Airbnb: Lessons on Digital, Startups, Big Data and Disrupting Markets

AirBnB has brought together unmatched supply and demand and allowed for market-driven evaluation of assets. We are sharing lessons learnt from them for digital startups and big data organisations.

Airbnb: Lessons on Digital, Start-ups, Big Data and Disrupting Markets

When Airbnb began as a means for its founders to rent out their air mattress (hence the air in Airbnb) few predicted that it would transform the real estate rental market. By now, Airbnb is a legitimate means for selecting rooms or houses for rent in many markets. As an example of the success and efficiency in the new sharing economy, it has brought together unmatched supply and demand and allowed for market-driven evaluation of assets. It is brilliant. However, it is disruptive in a few ways that are unexpected in the real estate market, and it offers a great view on how start-ups can best leverage digital platforms and Big Data. Let’s take a look.

It was recently announced that Airbnb is in negotiations with multiple large apartment REITS (real estate investment trusts). These firms own and manage thousands of apartments, often in large US cities. Many REITS and landlords prohibit subleases of leases, meaning that Airbnb rentals are not permitted in such apartments. In early reports of the Airbnb-REIT alliances, a REIT would partner with Airbnb, in order to control and therefore capture some of the rental income being paid to the tenant. It would allow the REIT transparency and even some oversight of the process. More apartments become available; Airbnb wins, the tenants gets some rental income by now legally renting out the apartment, and the REIT can monitor, control and even profit from the process. That is interesting, but it is not a game changer for a REIT.

Consider a REIT that owns apartments in a highly desired city. The value of the apartment is tied to the housing market and might even be rent controlled. A hotel room is generally much more expensive per day than an apartment. Consider that the average apartment rents for $1240 per month and the average hotel rents for over $120 per day. So a hotel room rented out each month would generate about $3600 per month. That is a three times increase! This is where Airbnb comes into transforming real estate with Big Data and Digital Platforms. So, Airbnb means that apartments can be worth upwards of three times as much. In special events, we see that demand really increases for Airbnb, meaning that hotels are not benefiting on the margin during such events and Airbnb is capturing the demand (See graphic from the Economist). Note the large demand in Omaha for the Buffett meetings!  Warren, maybe it is time to invest in the sharing economy.