How Does Airbnb Make Money? Business Model Explained!

Using Airbnb, people can rent out their primary residences as lodging to travelers. Hosts typically rent out their homes to supplement their income, while renters typically want a homey atmosphere that hotels cannot provide. It earns most of its revenue from service fees from bookings charged to both guests and hosts.

At a fully diluted valuation of $47.3 billion, Airbnb’s IPO raised $3.5 billion on Dec. 10, debuting on the Nasdaq under the ticker ABNB at $68 a share. Last quarter, the company reported revenue of $1.34 billion, down nearly 19% from the previous year. It nonetheless reported net income of $219 million despite primarily turning losses in the past.

The Sharing Economy

Peer-to-peer is a term often used to describe the sharing economy. Shared human and physical resources make it easier for buyers and sellers to conduct their business. One example is the collaborative consumption of products and services.

In the sharing economy, companies make money by connecting buyers and sellers instead of directly providing goods and services. Revenue from this model is likely to continue growing. Peer-to-peer businesses such as eBay and Craigslist have been around for more than a decade. Many of the newer companies, such as Uber, Lyft, and Airbnb, have been modeled to fulfill a variety of consumer needs. 

You can learn more about how Airbnb has developed its business model to become the behemoth it is, as well as how it makes money.

How Airbnb Makes Money

There are more than seven million listings on Airbnb in more than 200 countries. It has more than 150 million users, with six people booking a room every second.

Service fees

Airbnb’s revenue is primarily derived from service fees charged both to guests and hosts during bookings. Depending on the type of listing, guests are required to pay a non-refundable service fee of 14.2% or less. With a larger reservation, guests can save on service fees, allowing them to use the savings on other expenses.

With every completed booking, hosts are also charged a 3% service fee to cover the processing of guest payments. Depending on the listing, this fee can be higher or lower. Guests pay the service fee when they book a reservation unless the host cancels or retracts it. If an alteration is made to the reservation, Airbnb adjusts the fee accordingly.

Taxes

In addition to Airbnb fees, customers in the European Union (EU), Switzerland, Norway, Iceland, and South Africa are subject to value-added taxes (VATs). Guests in the EU are also subject to taxes based on the rate found in the guest’s home country. Value-added tax is deducted from hosts’ earnings from booking reservations.

Exchange Rates

Airbnb charges exchange rates if guests pay for a booking in a currency that’s different from the currency of the place they are visiting. Airbnb determines the exchange rates. This allows Airbnb to make a profit from the difference.

A Brief History of Airbnb

The idea for Airbnb came about after the founders, Brian Chesky and Joe Gebbia, turned their San Francisco apartment into a makeshift bed and breakfast by placing an air mattress in the living room. In order to offset the high cost of rent, the pair rented the space out to travelers. They created a website for short-term rentals in 2008, along with Nathan Blecharczyk, which eventually became Airbnb.

In 2018, the company underwent a few major leadership changes. After Laurence Tosi left Airbnb in 2018, Dave Stephenson has been hired as its chief financial officer (CFO).

Moreover, Airbnb appointed Belinda Johnson as its first chief operating officer (COO).

Airbnb began raising capital in 2009. After a few years, it expanded internationally, opening offices in the United Kingdom, Germany, France, Spain, Russia, and Brazil. The company also offers these services:

  • Airbnb Experiences: Residents of the rental can participate in activities such as cooking classes, tours, and adventures.
  • Airbnb Collections: Renters can use this section to find properties that are suitable for special events or other occasions. There are listings for full homes, private rooms, and rooms with ensuite bathrooms.
  • Airbnb Plus: In this section, you will find homes that come with standard amenities and are highly rated.

The Airbnb marketplace platform enables hosts and travelers to safely exchange goods and services, serving as a conduit between them. An in-depth review system adds value to the peer-to-peer model such as Airbnb, where prospective hosts and guests can search for lodging. Individuals who use online marketplaces can choose quality products rather than purchasing lemons because reviews are trusted.

Airbnb IPO

Airbnb filed a prospectus to go public on Nov. 16, 2020, and it debuted on the Nasdaq on Dec. 10, 2020, with the ticker ABNB. Airbnb’s IPO was priced at $68 per share, instead of $44 to $50 per share as originally planned, representing a valuation of $47.3 billion on a fully diluted basis. Airbnb raised $3.5 billion in its IPO, more than the expected $2.5 billion.

During the global travel embargo caused by the Coronavirus pandemic, Airbnb’s bookings and revenue plummeted. Reservations were down 70% from the previous year, prompting the company to cut a quarter of its staff in May.

Airbnb reported bookings were only 30% down in June compared to the same month last year over the summer. Tourists seeking nearby vacation rentals to escape cities and take advantage of work-from-home policies drove the spike in demand.

Challenges to Airbnb

There has been concern that long-term rental units are being converted into de facto hotels, driving prices in the rental market and increasing competition for hotels. $5.6 million of the $1.1 trillion hotel industry’s budget is dedicated to lobbying. 

Airbnb effectively declared war on the American Hotel and Lodging Association in 2016, according to the New York Times, with a national campaign on local, state, and federal levels.

Final Words

Thanks to more accessible travel and lodging, the sharing economy continues to expand rapidly. Airbnb has taken advantage of technological innovations to create platforms that connect individuals for everyday exchanges. 

Although it doesn’t directly provide goods or services, its platform connects individuals who want to transact business. Because of the high number of bookings, Airbnb’s revenue continues to grow while only charging a nominal fee.

Leave a Comment

COVID-19 Took My Waiter Job, Then I Made 5-Figures From Home...Discover How I Did It!