by Yashika Goyal

Disruptive Innovations are innovations that make products and services more available and economical, making them available to a larger population. This evolution disrupts the market by replacing long-lived, established competitors. Precisely, Disruption is a theory of the competitive response. 

Airbnb is a classic example of a disruptive product because of its “innovative internet-based business model and unique appeal to tourists.” Airbnb, a San Francisco-based online website founded in 2008, is present online and provides hospitality and house rental services. Leveraging reviews, user profiles, and identity verifications, Airbnb allows peer-to-peer accommodation. It will enable the hosts to post their apartments and homes on their site, and renters can take those homes or apartments for rent. The company, Airbnb, does not own houses, rather, it acts as a broker and takes a commission on every house rented. Its distinct appeal centers on cost-savings, household amenities, and the potential for more authentic local experiences.

Using Airbnb services has been understood to be a beneficial option for renters as well as the hosts. Airbnb created a new market where the hosts could utilize the technological infrastructure of Airbnb to advertise their homes, cottages, and apartments in a very efficient manner. Hosts could collect the rooms' payments using the cloud-based platform of Airbnb. For renters, Airbnb services cost less compared to hotels. Owing to the local experience and less cost, it has been gaining profitability since 2007. A significant portion of profits has shifted from hotels to Airbnb.

The objective is to analyze how Airbnb has become a significant disruptor in the hospitality sector from 2007 to 2020.

Figure 1: Airbnb milestones from 2007 to 2020 (source: Airbnb.com, Craft. co, and Skift.com)

A few years back, it was claimed that Airbnb was going to challenge hoteliers and maybe even make the hotel businesses obsolete, as young people ditched Marriotts and Hiltons for the empty beds of strangers. Since then, Airbnb has started becoming popular and earning great revenues. With a $100 billion private valuation, it’s the second biggest “start-up” in the United States after Uber.

In 2018, the investigation shows that in the ten cities with the largest Airbnb market share in the US, the entrance of Airbnb resulted in 1.3 percent fewer hotel nights reserved and a 1.5 percent loss in hotel earnings. Airbnb provides listings in 191 countries, and its total number of listings is 4 million, which is higher than the top five major hotel brands combined.

At the onset, Airbnb allowed people to sleep on an airbed in some random person's living room for a meager price. People who were drawn to Airbnb were not the same as those attracted to Marriott, as it had none of the good qualities of a hotel. Its business model encouraged low-value customers because it did not require Airbnb to own the property or employ the operating staff.

Airbnb has transformed the lodging market by keeping hotel rates in check and making additional rooms available in the country's popular travel spots during peak periods when hotel rooms often sell out or have high rates.

As Airbnb grew in popularity, the quality of its services also increased. They started to focus on the needs of higher-value customers that would, on the other hand, stay at a nice hotel. Now, Marriott, with its asset-heavy business model, can not compete.

Another move by the founders of Airbnb to make the appeal stronger was that they ensure the safety of the persons who will rent the accommodations. If any safety concerns or issues arise, then compensation will be provided to those hosts. This move further built the trust of the renters, and the company gained much more popularity.

Airbnb’s prominent offering was to allow tourists to live as locals do in the busy suburbs, near the best restaurants, bars, and other local hangouts. Business travelers might choose the hotel amenities. But what Airbnb offered was a superior replication of the local experience for leisure travelers for an economical price, supporting some local dwellers’ income.

Airbnb’s business took off among young, urban, and relatively well-off. Half of Airbnb’s reservations are made by Millennials, or those under 35 years old, most of them are for leisure time rather than business, according to the research firm MoffettNathanson.

The portion of American travelers using “private accommodations” like Airbnb quadrupled between 2010 and 2015 (see table below).

Airbnb-registered rooms greatly increased the supply of beds for travelers i.e. tourists and business travelers identical to lie in. With the blast of the private accommodations market, rooms opened up, and hotel prices remained down. Hotels are well-known for their service quality and the reliability of the customer experience. However, Airbnb relies on a peer coordination system to ensure quality and reliability.

Airbnb decreased prices for tourists, increased the income of renters, and simply made travel to major cities more joyful. Airbnb isn’t just contending with hotels for travelers. It is regularly competing with locals for space. The company has shifted the burden of growing prices in crowded urban areas from travelers to residents holding down prices for hotel rooms while increasing rents for city dwellers.

Traditional hotels would escalate by adding more rooms through new properties. Airbnb doesn’t own inventory. Instead, it extends by improving its ability to match customers, leveraging better data.

To conclude, we can clearly infer that Airbnb is definitely a ‘Disruptive Innovation’ as it has created a new market with its unique benefits of convenience, low prices, and unique local experiences. Initially, it appealed to the “low-end” of the market, providing low-quality services and offering a low cost to rent. By providing additional rooms during peak periods when hotel rooms often sell out or have high rates, they have gained popularity among “mainstream” customers. With time, they have improved the quality of their offerings, attracting “high-end” customers. Airbnb has disrupted the hotel and motels industries by acquiring market share and putting pressure on hotel rates.