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Airbnb marketing strategy case study

06/01/2021 Client: saad24vbs Deadline: 3 days

IES514


December 2015


This case was prepared by Professor Mario Capizzani, and Tommy Kim and Stefan Obersriebnig, MBA 2015, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. December 2015.


Copyright © 2015 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to iesep@iesep.com or call +34 932 536 558. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IESE.


Last edited: 1/11/16 1


Airbnb: What's Next? Prioritizing opportunities in Southern Europe


Introduction


It was a sunny Sunday morning in late November 2014 when Jeroen Merchiers, general manager of Airbnb for Northern, Eastern and Southern Europe, was jogging along the beach in the Barcelona neighborhood of La Barceloneta and reflecting about the future of his business.


Shortly before, Merchiers had been promoted from country manager of Airbnb for Spain and Portugal. He reflected on the region’s tremendous growth, how Barcelona had established itself quickly as one of Airbnb’s top five cities in the world based on the volume of annual travelers who used the company (about 900,000 since 2008), and on the city’s bright prospects for the future.


Despite all the success, Merchiers had some concerns. How could Airbnb sustain its recent success? The company had been valued most recently at $13 billion. Now the company needed to prove its potential and demonstrate its capacity to grow further. Brian Chesky, CEO of Airbnb, was considering several growth options: dedicating more resources to expansion in Asia; targeting the premium hospitality segment and focusing on creating “better travel experiences”; and possibly developing vacation rental properties. As someone whose opinion the CEO valued highly, Merchiers needed to be prepared to discuss these options in terms of what was best for Airbnb in Southern Europe as well as worldwide.


Besides weighing the different strategies that would help Airbnb to sustain its growth, Merchiers also needed to evaluate how to mitigate some key risks that had surfaced. Uber, a ride-sharing service platform founded in 2009, had been plagued by negative press coverage recently. As an example, Uber’s drivers, who by the company’s design operated as individuals, had begun grouping together in some cities to petition for higher wages. Given that Airbnb and Uber were both poster children for the “sharing economy,” Merchiers felt that


For the exclusive use of M. Darrat, 2016.


This document is authorized for use only by Mahmoud Darrat in 2016.


2 IESE Business School-University of Navarra


Airbnb: What's Next? M-1339-E


it was important to think of how best to avoid or mitigate similar “unionization” problems and how best to ensure that both hosts and guests would remain happy endorsers of the platform. What would be the right measures to achieve that goal?


Lastly, much like in other countries, Airbnb Spain had been accused recently of failing to comply with the state’s regulatory framework, given that hosts were not officially regulated lodging providers (and hence were not paying any hospitality tax). He needed to prepare for how Airbnb Spain should position itself regarding these legal discussions and determine possible outcomes. Could he afford to ignore the pressure generated by the press or does he need to take action – and, if so, what action should he take first? The company had reached agreements to collect city taxes in Portland, Oregon, and in its hometown of San Francisco, California. Several other European cities, such as Paris, were considering similar agreements.


Company Background


Airbnb had become an alternative solution for short-term home renters and providers worldwide. Since its inception in 2008, Airbnb had become the leading marketplace offering a variety of accommodation around the world (see Exhibits 1 and 2 for Airbnb’s early user growth rates.) By the end of 2014 it had more than 25 million guests and more than 900,000 listings in 34,000 cities and 190 countries – almost every nation in the world except for the likes of North Korea, Iran, Syria, Cuba and the Vatican City State.


Airbnb was a pioneer in incorporating the burgeoning trend of “collaborative consumption” into its “peer-to-peer accommodation rental business model.” This innovative business model, powered by Web 2.0 technologies, was disrupting the traditional hospitality business sector and economy, and it showed strong worldwide adoption and potential growth opportunity. Exhibit 3 gives insight into the economic impact of Airbnb on major cities in the world (Barcelona, Paris, Berlin, Amsterdam, New York and San Francisco). Furthermore, as an example, Exhibits 4 and 5 provide demographic data on Airbnb’s hosts and travelers for Barcelona.


Company History


Airbnb was founded by Brian Chesky, Joe Gebbia and Nathan Blecharczyk in August 2008 in San Francisco. It was one of the first peer-to-peer platforms for accommodation. Unable to afford rent in the fall of 2007, Chesky and Gebbia offered to rent part of their lofts as accommodation for strangers to subsidize their rent. Once they saw the potential business opportunity, they got Gebbia’s former housemate Blecharczyk on board to develop the website to be used as a platform for peer-to-peer property rental.


In early 2009 they received $20,000 in funding from an angel investor, Paul Graham, the cofounder of Y Combinator, followed by a further $600,000 in seed investment from venture capitalists. In November 2010 the three cofounders raised $7.2 million in Series A and, in July 2011, the company received a further $112 million in venture funding and was reportedly valued behind the scenes at $1.3 billion.1 As of October 2014, after two more 1 http://www.telegraph.co.uk/technology/news/9525267/Airbnb-The-story-behind-the-1.3bn-room-letting-website.html.


For the exclusive use of M. Darrat, 2016.


This document is authorized for use only by Mahmoud Darrat in 2016.


3 IESE Business School-University of Navarra


Airbnb: What's Next? M-1339-E


rounds of financing, the valuation was set to be $13 billion, up from its private $10 billion valuation in March of the same year (see Exhibit 6), as it discussed an employee stock sale, according to a report by the Wall Street Journal. 2 As Chesky posted on Twitter in January 2014: “Marriott wants to add 30,000 rooms this year. We will add that in the next 2 weeks.”


Toward the end of 2014, Airbnb forecast 2015 revenues of $850 million (i.e., more than three times the 2013 reported revenues of $250 million) and operating losses of $150 million. The company forecast revenues of $10 billion by 2020. By comparison, Marriott, which managed more than 4,000 hotels, had $13.8 billion in revenue in 20143 and a gross income of $1.84

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