If the AirBnB model is so easy, why is it so rare?
Of all the popular new business models no is as much in fashion as the AirBnB-model, marketplaces for all kinds of things — you won’t believe what I got approached with. Time over time I repeat myself, explaining that I don’t believe that this model is so easily transferable to other markets as is commonly believed. After all, if it was the case, why aren’t there successful businesses applying this model to other markets and are able to grow to a similar size as AirBnB is? It’s not as if this was a particularly new model. And it’s not just because it got executed better, even more important than that was the market the founders picked - whether coincidentally or on purpose.
This particular market has a few key characteristics, which make this business model more successful and effectively execute. Those are:
The market was already existing but still unable to satisfy demand. If you are building a new company getting word out about you is hard enough by itself. Having a total new business model to explain, too, makes it a magnitude harder. Instead, AirBnB settled on a proven business model for an existing market with existing procedures and focused on making all parts of that better: People already knew the concept of renting an apartment for holidays, they already did this over the Internet, they knew how it works and there was already plenty of demand for it. You only needed to mention the platform, no need to explain the business model. Unlike, let’s say, a platform for trading cargo storage in empty trucks.
Supply might be local but demand is global. We all love the network effect, where every additional entry improves the value of the whole platform. AirBnB is in market where this effect at least partly still applies if run properly: though one could argue the supply is highly local, the value every additional venue brings is great for the overall platform. This is often misunderstood, but highly important. Just think of the very slight difference of moving the model to permanent renting and your demand becomes totally local. For me wanting a permanent rental in Berlin it doesn’t matter at all that you added another flat in Vienna. But on AirBnB it matters to me. For the same reason AirBnB doesn’t actually need to be big in every city to be able to supply demand and still make good money there.
It’s a market of long-lasting goods and demand. I already touched this slightly in the point before by making the distinction between AirBnB flats and permanent rental: once a a client is found for a permanent rental (so the actual business took place), the venue is gone from the network. Other in AirBnB, where the supply stays, can and does have multiple transactions, creating revenue for AirBnB every time. It gets even more obvious if you look at the – often tried but never fully working – example of micro-service marketplaces. Time is of the essence here and demand and supply are short-lasting: If I want a sixpack of beer at three at night, there most likely is no one servicing it for me. And the next morning, by the time there is, I most likely already took care of it myself or simply don’t require the service any more. Either way it results in removal of the demand from the platform.
It is a high volume, high margin all-professional-levels market place. Vacation rental is a funny market: though the market itself has a high volume, the margin per transaction is quite high still. This allows for all types of market players: from armature-I-need-a-few-bucks renting their spare room, over semi-professional seniors renting out a few apartments, to full-business apartment agency. And as an international platform, you can easily make offers to all of them: features allowing semi- and armature to gain professionalism and higher market reach for professionals. Making it clear to all of them, why they want to pay a nice part of their margin to AirBnB. And as it is high margin and AirBnB works on commission, it doesn’t hurt as much, allowing AirBnB to become cash-positive quite quickly while allowing their customers to thrive with them.
Those factors are key to the success of the AirBnB model. And though the AirBnB model sounds easy to execute, it gets much harder for any of those characteristics missing in your target market. If you need to invent the market or explain your business model first, if the supply or demand vanishes very quickly, if the goods or services are very local, all these factors make it much harder to scale it to this extend.
Thanks to my good friend Alex Scholz, who made this great picture. And while we are on it, thanks for the great trip, too!