics begin to fade – Thanks, God – people mobility will be unlocked. Travel-related companies like Airbnb will enjoy the momentum. But, could it grip the advantage in the long run? To answer that question, Today we give you insight into the competitive advantage of Airbnb.
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In This Issue
Sharing Economy – Sharing Profit: Cost is Airbnb’s Competitive Advantage
Airbnb plays in sharing economy business – something that led by the internet and smartphone boom. The business model is simple. Airbnb connects the traveler with the space owner. The traveler pays the rent to the owner, Airbnb takes a portion of it. That’s it. Airbnb does not need to build even single brick. This new business model surely offers a customer new flexibility and cheaper prices.
Sharing economy itself takes the form not only in space rent form but also ride hauling business. A company like Uber doesn’t need to have its own vehicle or car. Like Airbnb, it just connects riders and customers through its platform.
It just needs to coordinate and connect the customer with the space owner. Same idea with Deliveroo and Uber. This will offer a cost advantage to customers which need cheaper prices for travel.
We begin to worry in this section. The pandemics have introduced us to the flexibility about working from Home – it wakes all of us up. Working from your own home is can be done, and it should be done – employees love it. This situation blurs some boundaries between working and life – and, in advance, it will bend limitations between working, traveling, holidays and life. You can edit a spreadsheet about financial reports while enjoying beach scenery in Kuta.
This trend along with vaccines, drugs to prevent COVID-19 spread, will spark traveling once again.
Airbnb will enjoy the momentum, right? Why worry?
Because everyone smells that blood – want to hunt the prey. And this is the reason why we compose the post about Airbnb’s competitive advantage.
Switching Cost is low in Competitive Advantage of Airbnb
Airbnb enjoys a first-mover advantage. The San Francisco-based company gain a large portion of market share due to its role as a pioneer, but it is difficult to tell that it will last in the long run. Another company could steal and replicate the business model. What if they do just the exact same for Airbnb? The problem for businesses like Airbnb or Uber is the barrier to entry is too low. As consequence, the switching cost also will be shyly low.
No, not the hotel. The biggest threat will be the newcomer, like Airbnb and Uber in its early career as a disruptor. The newcomer needs no brick at all, needs no building or villas – sound familiar? Newcomer just needs to build platform, join a partnership with a third party, people who have space or home in a promising area. Technology makes it easy, and it applies to everyone.
No, we do not state that Airbnb will soon extinct. We just worry with this low barrier to entry will attract more predators and eroding the market share.
How to Survive: Strengthen Competitive Advantage of Airbnb
Now we have a lot of to-do checklists. Brian Chesky needs no brick to rent, but surely he has to build some barrier to entry or raising the switching cost. Some ideas come to our mind like make a partnership that is exclusive on Airbnb, but it is difficult to do since the host will seek another potential in another platform. Airbnb could also offer longer stay programs or packages – this kind of service will be difficult to replicate by competitors, but not impossible. Thing is, Airbnb needs to evolve at a high pace, leaving the contender in the dust. Brian Chesky may promote a new way of vacation, but he needs to think about how to figure out this situation in his mind even on his vacation.
Even we did not discuss yet topic about hotel counter-attack: The incumbent strike back.
Another approach to analyzing Airbnb’s competitive advantage is to look at it as a middleman. Not involved in the operation, but only provide a platform to connect the buyer and the seller. Our take is Visa, yes, we know it is far different from Airbnb, Visa plays in the payment business, but the core operation is similar. Both serve as intermediaries, the middlemen between two parties.
In our post – here if you are interested – we said that Visa has a durable competitive advantage that even cryptocurrency hype could not penetrate its market share. Then, why Airbnb doesn’t look so strong? Both are middlemen, right. We have to say that besides economies of scale, Visa also exploits network effect advantage. This means that, for every new buyer/seller, or user of Visa, the whole system will be enhanced. This brings a snowball-like effect, more and more people are attracted to use.
And, if competitors or newcomers want to dethrone Visa they need to build a super sophisticated system that can handle a billion transactions in the blinking of the eye. We could say that the Visa platform is much more complicated than Airbnb, even given the same nature of them as middlemen.
Moreover, Visa has high switching costs to prevent users move from their services since user bank account are usually attached to it. It is a little painful just to change all that perfectly set up just to taste newcomer in the town.
Final Thought on Competitive Advantage of Airbnb
Well, not all middlemen are created equal. Visa has switching cost and network effect advantage, something that is absent in Airbnb. Fans of Airbnb could say that more users of Airbnb could enhance the whole ecosystem through reviews, the more review, the more people attracted, problem is, again, no switching costs and low barriers to entry.
A newcomer could replicate though it is difficult. Visa, on the other hand, is impossible.
Airbnb could still lead if executed with proper strategy. It needs to more integrate with destination place, collaborate to offer lower or best budget packages. It needs to be a step ahead of a similar platform.
For investors, checking financial reports for its revenue is a must. Any significant dip could become an early warning of heated competition.