How Does Airbnb Make Money? Business Model Explained

Traveling and temporary stays always go hand-in-hand. Imagine yourself stepping into a world where travelers don’t just book hotels… But also cozy homes, unique apartments, and even stunning castles! Sounds like a dream. Isn’t it? To your surprise, that’s possible through Airbnb. It connects explorers like you with hosts who share their spaces, creating unforgettable stays. All thanks to the captivating Airbnb business model that remarkably transformed the traveling experience!

So, what are the pillars of its operations? What makes Airbnb so successful? These queries must’ve been on your mind! So without any delay let’s dive into the Airbnb business model to decode its secret recipe for success.

Here we go!

Airbnb: A Brief Overview

Airbnb is a web-based platform that connects travelers with hosts who have accommodations available for rent. It was founded in 2008 and has since grown into a global community. Airbnb acts as an intermediary, facilitating the rental process between hosts and guests. 

Hosts can list their properties or spaces for rent, while guests can search for and book accommodations based on their preferences and needs. The platform offers a wide range of options, including entire homes, apartments, rooms, and unique properties. It provides a convenient and alternative way for people to find accommodations when traveling

Before diving deeper into the Airbnb business model, let’s go through the company’s profile-

Note: We have compared Airbnb with OYO (a popular hotel booking platform in India). You can check the article OYO vs Airbnb for more details.

In the upcoming sections, you will get deeper information on Airbnb’s business model.

Working Strategy: How does Airbnb work?

Airbnb operates as an online marketplace that connects people looking for accommodations, such as vacation rentals or short-term stays, with hosts who have available lodging.

The airbnb business model is based on the “sharing economy.” It provides a platform on which people (hosts) can rent out their properties (spare rooms or houses) to customers (guests). The point to note is, the host (owner) decides the prices of the properties (accommodation: rooms/apartments). Airbnb has to deal with two parties i.e. hosts as well as the guests. As per the reviews, Airbnb provides better comfort and reach to customers. 

Its business model is quite innovative due to which it became the world’s fastest accommodation booking site. Since the hosts are equally important as guests in Airbnb. Therefore, it takes feedback from both of them.

How does Airbnb work?

When you make a reservation through the official site Airbnb, you will need to wait for the next 32 hours. Because the host has 32 hours to accept or deny the booking request of the customer. Once the host accepts it, then your booking request is confirmed. Although this process is a bit slower. But this process is quite systematic. 

Another significant feature of the Airbnb business model is the limited stay duration. You cannot stay in Airbnb accommodations for more than 90 days.

Let’s go through the detailed info on the working strategy of Airbnb in the following sections-

1. Listing Creation

Hosts create listings for their properties, which include descriptions, photos, amenities, pricing, and availability. These listings can range from spare rooms to entire homes or unique spaces.

2. Search and Booking

Travelers (guests) use the Airbnb website or app to search for accommodations based on location, dates, and preferences. They can browse through various listings and read reviews from previous guests.

3. Booking Request

Once a guest finds a listing they like, they can send a booking request to the host, specifying their intended dates of stay. The host has the option to accept or decline the request.

4. Acceptance and Payment

If the host approves the booking request, the guest is prompted to complete the payment, which is processed securely through Airbnb’s platform. The payment includes the accommodation cost and Airbnb’s service fee.

5. Stay

The guest checks in on the agreed-upon date and enjoys their stay. Hosts may interact with guests, offer local recommendations, and provide a welcoming experience.

6. Review & Feedback

After the stay, both the guest and the host have the opportunity to leave reviews and ratings for each other. These reviews contribute to the overall reputation of both parties on the platform.

7. Payment to host

Airbnb holds the payment from the guest until 24 hours after check-in, ensuring that everything is as expected. Once that period has passed, the payment (minus Airbnb’s service fee) is released to the host.

8. Safety & Trust

Airbnb employs various safety measures, including host verification, guest identification, secure payment processing, and a resolution center for handling issues or disputes.

9. Host Responsibility

Hosts are responsible for maintaining their listings, ensuring cleanliness, providing accurate information, and complying with local laws and regulations.

10. Global Marketplace

Airbnb operates in numerous countries and cities, providing travelers with a diverse range of accommodation options and fostering cultural exchange.

In essence, Airbnb facilitates a platform that connects hosts with available accommodations to travelers seeking unique and personalized lodging experiences. It has disrupted the traditional hospitality industry by enabling individuals to share their spaces and create income while giving travelers access to a wide array of lodging choices beyond traditional hotels.

Revenue Sources: How does Airbnb make money?

As you know, Airbnb business model is a two-sided marketplace. It connects property owners (hosts) with guests looking for accommodations. Airbnb generates revenue through various means to sustain its operations and growth. 

Some of its major revenue sources are-

1. Commission from Hosts

Airbnb charges hosts a percentage of the booking subtotal as a service fee. It means that Airbnb charges a percentage commission fee on each booking made through its platform. The exact percentage varies but typically ranges from 5% to 15% of the booking cost. Also, hosts need to pay for using Airbnb’s platform to list and manage their accommodations.

2. Guest Service fees

Airbnb also charges a service fee to guests for using its platform. Guests are charged a service fee when they book a property, which is typically a percentage of the total booking cost. This fee is a percentage of the booking subtotal and covers the cost of customer support, platform maintenance, and other services provided to guests.

3. Host Service Fees 

In addition to the commission, Airbnb may charge hosts for using certain services. Such as professional photography, cleaning services, and other add-ons to enhance their listings. Airbnb earns a portion of the cost of these services. These fees are optional and can help hosts enhance their listings’ attractiveness. 

4. Airbnb Experiences

Airbnb offers curated experiences and activities hosted by locals as an additional service. Guests can book these experiences, and Airbnb takes a commission from the host’s earnings.

5. Airbnb Plus and Luxe

It offers premium accommodation options through Airbnb Plus and Airbnb Luxe, which come with higher nightly rates. Airbnb takes a percentage of the booking amount for these higher-end listings.

6. Cancellation Fees

Guests may be charged a cancellation fee if they cancel a reservation within the specified timeframe. Airbnb retains a portion of this fee.

7. Advertisements and Partnerships

Airbnb partners with businesses and destinations to promote their services or locations on its platform. These partnerships can include additional advertising revenue or mutually beneficial marketing collaborations

Thus, Airbnb’s primary revenue streams come from fees charged to both hosts and guests. Also, the fees charged on premium services and add-ons act as significant sources of revenue for the company.

Airbnb’s Financials

Let’s look at the financials of the company-

Does Airbnb make any profit? Of course, it does! As you have seen in the section on revenue sources, it earns commissions from various sources. That’s how it made a profit of $1.9 billion in the fiscal year 2022.

Looks like Airbnb had a great financial year! But we know that Airbnb operates worldwide.  

Where do Airbnb hosts make the most money?

To get the answer, we have to break down Airbnb’s revenue geographically with four reported regions. Look at the following table to get a clearer picture-

Here’s the answer- Airbnb hosts make the most money in North America! This region’s contribution was greatest in the total revenue earned by the company. Thus, you can say that Airbnb is quite popular in North America.

What percentage does Airbnb take from hosts? The percentage of money/fee charged from hosts (as commissions) ranges from 5% to 15%.

Let’s come to the scenario of Airbnb in India. How many Airbnb properties are present in India? You may wonder. Almost 70,000 properties are listed on the Airbnb site in India. Domestic booking in India rose to 80% in the third quarter of 2022.

Marketing Strategies of Airbnb

Airbnb employs a variety of marketing strategies to establish itself as a dominant player in the travel and hospitality industry. Some of their key marketing strategies are-

1. User-Centric Platform

Airbnb’s marketing strategy centers around meeting the needs and desires of travelers and hosts. The platform allows hosts to create personalized and unique listings, catering to diverse traveler preferences.

2. Content Marketing

It involves the following-

2.1) Compelling Storytelling through blogs

Airbnb focuses on sharing authentic and emotional stories of hosts and travelers. These stories create a sense of connection, making users feel like they’re part of a global community with shared values and experiences.

2.2) High-Quality Visuals

The platform relies on high-quality, professional photographs to showcase listings. Striking visuals help users envision their stay and create a strong first impression, encouraging bookings.

2.3) Social Proof

Airbnb leverages user-generated content, such as reviews and ratings, to build trust and credibility. Positive feedback from previous guests serves as social proof of the quality and reliability of listings.

3. Influencer Partnerships

Collaborations with travel influencers and celebrities allow Airbnb to tap into its wide-reaching audiences. Influencers share their personal experiences, generating buzz and attracting new users.

4. Referral Programs

This is the most successful marketing strategy used by companies in the hospitality sector. Through referral programs, Airbnb achieved a 900% of annual growth rate during its initial days. Referral programs are one of the smartest ways to utilize your current user base to gain new customers. Both parties get mutual benefits through referrals. 

Airbnb has a referral program that rewards users for referring new hosts or guests to the platform. This encourages user growth and engagement. That’s how it helps to educate people about Airbnb.

5. Active Social Media Presence

Airbnb engages with users on various social media platforms, sharing user-generated content, conducting interactive campaigns, and maintaining an active online community.

6. Global Advertising Campaigns

Airbnb’s captivating and emotionally-driven advertising campaigns resonate with a wide audience. It highlights the platform’s diversity, inclusivity, and ability to provide extraordinary travel experiences.

7. Community Building

Airbnb fosters a sense of belonging by organizing host and guest events, allowing users to connect and share their experiences.

Airbnb’s marketing strategies focus on creating an emotional connection with users, providing a seamless and engaging booking experience, and showcasing the uniqueness of each listing and destination. These strategies have contributed to Airbnb’s remarkable growth and success in the travel industry.

How hard is it to run an Airbnb?

Running an Airbnb can vary in difficulty depending on factors like location, property type, local regulations, and your level of involvement. It involves tasks such as managing bookings, cleaning, guest communication, and addressing any issues that may arise. 

Compliance with local laws and regulations can add complexity. Proper planning, organization, and a willingness to address challenges are key to a successful Airbnb operation.

Tips to successfully run an Airbnb

You can consider the following tips to tackle the challenges mentioned above-

1. Create an Attractive Listing

Write a detailed, engaging, and accurate description of your property. High-quality photos showcasing different areas of the space can help potential guests get a clear idea of what to expect.

2. Set Competitive Pricing

Research similar listings in your area to determine a competitive price. Consider factors like location, amenities, and the local rental market.

3. Provide Excellent Communication

Respond promptly to guest inquiries and messages. Clear communication can help build trust and provide a positive guest experience.

4. Maintain a Clean and Inviting Space

Keep your property clean and well-maintained. Regular cleaning, fresh linens, and essential amenities can make a big difference in guest satisfaction.

5. Ensure Safety & Security

Install smoke detectors, fire extinguishers, and secure locks. Make sure guests feel safe during their stay.

6. Local Legal Requirements

Familiarize yourself with local laws and regulations regarding short-term rentals. Ensure you have any necessary permits or licenses.

7. Build a Strong Host Profile

Complete your host profile with a friendly photo and detailed information. A trustworthy and approachable profile can attract more guests.

Conclusion of Airbnb Business Model

As you have read above, Airbnb business model has revolutionized the hospitality industry. It enables individuals to list, discover, and book accommodations worldwide. By capitalizing on the sharing economy and utilizing a two-sided platform, Airbnb connects hosts and guests. It offers a diverse range of lodging options and personalized experiences. This peer-to-peer approach has disrupted traditional hotel chains and empowered individuals to monetize their extra space. 

Takeaways from Airbnb Business Model

What makes Airbnb so successful? You may wonder. The answer is Airbnb business model! From this model, we learned the significance of leveraging technology to create a seamless user experience. 

You can foster trust through user reviews and verification and adapting to changing consumer preferences. The platform’s emphasis on community engagement, user-generated content, and localized offerings showcases the importance of catering to individual needs. 

Furthermore, the success of Airbnb highlights the potential of collaborative consumption and how disruptive innovation can reshape established industries. Aspiring businesses can draw inspiration from Airbnb’s innovative approach to creating customer-centric platforms that deliver value, convenience, and authenticity!