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 is a Very Effective Digital Platform: Like Amazon, eBay and many successful online marketplaces, Airbnb allows buyers and sellers to connect. It also provides prospective buyers free access to information, such as pictures of the room, reviews, and pricing information. That is critical in developing trust in markets. And, as a successful digital platform, you can fully find, select, and rent a room from your mobile app. In short it is convenient, but convenience is about the execution. All execution is digital and even the customer is recognized by the digital sign-in. Digital platforms and their great relevance to mobile phone users, in particular, are driving how we do business in the digital economy.
- Airbnb Separated Rooms from Hotel Services: In the gilded age of the hotel industry, hotels were chosen not just for the room but for the services that came with it. The services were important to guests, but services were also high margin businesses to the hotel. Get a room from Airbnb and there is no restaurant, bellman, or front desk to call. In the digital economy, people could of course find great places to eat on Yelp and get services from other providers (or do task themselves). In a small, but powerful manner, the value proposition of the hotel was challenged and led largely by millennials, the value proposition was proved unreasonable. Instead of staying in a small hotel room with services that might not be fully used or enjoyed, you could spend less, stay in a bigger (and likely) nicer room via Airbnb. It is all about the room, anyhow. Who owns rooms? REITS have them by the thousands! And as it turns out rooms in apartment complexes (without restaurants and front desks on site) are attractive to guests. It was a big surprise!
- Transparency and Flexibility Allow for Micro-Market Formation: Although hotels expose prices on their websites and offer discounts on various aggregators, the yield aggregators often have lower prices, meaning the best deals are not easy to track. Hotels have no incentive to share their occupancy levels either. By not sharing such information, hotels are attempting to manage and created their own markets. Certainly they want to drive you to stay in a specific property, even if that is not ideal for you. Want a room in Chicago? Then you check out the hotel sites for prices and locations. Hotels cannot easily move, of course. Hotels are not flexible on location and may not have the best location. Airbnb data through insideairbnb.com, can provide transparency on pricing, reviews, occupancy, and specific location. Airbnb forms mirco-markets without the constraints of a single property. Supply and demand can more naturally form. New rooms can come to market when a new location is highly desired. Want to stay in the highly popular Wicker Park neighborhood of Chicago – great; Airbnb has many options. By the way, there are no major hotels in this neighborhood and Airbnb is cheaper than the few BnBs in that neighborhood.
- Marketing and Operations are Separated in Airbnb: In business we think about how running a business (its operation) is linked inherently to its marketing. It is absolutely true in most every business. Interestingly, for Airbnb and its rise of an effective digital platform, a property owner need not invest significantly in marketing, brand creation, or even a customer loyalty program. The brand is Airbnb and the awareness is all through Airbnb. The property owner can focus on operating the property well and allow Airbnb to be the marketer and marketing channel. The major chains like Marriott, Starwood, and Hilton are surely jealous. They not only have to run the properties but have to also market their offerings in many ways that are important and expensive. Of course, marketing through Airbnb means that you pay Airbnb, but just as thousands of online stores market through Google, Amazon, and eBay, property owners can now be successful hoteliers without the burden of building a brand and funding general marketing activities. It is a real game changer in the digital economy. Property owners get the benefits of economy of scale, access to data systems, customer reservation portals, online services, and even analytics to help set prices. Big Data comes to the small property owner, made available by Airbnb. The hotel chains have to fund each of these on their own. Plus, Airbnb, like other successful digital platforms can facilitate targeted marketing using the Big Data of customer reviews, customer preferences in ways that are not possible for a single property owner. It is a great example of how the sharing economy allows property or asset owners inexpensive access to broad markets. And, as buyers, we benefit from it and love it!
These ideas on the importance of data and analytics in creating value are some of those that I explore in great detail in my recent book, From Big Data to Big Profits: Success with Data and Analytics (Oxford, 2015).
Bio: About Russell Walker, Ph.D. helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
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