Airbnb is a peer-to-peer platform collecting a “platform tax” by charging guests a service fee between 5%-15% of the booking and hosts 3%. In 2022, Airbnb generated $8.4 billion in service fees by charging an average of 13.3% on an average booking value of $161.
| Key Financial Facts (Analysis by FourWeekMBA) | 2022 |
| Gross Booking Value | $63.2 Billion |
| Revenue | $8.4 Billion |
| Nights and Experiences Booked | $393.7 Million |
| Average Service Fee | 13.3% |
| Average Value per Booking | $161 |
According to the FourWeekMBA Analysis, in 2022, Airbnb charged an average 13.3% service fee at an average value per booking of $1161.
| Key Facts | |
| Total Revenues in 2022 | $8.4 Billion |
| Net Profits in 2022 | $1.9 Billion |
| Founders |
Brian Chesky, Nathan Blecharczyk, Joe Gebbia
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| Year & Place Founded |
August 2008, San Francisco, CA
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| Airbnb’s first investor |
Y Combinator, on January 2009
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| Year of IPO | December 10, 2020 |
| IPO Price | $146.00 |
| Total Revenues at IPO |
$2.5 billion as of Nine Months Ended on September 30, prior to the IPO
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| Airbnb Employees |
6,811 employees in 27 cities around the world
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| Revenues per Employee | $977,129.81 |
Airbnb business model short breakdown
Airbnb is a peer-to-peer platform business model, leveraging two-sided network effects and making money by charging guests a service fee between 5% and 15% of the reservation. In comparison, the commission from hosts is generally 3%.
For instance, on a $100 booking per night set by a host, Airbnb might make as much as $15, split between host and guest fees.
In 2022, Airbnb generated $8.4 billion in service fees on $63.2 billion Gross Booking Value through the platform.
We describe the Airbnb business model via the VTDF framework developed by FourWeekMBA.
| Airbnb Business Model | Description |
| Value Model: Expanding the hospitality industry, at scale. |
Airbnb’s mission is to “create a world where people can belong through healthy travel that is local, authentic, diverse, inclusive and sustainable.” A peer-to-peer platform enables hosts to easily list and monetize their real estate and guests to find alternative locations across the world. Airbnb created a whole new category for travel, expanding the industry and making it viable at scale.
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| Technological Model: Peer-to-peer platform. Two-sided network effects. |
As a peer-to-peer platform, Airbnb enjoys two-sided network effects. The more hosts join the platform, the more it becomes valuable to guests, who can find alternative locations at various price points, depending on their experience. On the other hand, the more the community of guests is thriving, the more hosts are incentivized to invest back in their locations, making Airbnb the go-to location for travel worldwide.
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| Distribution Model: Brand, Growth Engine, Continous Improvement, Community Building. |
Airbnb has built a strong brand over the years, thanks to its seamless platform and support to hosts. The company’s main growth asset is the community of guests and hosts that interact, making the whole platform thrive long-term. In addition, the platform is fast in releasing new features, testing them out, and trying to figure out new ways for hosts and guests to connect (as Airbnb shows throughout the pandemic).
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| Financial Model: Platform Tax. |
Airbnb makes money by charging a service fee on top of each booking. Thus making money as more bookings go through it repeatedly. In 2021, Airbnb generated $5.99 billion in service fees.
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Airbnb business model evolution
In 2007, Brian Chesky and Joe Gebbia tried to make extra income to pay their rent.
Chesky and Gebbia, friends from design school, saw a big opportunity when back in 2007, a large international design conference was about to be hosted in San Francisco.
It wasn’t unusual to have all hotels sold out during these large conferences.
However, at that time, Chesky and Gebbia swiftly built a website called AirBedandBreakfast.com (their guests would sleep on air beds), and surprisingly rented it to three designers attending the conference.
As Chesky and Gebbia recalled, at the time, most people thought the idea was crazy as strangers would have never accepted to “stay in each other’s homes.”
And yet, that first weekend, something interesting happened.
As the three designers had rented the air beds at Chesky and Gebbia’s apartment, they realized the potential of offering an experience as a local to someone coming from out of town.
Indeed, that was one of the key elements that would make Airbnb different from traditional Hotels.
It wasn’t just a room but potentially a whole end-to-end experience that made guests feel like locals and hosts become the ambassadors of their own local community while building their own entrepreneurial journey.
That event made Chesky and Gebbia continue with this experiment, and by 2008, software engineer Nathan Blecharczyk joined the two co-founders to focus on the UX of the platform, to solve what would become the central problem for Airbnb, that of “making strangers comfortable enough to stay in each other’s homes.”
Some of the elements that would make this possible, combined a platform with:
- Host and guest profiles.
- Integrated messaging.
- Two-way reviews.
- And secure payments.
Over the years, other key elements were added to the platform that helped gain further traction (like hiring professional freelance photographers to enrich the visual experience on the platform or adding experiences on top of the stay).
Each of those elements would help Airbnb achieve a larger and larger scale until the pandemic hit, and Airbnb had to figure out how to make its business model even more sustainable to survive.
Image Source: Airbnb Financial Prospectus
As Airbnb went through the pandemic, it had to shift its business model.
Brian Chesky highlighted the “pivot” (in startup lingo, the change of direction) Airbnb went through:
Yet as Airbnb managed to go through the pandemic.
It is also managing to thrive, as the short-term travel industry is bouncing back many times over:
How Airbnb turned things around
From an almost bankrupt, Airbnb became one of the most interesting tech companie in about two years.
In 2022, Airbnb generated $63.2 billion in gross booking value on over 393.7 Million Nights and Experiences Booked, an average revenue per booking of $161, $8.4 in revenue, and an average service fee of 13.3%.
As Brian Chesky has highlighted on Twitter:
2 years ago, our business dropped 80%, our IPO was put on hold, and some didn’t think we’d make it at all.
Here’s how Airbnb turned things around, according to Brian Chesky:
1. First, we simplified our business. We got back to our roots, prioritizing the everyday people who host their homes and offer experiences
2. We cut the vast majority of our projects, shuttered our business units, and made the painful decision to do a layoff
3. We significantly improved our cost structure, decreasing our cost of revenue (merchant fees and servers), and tightly managed our fixed costs
4. Next, we changed our approach to marketing. When travel stopped, we paused all performance marketing and shifted our focus to PR (there have been 1M+ stories written about Airbnb since then)
5. By 2021, we started investing in brand marketing again, but reduced our overall marketing spend from 34% of our revenue in 2019 to 20% in 2021
6. Soon, people weren’t just traveling on Airbnb, they were living on Airbnb.
What has changed after the pandemic? Brian Chesky highlighted:
In 2021, around 20% of our nights booked were for stays of a month or longer, and nearly 50% for a week or longer.
These trends continue to this day. And now, urban and cross-border travel, which were the majority of our business before the pandemic, are back to 2019 levels
In 2021, we completely overhauled our product as the world became more flexible.
He closed with:
We made 150+ upgrades and improvements, including launching the “I’m Flexible” feature, which has been used more than 2 billion times.
The history of Airbnb
While the concept of short-term vacation rentals is certainly nothing new, Airbnb was the first company to see the potential of home sharing in the accommodation industry.
To profit from this potential, however, the company had to face and overcome various obstacles with determination, ingenuity, hard work, and a bit of luck.
The early history of Airbnb is a borderline rags-to-riches story with the ability to inspire millions of people from all walks of life.
Airbedandbreakfast.com
In essence, the idea for Airbnb was born from a need to simply pay the rent. When San Francisco-based designers Joe Gebbia and Brian Chesky were struggling to make ends meet, they were forced to come up with a novel way to support themselves.
After noticing that a design conference caused many of the city’s hotels to become booked out, the pair offered three air mattresses to any attendee who needed a place to sleep.
Gebbia and Chesky launched the site airbedandbreakfast.com in August 2008 with the belief that Craigslist was a little too impersonal.
For their efforts, the pair received $80 for hosting three designers over the duration of the conference.
Fundraising
Sensing they were onto something, the pair enlisted the help of computer science graduate Nathan Blecharczyk to build a more functional website that allowed other users to share their homes online.
To validate their idea, the company targeted users in the Denver area with the Democratic National Convention, causing a similar shortage of hotel rooms.
While the campaign was successful, the co-founders still lost money and could not secure investment funding after meeting with 15 different angel investors.
Gebbia and Chesky decided to take advantage of the imminent 2008 US election to raise cash and keep the fledgling company afloat.
Using their design skills, they created custom-made cereal boxes based on the two presidential candidates, Barack Obama and John McCain. The pair sold 750 boxes at $40 each, netting them a total of $30,000.
Y Combinator
In January 2009, computer programmer Paul Graham invited the pair to a winter session of the renowned Y Combinator startup accelerator, where they received training and $20,000 in cash in exchange for a small slice of the company.
The first few months of 2009 were spent perfecting the product, with the co-founders using some of the cash to travel to New York, where most Airbnb users lived.
In the city, they spent time building deep relationships with hosts by staying with every single one of them on the platform, leaving a review, and taking professional photographs of their accommodation.
In March, the company officially became known as Airbnb and secured a $600,000 seed investment from Sequoia Capital in April.
Growth and further funding
Over the next couple of years, Airbnb secured further rounds of funding to be a profitable company with a global reach. By 2011, over 1 million nights had been booked on the platform in 89 countries.
After a Series B funding round led by Andreessen Horowitz in mid-2011, Airbnb then became a unicorn with a valuation of $1.3 billion.
The rest, as they say, is history.
Key takeaways from Airbnb’s story:
- The idea for Airbnb was born from a need to pay the rent simply. When designers Joe Gebbia and Brian Chesky noticed that a design conference booked out many of the hotels in San Francisco, they decided to host attendees with air mattresses on the floor of their apartments.
- To raise cash and keep the company afloat long enough to receive sufficient interest, the co-founders sold custom cereal boxes based on the presidential candidates of the 2008 U.S. election. Eventually, Y Combinator co-founder Paul Graham took notice and provided training and $20,000 in funding.
- Gebbia and Chesky traveled to Airbnb hotspot New York City in 2011 to stay with each Airbnb host, leave a review, and take professional photographs of their listing. The platform’s popularity grew quickly that year and boasted over 1 million nights booked across 89 countries. After a Series B funding round, the company also became a unicorn in 2011.
Airbnb’s early success? Make it into a storyboard
- Uncover customer experience.
- Align on a longer-term vision.
- Pitch a broader project idea.
- And more.
It’s no secret that Brian Chesky is a huge fan of Walt Disney. And as the story goes, he was on a short vacation from Airbnb, as he dived into Disney’s biography. There he figured out about storyboarding and how to leverage this process for Airbnb’s growth:
An example of storyboarding the guest journey, from smashingmagazine.com
- The host process.
- The guest process.
- And the hiring process.
As Nathan Blecharczyk, co-founder and CSO at Airbnb pointed out on Sequoia blog:
One thing that’s really helped is a storyboard we created that depicts the different steps someone goes through from the time she first hears about Airbnb to the time she leaves post-visit feedback. We have 15 pictures that cover the guest journey and 15 more that show the journey for the host.
And he further highlighted:
What the storyboard made clear is that we were missing a big part of the picture—the offline experience—that’s an even more meaningful part of using Airbnb than booking a property.
From there, Airbnb’s redesigned the whole UX for the platform.
When Airbnb reached ramen profitability
Ramen profitability is a key moment in a startup’s life. It marks the moment when the startup revenues can pay up at least for the founders’ living expenses.
As venture capitalist (among the first investors in Airbnb) Paul Graham pointed out in a piece called “The Airbnbs:”
Ramen profitability is not, obviously, the end goal of any startup, but it’s the most important threshold on the way, because this is the point where you’re airborne. This is the point where you no longer need investors’ permission to continue existing. For the Airbnbs, ramen profitability was $4000 a month: $3500 for rent, and $500 for food. They taped this goal to the mirror in the bathroom of their apartment.
To become “ramen profitable” Airbnb’s co-founders had to focus on a subset of the whole potential market. They started with New York. Indeed, as they further narrowed down their market, suddenly numbers started to grow quickly and in a few weeks, they reached ramen profitability.
Source: Paul Graham Twitter
This was the initial bootstrapping journey for Airbnb, what gave it initial traction, and also what gave it credibility for further investment rounds, later on!
How much money does Airbnb make?
The digitalization that happened in the last two decades has facilitated the creation of peer-to-peer platforms in which business models disrupted the hospitality model that was created in the previous century by hotel chains like Marriott, Holiday Inn, and Hilton.
As a platform, Airbnb makes money by enabling transactions on the peer-to-peer network of hosts and guests. And it charges both for the successful transaction that happened through the platform.
In 2022, Airbnb reached its best year ever.
And for the first time in years, the company generated a net profit of $1.9 billion in 2022.
Breaking down the economics of an Airbnb booking
As a peer-to-peer platform, once the transaction between host and guest goes through, Airbnb will collect a fee from both key players.
As an example, from a $100 booking per night set by the host, Airbnb might collect $3 as a hosting fee.
While it might increase the price for the guest to $116 ($16 above the price set by the host) to collect its guest fees of $12 and taxes for the remaining amount.
Therefore, for a similar transaction, Airbnb will collect $15, the host will make $97 from an initial set price of $100, and the guest will pay $116 (tax comprised).
How much is Airbnb worth?
In March 2017, the company was valued at $31 billion.
As of that date, the company had $5 billion at the bank and rejected an investment offer by SoftBank. Airbnb was among the largest potential tech unicorns.
Then, in 2020 the COVID pandemic hit particularly the travel industry, which had to adapt. And at the time of the Airbnb IPO, the company might have been valued around $20 billion.
By February 2022, Airbnb got valued at more than $70 billion in market cap.
Airbnb’s mission and vision
Airbnb’s mission is to create a world where people can belong through healthy travel that is local, authentic, diverse, inclusive and sustainable.
This is how Airbnb describes its mission. And it continues:
Airbnb uniquely leverages technology to economically empower millions of people around the world to unlock and monetize their spaces, passions and talents and become hospitality entrepreneurs.
The key element of a platform and peer-to-peer business model like Airbnb is the creation of a viable ecosystem. In this case, Airbnb becomes a platform for other entrepreneurs or aspiring hospitality entrepreneurs:
Airbnb’s people-to-people platform benefits all our stakeholders, including hosts, guests, employees and the communities in which we operate.
What are the key partners for Airbnb?
There are three key strategic partners:
- Hosts.
- Guests.
- Local communities.
In the initial traction stage, freelance photographers also played a key role in the growth of the platform.
Guests (travelers) can easily find hosts (pretty much anyone with a private home for rent) through the Airbnb marketplace.
Also, Real estate agencies that have vacant units can use Airbnb as a way to rent the excess properties they were not able to rent on the market. Instead, freelance photographers can earn a living by joining Airbnb as independent contractors.
But let’s look at what makes Airbnb platform compelling for each of those key partners.
Airbnb value proposition to its key partners
There are several
