What the hack is happening to Airbnb?

What the hack is happening to Airbnb?

Before we get into this article, I have to say I was a big Airbnb fan at the beginning, but recently I switched back to staying in hotels. Why?

- It’s easier. I don’t have to talk to the host and take care of stuff.

- Is it more expensive?

- No, not anymore. I typically book the hotel room for cheaper than the price I would pay for an Airbnb.

There are three major categories that Airbnb guests complain about:

  1. Transparency on the fees page
  2. High prices
  3. Bad hosts

Transparency on the fees page

Airbnb does not show the full price of the rooms right away. You need to click through many pages to see the final price – including service and cleaning fees. From the customer’s guest's perspective, this can be a frustrating experience.

I used the word guest and not customer on purpose here. To understand why Airbnb cannot fix this “simple” problem we need to look further. We need to understand who the customer is. Is it the guest or the host or maybe both? Which one is more important (if any)? How does the value chain in the marketplace work?

As soon as you get into the details, this becomes a hard problem to solve. Just a couple of aspects to consider:

- Hosts want high occupancy and low maintenance —> highest profits.

- Guests want the cheapest stays without any additional work.

- Airbnb wants to take the biggest cut – rent the room for the highest price that will still retain the guest, keeping occupancy high.

This is a big pricing challenge as locations and accommodation types have different tax, service, cleaning requirements. The cleaning and service fee is a good way for the host to cover damages and count for additional liabilities that they know best - better than Airbnb.

Taking this away from the hosts can result in them running bad businesses which would reduce the quality of the stays and ultimately the number of apartments.

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So how to solve this then?

Easy! Just let the host set the prices of the fees + show the total price to the guests.

Wrong. Showing total prices will result in bigger price competition and worse discovery. Hosts will fight for occupancy by reducing their fees and running worse accommodations that will affect the quality of the stays.

I’m really curious to see the solution these smart guys come up with.

High prices

High prices are a real threat to Airbnb’s business. They need to be able to compete with hotels on pricing.

Hotels have the advantage of scale, e.g. one cleaning stuff can clean all the hotel rooms. Airbnb needs to come up with a way for hosts to optimise their workflows and reduce costs.

Bad hosts

Reading through some of the posts on Reddit and Twitter, I was shocked. Some hosts are really crazy…

Unfortunately, preventing bad hosts from listing or guests from renting on Airbnb is not really possible.

I think Airbnb only has to make sure that they monitor this and act quickly when these issues happen.

How is the business performing?

Airbnb just had the biggest and most profitable quarter ever, beating Wall Street’s profit and revenue expectations.

Airbnb also grew the number of listings. Active listings rose about 15% in the third quarter compared to a year ago.

Despite all this, Airbnb shares fell more than 5% recently, as the company guided for some softness in the current quarter because of seasonality.

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Ben and the Proptee Team