INNOVATION MANAGEMENT

(MPU3242) (AC 20)

BUSINESS PLAN REPORT: AIRBNB

SEMESTER JULY 2023
CANDIDATE(S):
NAME 1: Muhammad Amirul Thariq bin Baharim
STUDENT ID: 62213322160

NAME 2: Muhammad Arif Fahmi

STUDENT ID: 62213322133

NAME 3: Muhammad Zaifan Hakim

STUDENT ID: 62213223108

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INTRODUCTION

Airbnb is an American San Francisco based company operating an online marketplace

(online platform) for short- and long-term homestays and experiences just like Grab & Uber
for Transportation in Malaysia. The company acts as a broker and charges
a commission from each booking. The company was originally founded in 2008 by Brian
Chesky, Nathan Blecharczyk, and Joe Gebbia. Airbnb is a shortened version of its original
name, AirBedandBreakfast.com. The company is credited with revolutionizing
the tourism industry around the world, while also having been the subject of intense criticism
by residents of tourism hotspot cities like Barcelona and Venice for enabling an unaffordable
increase in home rents and mortgage, and for a lack of regulation. The hike in house buying
from the rich people to make it into AirBnB host has reduced the chance for low income
people to buy their first house as there are not many strict regulations to stop these people
from doing this kind of business. The company is valued at $31b as of mid-2017 (pre-IPO). It
has managed to exceed the market capitalization of Hilton and Hyatt combined in less
than 10 years since its start-up. They are serving over 3 million listings in more than 65,000
cities in over 190 countries and200,000,000 guests to date.

Other than that, AirBnb is also the first company in the world to offer this kind of
service into the market which offers house owners to turn their home to become a host to
tourists and this is evolving from the traditional market which are hotels and hostels are the
only place for travellers and tourist to stay in. this innovation service has made a significant
drop in revenues of the big hotels brands such as Hilton, Grand Hyatt and Concorde Hotel.

This company started their service since the summer of 2008, and has grown massively
in terms of market share and revenue around the world. AirBnb has planted their foot in Asia
specifically in Malaysia in December 2012, when they first opened their office in Singapore.

By October 2013, after 5 years doing business, Airbnb had served 9,000,000 guests
since its founding in August 2008. Nearly 250,000 listings were added in 2013.

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 Revenues of AirBnb Worldwide 2017 - 2022
(billions of usd)
9
8
7
6
5
4
3
2
1
0
2017 2018 2019 2020 2021 2022

Annual Net Profit 2017 - 2022

(millions of usd)
3000

2000

1000

0
2017 2018 2019 2020 2021 2022
-1000

-2000

-3000

-4000

-5000

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1.0 INNOVATIVE IDEAS ON VALUE PROPOSITION.

Airbnb creates value propositions on (at least) three levels (apart from the financial
value). First connection are individual connections which is Airbnb helps to start the every
guest- host connection on the right foot. In comparison, hotels try to provide the same looks
& feel everywhere in the world. Individuality gets lost. The people providing the service have
to be adjusted to the service delivery standards. The second connections are connections
between the community in which connections between the users as a whole enabled by the
vast amounts of user generated content on the destination locations as well as the respective
home/unit/room. The third connections are localisation connections where by adding an
increasing amount of information/recommendations on the location and adding events
provided by event hosts.

This is how the value propositions for the hosts looks in more detail. First, income
generation which is from saving for home repairs to taking a dream trip, hosts use extra
income to fund their passion. Besides, it can ease the transactions for people to joining the
platform, from getting guests & transaction of payment. Not only in terms of payments, we
also can experience of meeting new people (if desired). Guests are already ID checked, plus
ability to review guest’s ratings. Easy booking for customer, calendar, booking management
through Airbnb. Besides, there are as well insurance coverage through Airbnb (hosts still
needs an insurance for certain items).

To make it relevant for both sides, Airbnb recommended hospitality standards. Not only that,
Airbnb as well responsible hosting guidelines with all tips on safety, hazards, and neighbors.
Besides, it dispute resolution process through Airbnb and Airbnb taking safety and
trust seriously.

Some of the value propositions for the guests (demand side) are, guest are demanding
on convenience of booking. Guest wants more with the amount of choice and variety of types
of homes. Besides, the proposition to experience the destination more authentically. Tons
of authentic information about the destination city (selected large cities). Also, AirBnb also
often offer cheaper than comparable sized hotel rooms, units and especially houses with
several bedrooms. Guest also request for cashless transaction and rating system that allows
for feedback.

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 Airbnb is adding value propositions to both sides that hotels will struggle to compete
with. Compare Airbnb events to the old-fashioned flyers you find in some corner in hotel
foyer. Events hosting and experiences in the destination are great complementary value
propositions for hosts and guests. One that hotels barely compete with as they only offer on-
resort or pre- selected offerings. This is another great source of nurturing innovation.

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2.0 KEY PARTNERS AND KEY RESOURCES

2.1 KEY PARTNERS

Key partners are not easily replaceable. They contribute significantly to the success of the
company and influence its future trajectory. Hosts are the supply side of the Airbnb platform.
They bring their homes/units to the table. Achieving a critical mass of supply and variety of
choice is important for the customer value proposition. Airbnb has two types of hosts which
is the first one, rental hosts that offer houses, units/condos, rooms, and more exotic stays,
such as castles, igloos and more. The second one is, Event hosts that offer to guide through
local experiences, food, art, fashion, nightlife, etc. Besides, investors/venture capitalists bring
the initial rounds of funding to the table. The funding helps with developing the functionality,
apps, algorithms, but also for acquiring customers. Investors bring down the (weighted) cost
of capital (WACC). Not only is that, Lobbyists crucial for Airbnb at all levels of government.
Corporate travel partners for Airbnb have opened a large source of new guests by expanding
into the business travel world. Through their alliances with platforms like Concur and
Flight Centre, Airbnb inventory becomes available to corporate travel managers. Corporate
travel managers have some discretion as to which suppliers, including lodging providers, they
enlist within their corporate travel policies. These corporate travel managers have the
discretion to add thousands of potential guests. Early adopters are particularly valuable as
they can set precedence for peers to follow.

Non-key partners are those where Airbnb have several options with comparable offerings
to choose from. This doesn’t mean the service non-key partners are providing is unimportant.
Airbnb hires freelancing professional streets/events/property photographers in some cities.
The photos are very important. But there is sufficient supply of photographers. Even if all
current photographers decided to jump ship, it would not affect Airbnb’s revenues and within
a few weeks, they would fill the ranks back up. Maps, payment platforms, cloud storage,
identification platforms are important but they are not proprietary any longer. Insurance
companies, while very important and initially challenging to make a deal with, by now are
not a big challenge any longer.

Cloud providers (and many other tech API providers) are not key partners if they provide
easy-to-replace commodities (unlike a few years ago). Airbnb has acquired a number of small
tech companies that may end up becoming key resources if they contribute significantly to
Airbnb’s growth.

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2.2 KEY RESOURCES.

The key resources of a platform business are the network effects. In this case is
relationship between hosts and guests. Airbnb is a great example for this. Airbnb hosts are
providing places to stay, events, recommendations what to do at the locations. Not every host
does all of that as it is not a compulsory requirement, only added value. On aggregate, the
hosts make their destinations (and thus travelling as such) more attractive by indirectly
collaborating. This is a great example that the total is larger than the sum of the individual
parts.

The value propositions listed in the above unfold their strength with the networks effects.

With this said, the key resources are the homes listed & requested, the events listed &
requested, user generated content on the webpages, captured data, development, analytic
capabilities, engineers, skilled employees, access to venture capital to keep the business
growing & the brand, the app & webpages, algorithms

2. 3 INNOVATIVE IMPROVEMENTS.

The network effects are the moat of platform businesses. The key activities should revolve
around improving positive network effects and reducing negative ones.

1. Enhance positive network effects between the participants (hosts and guests), by
enticing more users to join and participate

2. Reduce negative network effects, by making the individual host-guest transactions

easier and managing complaints swiftly and learning from them.
3. Grow the platform by getting more participants to join. Besides, Airbnb can enter new
cities that have never been entered yet. Furthermore, we can give complementary
offerings to the customers that increase stickiness such as of events.
4. Keep participants engaged, e.g. high utilization of homes
5. Keep guests returning by providing great travel experiences in accommodation and
events/experiences

6. Add new customer value propositions, for example for event hosting, Airbnb can creates
complementary offerings to lodging. Besides, Airbnb can add new hosts and offers income
opportunities to the host. Also, Airbnb can increase host and guest engagements.
7. Deliver on the customer proposition
8. Analyse the data to fine-tune everything, example on improving the check-in process

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3.0 DISTRIBUTION CHANNEL AND MARKETING

3.1 DISTRIBUTION CHANNEL

Airbnb will use direct mail to promote our services. The marketing team will send
direct emails to potential customers via information that we get by sending spam emails. We
will market out new promotion about our new innovative of improvement services.

Airbnb use direct channel distribution because among the advantages of using this, we
can create a good relationship with the customer or when entertain the customer. During the
customer using our system, it can make the customer know about the good services that we
provide to them. Other than that, Airbnb wants to ensure that all our customers are left
satisfied positively based on their feedback.

3.2 MARKETING

Mission

Airbnb is more than an affordable travelling accommodation option. Through

facilitating access to distinctive spaces and local culture, Airbnb aims to enable travellers to
“feel at home anywhere you go in the world” by building connections with local hosts,
gaining access to distinctive spaces and culture of their destinations.

Objectives
Being able to tap into the prospective customer base by implementing an online
marketing plans to launch the product into the marketing including advertising, social media
and world of mouth. The tactics (activities) that will help achieve the company goal including
build company email list by offering a free marketing plan template to reach a specific
audience while saving time and resources. Next, develop the pricing for the new information
services to attract the customer’s interests. Then, develop a press release to announce the
services and submit to the online media outlets to take the advantage that people are
constantly using the internet to find the information and services that they want to use.

Creating a blog post describing the new program and feed it to all social media
channels are also the most important tactics. The next tactics is to develop and email the
announcement to send to the company list. Finally, make the services be known worldwide
by developing a system and announce the ability to the consumers.

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Marketing Strategy

A market strategy is selecting and describing one or more target markets that our
company provides services or products. Target marketing involves breaking a market into
segments and then concentrating your marketing efforts on one or a few key segments
consisting of the customers whose needs and desires most closely match your product or
service offerings. It can be the key to attract new business, increasing sales, and making your
business a success. Although we can approach market segmentation in many different
ways but however we only focus three types of market segmentation such demographic
segmentation, behavioral segmentation and geographic segmentation.

1) Demographic Segmentation
Demographic segmentation is usually the most important criterion for identifying target
markets, which means that knowledge of demographic information is crucial for many
businesses. For instance, during the school holiday people would like to travel especially
family who are moderate income to spent time with their kids. So AirBnB focused to the
people who moderate income and offer the lower price with the good quality, so they can
able and interesting to use our services.

2) Behavioral Segmentation
Behavioral segmentation is about understanding customers not just by who they are, but
by what they do, using insights derived from customers’ actions. The objective is to identify
customer segments that enable our understanding on how to address the particular needs or
desires of a group of customers, discover opportunities to optimize their customer journeys,
and quantify their potential value in our business. For behavioral segmentation, AirBnB
provides an affordable travelling accommodation and offer our special price. So that the
customer become more satisfied using our services.

3) Geographic Segmentation
Geographic segmentation relies on the notion that groups of consumers in a particular
geographic area may have specific product or service needs. Geographic segmentation
involves segmenting the market based on location. Weather are one example that AirBnB
focus because Malaysia are famous with its health tourism and its special mixed population,
the visitors and tourist who likely to go vacation in Malaysia. Therefore, the customer will
easily get accommodation by using AirBnB services.
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Pricing Strategy Marketing
• Penetration pricing

This pricing strategy to attract more users to use our system. Occasional promotions such we
will give the special price for consumers who keep use our system. This is to penetrate and
gain our market share because we are new in the industry.

• Psychological pricing

We make price comparison with our competitor such as Agoda, Trivago and Traveloka in
market.

• Discount pricing

We give discount coupon code for the first time user our system.

Differentiation Strategy
Airbnb systems is unique services, however, there are other systems competing on the
basis of parameters such as price, accommodation and services. To market our systems
effectively and stay competitive, the main focus of our marketing strategies is consumers.
Also, it is imperative that master important marketing tips to help our competitors. Airbnb has
two types of services that we provide which is travelling and accommodation. Our services
are suitable for people who have family and likely to travel other place to another place.
Therefore, the price is affordable for everyone and cheaper than other systems. Airbnb offer a
lower selling price to make it affordable for everyone and at the same time to make customers
trust our systems as our product offers unsurpassed quality.

3.3 SUGGESTION ON INNOVATION IMPROVEMENT

1) Price include with the meal set.
2) Provide the list of activities that customer can join to fulfil their day.
3) Provide service car rental to the customer.
4) Provide laundry service.
5) Provide gift to the customer that use our system as a marketing. For instance,
keychain, sticker, mineral water and so on.

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4.0 CUSTOMER RELATIONSHIP AND CUSTOMER SEGMENT

4.1 CUSTOMER RELATIONSHIP

Airbnb is a community-based, two-sided online platform that facilitates the process of

booking private living spaces for traveller. On the one side it enables owners to list their
space and earn rental money. On the other side it provides travellers easy access to renting
private homes. With over 1,500,000 listings in 34,000 cities and 190 countries, its wide
coverage enables travellers to rent private homes all over the world. Personal profiles as well
as a rating and reviewing system provide information about the host and what is on offer.
Vice versa, hosts can choose on their own who to rent out their space to.

Customer Relationship Strategic

Customer relations describe the way that a company will engage with its customers to
improve the customers experience. This includes providing answers to short term roadblocks
as well as proactively creating long term solutions that are geared towards customer success.
Customer relations aims to create a mutually beneficial relationship with the customer that
extended beyond the initial purchase. To achieve company’s goals, we need to focus on how
to manage our customer relationships which is building strong customer relations is a great
way to develop customer loyalty and retain valuable, long-term customers.

4.2 CUSTOMER SEGMENT

Customer Segmentation Identification

Customer segmentation is the practice of dividing a customer base into groups of

individuals that are similar in specific ways relevant to marketing, such as age, gender,
interests and spending habits. Companies employing customer segmentation operate under
the fact that every customer is different and that their marketing efforts would be better
served if they target specific, smaller groups with messages that those consumers would find
relevant and lead them to buy something. Companies also hope to gain a deeper
understanding of their customers' preferences and needs with the idea of discovering what
each segment finds most valuable to more accurately tailor marketing materials toward that
segment. It can be the key to attracting new businesses, increasing sales, and making your
business a success. Although we can approach customer segmentation in many different ways
but however we only focus three types of customer segmentation such demographic
segmentation, behavioral segmentation and geographic segmentation.

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Demographic Segmentation
Demographic segmentation is usually the most important criterion for identifying
target market, which means that knowledge of demographic information is crucial for many
businesses. For instance, during the school holiday people would like to travel especially
family who are moderate income to spent time with their kids. So we focused to the people
who moderate income and offer the lower price with the good quality, so they can able and
interesting to use our services.

Behavioural Segmentation
Behavioural segmentation is about understanding customers not just by who they are,
but by what they do, using insights derived from customers’ actions. The objective is to
identify customer segments that enable our understanding on how to address the particular
needs or desires of a group of customers, discover opportunities to optimize their customer
journeys, and quantify their potential value in our business. For behavioural segmentation, we
provide an affordable travelling accommodation and offer our special price. So that the
customer become more satisfied using our services.

Geographic Segmentation
Geographic segmentation relies on the notion that groups of consumers in a particular
geographic area may have specific product or service needs. Geographic segmentation
involves segmenting the market based on location. Weather are one example that we focus
because Malaysia are famous with the visitors who likely to vacation in Malaysia. Therefore,
the customer will easily get the hotel by using our services.

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5.0 COST STRUSTURE AND REVENUE STREAM

5.1 COST STRUCTURE

Cost structure area refer to the types of the relative proportions of fixed costs and variable
costs that the business incurs. Cost structure is use as a tool to determine the price and to plan
a business and communicate the cost of a strategy or investment. Cost can be calculated
easily after defining Key Resources, Key Activities, and Key Partnership.

Fixed costs is the cost remain the same regardless of the volume of Airbnb services. In
Airbnb cost model canvas, the cost structure of fixed cost are platform design and
development maintenance.

Variable costs vary in proportion to the volume of the Airbnb services. In the Airbnb cost
model canvas, the cost structure of variable cost are marketing and community management.

The innovation that Airbnb can made in cost structure is membership id, who’s login or
downloads Airbnb apps and make a transaction they automatically as a member and have
their own member id. Next time they can received notification for the information Airbnb and
they can get the discount or cash back for the next transaction.

Lastly the innovation that Airbnb can made to fix the coast structure is online platform
maintenance. The online platform are very important and it site to be easy to use and efficient
for the customer. Beside that Airbnb must make sure their servers always can receive high
traffic at a time.

5.2 REVENUE MODEL

Revenue stream is a source of revenue of a company. In business, a revenue stream is

generally made up of service revenue and recurring revenue. Recurring revenue is earning
from ongoing payment for continuing services or after sale service to the customers. The
recurring revenue model is the model mast commonly used by businesses because it is
predictable and it assures the company’s source of revenue as ongoing.

For Airbnb, they used recurring revenue, Airbnb receives commissions from two sources
upon every booking, namely from the hosts and guests. For every booking Airbnb charges the

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guest 6-12% of the booking fee. Moreover Airbnb charges the host 3% for every successful
transaction.

The innovation that we can made in Airbnb by using recurring revenue is subscription
fees. Airbnb can charge anyone who wants to download the Airbnb App on the Google Apps
Store and Google Play Store. This will further increase Airbnb's revenue. If this is done,
Airbnb will need to improve their app and give the app users more privacy. One of the great
examples of privileges you can apply is to give users more discounts and cash back.

Lastly, the innovation proposal for the Airbnb revenue stream is to provide the space
for others to create paid ads on the Airbnb web. The paid ads, Airbnb will earn extra revenue.
Airbnb can set the fee to be charged and certain terms and conditions

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6.0 CONCLUSION

Product and services

Airbnb can innovate their services further by improving their positive network effects
and reducing the negative ones. Through this innovation, Airbnb can protect all their hosts
and guests. Hosts can conveniently post their available lodging through the software
application and the guests can easily choose their preferred stay based on their budget.
Through this innovation, we can expect an increase in users count because of the practicality
of the software application. The users only need to fill out their details as assurance in case of
any accidents. This way, Airbnb can easily traced any rude or unethical users and kick them
out of the system.

We can also further innovate the Airbnb services by entering new cities. There are a
lot of cities all across the globe. If they can expand their services into more cities, then the
users count will also be increased. Although it is harder to maintain, it is a risk that Airbnb
should take in order to grow exponentially. They can also provide complementary services to
attract more users. These complementary services include events, taxi fare or even rental
vehicle. This form of services will attract a lot of new customers and at the same time,
maintain their long term customers’ interest.

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Distribution channel and marketing

The distribution channel of Airbnb is already fine the way it is. They distribute their services
through the Internet and managed to get a lot of users by this medium. However, there are a
few fine tuning needs to be made in order to capture more users.

One of the few improvements can be made to the distribution channel is by mail
services. Airbnb could use the mail services in order to expand their reach. It helps to give a
gentle reminder that the company exist to those outside the reach of internet.

In the context of marketing, Airbnb can be seen to advertise less than other competitors.
They should advertise more in order to grab potential customers’ attention. They should do a
promotional event from time to time. For example, the can distribute some coupons to be
used when making reservations through the app.

Customer Relationship and Customer Segment

Few adjustments to be made on the review and rating system is that maybe the
customer’s confidentiality can be considered as an item when reviewing a space. For
example, a guests can critique the space as anonymous without the knowledge of the hosts.
This will protect the customer’s privacy if they were to give a negative review.

Another adjustment is that they should also have a feedback system for Airbnb and
their users. This means that the reviewing and rating system should not be limited to the
interactions between hosts and guests only. They also need to know the feedback from their
customer in order for them to improve their business model.

One of the improvement that can be made to customer segmentation is that the Airbnb
Plus which cater to luxury people that wants to stay at a luxurious place. There should also be
a service that caters to the one that do not have much budget to rent the space.

Cost Structure and Revenue Stream

One form of innovation can be made to cost structure and revenue stream by giving
transparency to the transactions occurring through the app. The guests would feel
uncomfortable in authorizing the hidden charges in transactions. However, through this app,
the guests can easily see of the charges incurred during their stay or even before their stay.
There is no secrecy between the app and its user.

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