Question

Fill in the following Porters Five factors and PEST analysis for the company Airbnb

Porter’s Five Factors Model-

• Bargaining power of buyers

• Bargaining power of suppliers

• Threat of substitutes

• Competitive rivalry

• The threat of entry/barriers to enter

Industry Conditions, Industry Life Cycle (Growing, Mature, Declining)-

PEST Analysis:

• Political/Governmental/Legal-

• Economic-

• Societal-

• Technological-

Answer 1

Porters Five Factors and PEST Analysis for Airbnb

The Porter’s Five Forces analytical framework represents five individual forces that outlines an overall extent of competition in the industry.

• Bargaining power of buyers

The bargaining power of the buyer is high as the cost to switch from Airbnb to hotels is low. The competition has resulted in other hotels lowering their costs to the level of Airbnb in order to maintain their customer base, which makes it easy for customers to switch from one to another depending on their needs thus high bargaining power.

• Bargaining power of suppliers

The bargaining power is low for Airbnb suppliers due to the company’s exclusive supply requirement. If a supplier is working with Airbnb, for example, a landlord or a tour guide, they cannot run or operate on other websites which gives Airbnb control over its suppliers. Once a customer’s booking is done, the host must operate even if he is incurring a loss.

• Threat of substitutes

Potential substitutes are hotels and motels, in the case of Airbnb. The threat of substitutes is low in view of the fact that the company provides higher benefits and value in comparison to hotels. Airbnb services offer customers more independence and choices where one can easily get an apartment at an affordable price in best locations with homely amenities like kitchen, which is not the case with hotels and motels.

• Competitive rivalry

Airbnb works under intense competition from hotels as they are of almost of equal size. The company has aggressively taken over the market forcing hotels to reduce their costs particularly during peak periods when they used to make extra money. The benefits offered by Airbnb like access to more rooms and high-quality listings at competitive costs have given the brand a competitive advantage over the hotel industry. The company has dominated the market with listings in more than 191 countries and a total of at least 4 million listings which is higher than the top five big hotel brands collectively.

• The Threat of entry/barriers to enter

The barriers to entry in such type of industry are high. It is not easy for a new company to enter an industry if there are already one or more well-known companies well versed with the industry and have created good associations with buyers and suppliers. With Airbnb having listings in over 191 countries and a total of at least 4 million listings, higher than the top five big hotel brands collectively and the company is a big brand name which has established globally and created good relationships with its suppliers and customers, which would make it hard for a new company to enter and compete with Airbnb, that has already dominated the market.

In the recent years, the company’s growth is amazing with revenue projected at 3.5 billion per year by 2020.

PESTLE Analysis of Airbnb

• Political/Governmental/Legal

The company is facing some legal and regulatory issues in other countries. As many people rent out their apartment and don’t follow country housing laws, thereby causing conflicts with many state housing laws and regulations. For example, people renting their property must live there, but there are people who purchase houses for Airbnb rental services, which is violation of housing laws. On the other hand, the tax rates are variable in different states and countries and the company must cope with such an issue. There is no protection mechanism for customers in conflict. The company has already faced court proceedings in Florida, Barcelona, New York, Toronto, San Francisco and many other countries due to such issues.

• Legal Factors

Airbnb operates in more than 193 countries and every province, state and country has their own housing regulations and taxation Laws. The company finds it quite difficult to meet the regulations of each country and thereby relies on hosts and guests to meet the local laws and regulations. Due to which Airbnb is facing lawsuits and court proceedings in New York, Florida and other cities. As hosts know their local laws, housing and tourism regulations, they must adhere to the rules while agreeing to Airbnb terms and conditions.

• Economic Factors

Airbnb is a very good example of shared economy where people share their resources with those who need it for a short period of time. It is a source of income for those who rent out their space. On the other hand the low prices of the company against hotels and motels is the reason for its growth of a loyal customer base globally. Its net income reached to $93 million in 2017. Its mobile App is downloaded by more than 10 million users, has over 3100 employees and provides additional income to hosts.

• Social Factors

Airbnb blends cultures and societies from different parts of the world. Social media plays its role and spread the voices of both host and tenant. As Airbnb operates in 191 countries and more than 34000 cities and both tenant and host have their own culture, norm and issues, it must understand and respect each culture and society to stay in the shared economy business.

The company has Community Centre and discussion rooms like “Help” “Hosting” where hosts and tenants share their experiences and ask questions. There are webinars also conducted to educate and help the community.

• Technological Factors

Airbnb is using technology to connect with people. The customers can download app and use website for booking. This business totally relies on reviews and rating. For example, a bad review can affect the reputation of the host and if it continues, the host will be out of the business. Airbnb is fully automated and uses messaging system that helps both hosts and tenants to get connected in a positive manner. The messaging system is used to verify personal profiles of guests and hosts. Airbnb cannot perform its routine operations like booking, cancellation and payment verification systems etc without technology.