John D$.$ Valaro

Johnson & Wales University

John E$.$ Gamble

Texas A&M University$-$Corpus Christi

Airbnb was launched in $2007$ when Brian Chesky and a friend decided to rent their apartment to guests for a local convention. To accommodate the guests, they used air mattresses and referred to it as the "Air Bed & Breakfast." It was that weekend when the idea$-$and the potential viability$-$of a peer$-$to$-$peer room$-$sharing business model was born. During its $15-$year existence, Airbnb had experienced immense growth and had successfully launched an IPO in $2020.$ By $2021,$ Airbnb had entered over $220$ countries with more than $5$ million locations. ${?}^1$ In $2022,$ Airbnb seemed positioned to continue revolutionizing 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.

Airbnb's business model had been successful by leveraging what is known as the sharing economy. As it grew, however, Airbnb's business model was met with resistance. City officials and owners and operators of hotels, motels, and bed and breakfasts complained that, unlike traditional brick$-$and$-$mortar establishments that were subject to regulations and taxation, Airbnb hosts were able to circumvent and avoid such liabilities due to participation in Airbnb's digital marketplace. In other instances, Airbnb hosts had encountered legal issues due to city and state ordinances governing hotels and apartment leases. Then, in $2020,$ the spread of COVID$-19$ and the global pandemic posed an existential crisis for Airbnb and other businesses such as hotels operating in the travel and accommodation market. Many Airbnb hosts were using their hosting revenue to subsidize their mortgage payments while other hosts had purchased properties that depended solely on the revenue driven through booked Airbnb accommodations. In the early part of the pandemic during $2020,$ travel restrictions and shelter$-$in$-$place orders to mitigate the spread of COVID$-19$ significantly impacted travel. As vaccines were distributed during $2021$ and many countries had reopened their economies, Airbnb's bookings and revenues grew to more than $300$ million and nearly $$6$ billion $($see Exhibit $1).$ However, at the start of $2022,$ the company had yet to have a profitable year, with some suggesting that the company needed radical changes in elements of its business model to justify its lofty stock price. The company's $$114$ billion market capitalization indicated that investors continued to believe in Airbnb's potential, but excuses for continuing losses were becoming more difficult as the company had achieved sufficient scale to become profitable.

Exhibit $2$ presents Airbnb, Inc.$\text{'}$s income statements for $2019$ through $2021.$ The company's balance sheets for $2020$ and $2021$ are presented in Exhibit $3$Overview of the Accommodation Market

Hotels, motels, and bed and breakfasts competed within the larger tourist accommodation market. All businesses operating within this sector offered lodging but were differentiated by their amenities. Hotels and motels were defined as larger facilities accommodating guests in single or multiple rooms. Motels specifically offered smaller rooms with direct parking lot access from the unit and amenities such as laundry facilities to travelers who were using their own transportation. Motels

might also be located closer to roadways, providing guests quicker and more convenient access to highways. It was also not uncommon 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 travelers. Amenities, including on$-$premise spa facilities and fine dining, were often offered by the hotel. Furthermore, properties offering spectacular views, bolstering a hotel as the vacation destination, may contribute to significant operating costs. In total, wages, property, and utilities, as well as purchases such as food, accounted for $57$ percent of the industry's total costs $($see Exhibit $4).$ The primary market segments of hotels and motels are presented in Exhibit $5.$ Bed and breakfasts, however, were much smaller, as they usually were where owner$-$

operators offered a couple of rooms within their own home to accommodate guests.

The environment of the bed and breakfast$-$one of a cozy, homelike ambiance$-$was

what the guest desired when booking a room. Contrasted with the hotel or motel, a

bed and breakfast offered a more personalized, quieter atmosphere. Furthermore,

many bed and breakfast establishments were in rural areas where the investment to

establish a larger hotel may have been cost$-$prohibitive, yet the location itself could be

an attraction to tourists. In these areas, individuals invested in a home and property,

possible