Case :

John D. VarlaroJohnson & Wales UniversityJohn E. GambleTexas A&M UniversityCorpus ChristiAirbnb was founded in 2008 when Brian Chesky and a friend decided to rent their apartment to guests for a local convention. To accommo-date the guests, they used air mattresses and referred to it as the Air Bed & Breakfast. It was that week-end when the ideaand the potential viabilityof a peer-to-peer room-sharing business model was born. By 2018, Airbnb had seen immense growth and suc-cess in its 10-year existence. The room-sharing com-pany had expanded to over 190 countries with more than 4 million listed properties, and had an estimated valuation of $31 billion. Airbnb seemed poised to revolutionize the hotel and tourism industry through its business model that allowed hosts to offer spare rooms or entire homes to potential guests, in a peer-reviewed digital marketplace.This business models success was leveraging what had become known as the sharing economy. Yet, with its growth and usage of a new business model, Airbnb was now faced with resistance, as city officials, owners and operators of hotels, motels, and bed and breakfasts were all crying foul. While these traditional brick-and-mortar establishments were sub-ject to regulations and taxation, Airbnb hosts were able to circumvent and avoid such liabilities due to participation in Airbnbs digital marketplace. In other instances, Airbnb hosts had encountered legal issues due to city and state ordinances governing hotels and apartment leases. Stories of guests who would not leave and hosts needing to evict them because city regulations deemed the guests apartment leasees were beginning to make headlines.As local city and government officials across the United States, and in countries like Japan, debated regulations concerning Airbnb, Brian Chesky needed to manage this new business model, which had led to phenomenal success within a new, sharing economy.OVERVIEW OF ACCOMODATION MARKETHotels, motels, and bed and breakfasts competed within the larger, tourist accommodation market. All businesses operating within this sector offered lodg-ing, but were differentiated by their amenities. Hotels and motels were defined as larger facilities accom-modating guests in single or multiple rooms. Motels specifically offered smaller rooms with direct parking lot access from the unit and amenities such as laun-dry facilities to travelers who were using their own transportation. Motels might also be located closer to roadways, providing guests quicker and more con-venient access to highways. It was also not uncom-mon for motel guests to segment a longer road trip as they commuted to a vacation destination, thereby potentially staying at several motels during their travel. Hotels, however, invested heavily in additional amenities as they competed for all segments of trav-elers. Amenities, including on-premise spa facilities and fine dining, were often offered by the hotel. Further, properties offering spectacular views, bol-stering a hotel as the vacation destination, may con-tribute to significant operating costs. In total, wages, property, and utilities, as well as purchases such as food, accounted for 59 percent of the industrys total costssee Exhibit 1

Before beginning this exercise, you will need to read the Airbnb case. You will also need to review Chapter 1 on Concepts and Techniques for Crafting and Executing Strategy.

The following questions will be covered in this exercise:

• How would you illustrate and compare the business models for Airbnb, large hotel chains such as Marriott and Hilton, and bed & breakfast operators?
• What are the general strengths and weaknesses of a) large, hotel chains such as Marriott and Hilton, b) bed & breakfasts, and c) Airbnb? Explain how you would compare and contrast those businesses.
• In what ways has the lodging consumer changed, and how does Airbnbs customer value-proposition meet this change?
• What key factors may determine the success or failure of Airbnb?
• What recommendations would you make to Airbnb to improve its competitiveness in the accommodation market while mitigating any current and future risks?

1. How would you illustrate and compare the business models for Airbnb,...

How would you illustrate and compare the business models for Airbnb, large hotel chains such as Marriott and Hilton, and bed & breakfast operators?

Select true for those statements that are accurate and choose false for those that are not.

a. Airbnb has a unique customer value proposition in its use of technology; shorter, more intimate stays; varying and different locales; and cheaper and unique accommodations.

(Click to select) True False

b. A chain hotel/motels customer value proposition is similar to that of Airbnb by its use of technology, unique accommodations, and varying prices.

(Click to select) True False

c. A bed & breakfasts profit formula is based on renting rooms and overall occupancy, cost structure associated with operating brick and mortar locations, and possibly wages if large enough to need staff.

(Click to select) True False

d. Airbnbs profit formula is based on transaction fees charged to users, cost structure associated with developing and updating software and technology, marketing and wages for engineers, and professional management and staff.

(Click to select) True False

e. A bed & breakfast is owned by a sole proprietor, their profit margin is not impacted if they do not rent rooms or have overall occupancy.

(Click to select) True False

f. Chain hotels/motels profit margin is dependent on generating sufficient revenues across multiple locations to cover fixed and variable costs globally. Profitable locations may be used to offset losses in unprofitable locations.

(Click to select) True False

g. Airbnbs profit margin is contingent upon the percentage of revenue generated by all participating users offering accommodations.

(Click to select) True False