Hi everyone, good morning! Long time no see. After experiencing a week of rest, I'm full of energy again. Today's topic is one I find particularly fascinating: Airbnb's business model and a review of the special decisions Airbnb made during the pandemic.
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Is Airbnb Not As Innovative As We Think?
Many people believe Airbnb's advantage lies in not owning or leasing any physical real estate, making it a lightweight, asset-light, fee-based business model.
In contrast, the hotel industry is seen as traditional and slow-moving, requiring land purchases, building hotels from scratch, needing considerable investment, and potentially taking decades to break even on investments.
But this isn't actually the case. Let's start with Marriott, the world's largest hotel group.
Marriott in 2021:
- 1.5 million rooms globally
- Total revenue: $14 billion
- Pre-pandemic annual revenue: up to $20 billion
But does Marriott actually own all 1.5 million rooms?
Actually, no. Marriott actually owns only 1.03% of its rooms. The remaining rooms generate revenue through franchise licensing and management services.
Looking at Marriott's three operating models:
Management: Marriott charges property owners a percentage of hotel revenue as management fees, plus additional profit sharing when performance reaches specific targets. Beyond management fees, Marriott also requires property owners to reimburse Marriott's operational costs.
Franchised/Licensed: Marriott charges hotel owners (usually property owners) application fees and brand licensing fees, typically 4-7% of total room revenue, plus 2-3% of restaurant revenue within the hotel.
Residential: Marriott licenses its brand to help sell residential real estate (usually residential developments combined with hotels), primarily earning brand licensing fees while third-party owners build and sell the residential properties.
From these three operating models, we can see that Marriott's actual participation in real estate buying/selling and construction is quite minimal—it's not Marriott's main business. Marriott's primary business is earning fees through brand licensing and hotel management. Marriott has always entered the hotel market through an asset-light approach, which is the business model mentioned in Marriott's 2022 annual report (asset-light business model).
So for Airbnb, without a particularly innovative business model, how did it achieve nearly $10 billion in revenue in 2023? Does Airbnb have any unique positioning?
Airbnb's Positioning: One Person's Bug Is Another Person's Opportunity
This story starts with Airbnb board member Alfred Lin's father. Alfred Lin mentioned that his father was a banker responsible for global expansion and opening branches, frequently traveling worldwide for business. His father would only book the same hotel brand wherever he went because for him, work already involved too many changes and unexpected situations—when he returned to his hotel, he didn't want to think. He preferred every room's hair dryer to be in the same place. He just wanted identical rooms worldwide.
However, for Airbnb founder Brian Chesky, this system setup was a problem that should be solved. When he went to Italy, he wanted to stay in a room with Italian charm; when going to Japan, he wanted to stay in a room with Japanese style.
Although Airbnb doesn't have a particularly innovative business model, it found a special positioning.
Airbnb successfully solved the dilemma tourists face during travel—note: tourists, not business travelers or frequent business travelers. Airbnb provided a completely localized, customized travel accommodation experience, preventing tourists from staying in standardized, uniform rooms without any surprises. Airbnb successfully found their positioning, providing struggling tourists with surprising, unique, and special experiences.
Crisis Decisions When Company Revenue Plummeted 80% During the Pandemic
Before the pandemic, Airbnb began turning profitable in 2017, giving Airbnb considerable confidence. They built a very stylish company headquarters in San Francisco, hired thousands of employees, and expanded business scope including transportation and media, directly increasing management costs by over 100%.
Decision 1: Lay Off 25% of Staff, Executive Pay Cuts
On May 5, 2020, Airbnb's CEO tearfully announced via video conference that nearly 1/4 of employees would be laid off, marketing budget reduced by nearly 54% (at least $1 billion), and company executives began pay cuts or stopped drawing salaries.
Beyond layoffs, Airbnb provided laid-off employees with 14 weeks of salary + 1 year of health insurance. Airbnb allowed employees with less than one year tenure to keep company stock.
Airbnb also created a website showcasing laid-off employees' resumes and established a team specifically to help laid-off employees find new jobs.
Decision 2: Full Refunds for Consumers
Besides US international travel restrictions, countries worldwide had their own travel bans or lockdown measures. Many Airbnb consumers began canceling bookings but encountered a problem: when hosts had reasonable grounds not to refund (e.g., canceling accommodation the day before check-in, normally non-refundable under the refund policy), what should Airbnb do?
Airbnb decided to require hosts to fully refund all consumers unable to stay due to travel restrictions, regardless of whether consumers requested refunds the day before or a month before their scheduled dates.
Decision 3: Subsidize Platform Hosts
After Airbnb required hosts to refund consumers, hosts began protesting. Many Airbnb hosts are professional hosts who use Airbnb income to pay mortgages and living expenses. The pandemic had already severely impacted hosts' business, and refunding consumers was undoubtedly a double blow.
After host backlash, Airbnb apologized to hosts, agreed to pay hosts 25% of what they would have originally received, and established a $17 million mortgage fund to help hosts pay mortgages.
Decision 4: High-Interest Loans from Investors
Having suddenly lost over 80% of revenue and not knowing how long the pandemic would last, Airbnb borrowed $1 billion from multiple investors at 10% annual interest to support the aforementioned expenses. This was an unimaginably high interest rate in a low-interest era. But Airbnb still decided to borrow this money to support the company, consumers, and hosts. This was a gamble for the company—betting that after surviving the pandemic, the company would rise again, and the $1 billion plus 10% interest wouldn't affect their operations.
Looking back at these decisions, we can identify one mistake and commendable aspects:
One Mistake: Ignoring Platform Hosts
When Airbnb decided to require hosts to refund consumers, they ignored that Airbnb, as a two-sided marketplace connecting hosts and guests, cannot simply please just one side (consumers). When hosts are unwilling to provide rooms to Airbnb, Airbnb naturally cannot attract consumers. Although Airbnb's initial decision to refund consumers showed considerable courage, they overlooked that hosts are also indispensable partners on the Airbnb platform.
Commendable Aspects: Caring for Employees, Consumers, and Hosts
As Airbnb was in the front line of the pandemic tsunami, when the travel industry was first severely impacted globally by the pandemic, no one could have imagined that Airbnb would later see explosive growth due to work-from-home trends (many people would book Airbnb rooms for several weeks to work remotely from various cities).
At this time, Airbnb decisively laid off employees to control costs while simultaneously providing subsidies to consumers and hosts. This ensured that every human role on the Airbnb platform was cared for. As a platform operator, Airbnb made excellent decisions, comforting, supporting, and caring for every stakeholder while courageously providing loans.