Product Name

AIRBNB: DEFENDING AGAINST DISRUPTION

HULT SCHOLARSHIP COMPETITION
How do you compete when a global powerhouse enters your market?
Tell us your strategy for the chance to win a 50% scholarship to attend Hult.

Competition Details
Judge: Michael Grandinetti

Awards

Discipline Lead and Global Professor

Hult International Business School
MBA, Yale School of Management

1st Place (1) - 50% scholarship towards tuition

Runners-up (4) - 25% scholarship towards tuition

Airbnb: Defending Against Disruption

Written by Professor Michael Grandinetti for the purpose of classroom discussion and analysis at Hult International Business School.
2014 Michael Grandinetti.

What would you do?

Put yourself in the shoes of an Airbnb competitor. What strategy
would you employ to effectively compete?

Rules
Utilize any information in the study and/or other research you find
online. Presentation should be professional and boardroom ready.
Entries must be submitted in Microsoft Word format.

How to submit
Download the case study
Apply for our intake 2015
Submit proposal

Deadline
October 26, 2014

Terms and Conditions

Scholarship award applies to the 2015-2016 school year, pending
acceptance. Proposals will only be reviewed upon submission of the
online application for Fall intake 2015.

2014 Michael Grandinetti, Hult International Business School. Images: mashable.com and airbnb.com

Airbnb: Defending Against Disruption

Co-Founders

Business Model

Airbnbs Co-Founders include CEO Brian Chesky and Chief Product

officer (CPO) Joe Gebbia. They were classmates at the prestigious
Rhode Island School of Design (RISD) in Providence, where they
majored in industrial design.

Airbnb has been a pioneer in applying the multi-sided platform (MSP)

approach to a big concept known as the Collaborative Economy.
These collaborative business models are very human-centric in their
design. At their core, collaborative business models enable people
to get exactly what they need from one another in a cost-effective
and efficient manner while opening up a literally endless global
supply of choices. It is not a coincidence that, Airbnb, one of
the most successful companies operating in this space, is led by
industrial designers Ben Chesky and Joe Gebbia. These collaborative business models are rapidly ascendant across a broad range
of industries and markets, and are being driven by a wide range of
societal forces, a unique set of economic conditions which I call the
new normal, and rapidly evolving technology enablers. Trust, and
personal safety was (and remains) paramount for both guests and
hosts. The notion of having a stranger enter your home to spend the
night (or several nights) certainly raises questions about whether the
guest will violate your personal safety, whether they will steal your
possessions, whether they will pay you, etc. Guests were equally
likely to share similar concerns. As a result, Airbnb employed the
mirrored rating system, whereby the host and the guest evaluate
each other.

Airbnbs Tech Crunch Profile describes the company as follows:

Airbnb is a community marketplace for people to list, discover and
book unique spaces around the world through mobile phones or the
internet. Whether an apartment for a night, a castle for a week, or
a villa for a month, Airbnb connects people to unique travel experiences at any price point, with over 500,000 listings in 33,000 cities
and 192 countries.

Inspiration Behind Airbnb

After graduating from RISD, Brian and Joe found themselves on the
west coast, pursuing professional careers, first in Los Angeles and
then San Francisco. Ultimately, they ran out of cash and were unable
to pay their rent. To make some cash they decided to advertise
their apartment to attendees of an upcoming design conference.
They created a micro-site and rented out three air mattresses. They
referred to their experiment as Airbedbnb. To their surprise, they
received inquiries from three guests who agreed to pay them $80
USD a nightBrian and Joe had stumbled upon a Big Idea.

Launch
As web applications, known as multi-sided Platforms (MSPs), were
becoming more widely adopted, Airbnbs co-founders realized the
concept could also be utilized to enable consumers to e-rent a
room in the city of their choosing, using their web browser or mobile
phone. They invited Nathan Blecharczyk, their former roommate, to
join them as their third co-Founder, with the explicit role of building
the Airbnb web portal. They launched at the world famous South By
Southwest (SXSW) music and film conference in Austin Texas, and
received two bookings. Hence, Airbedbnb was formally launched.

Early History
With their pilot launch in Austin behind them, Brian and Joe started
focusing more heavily on their new business, yet their efforts did not
yield initial success. Airbedbnb stalled at roughly $200 USD a week
in revenues, and they were unable to break through the threshold.
Airbnb applied, and was accepted, into the famous Silicon Valley
Accelerator, Y Combinator, where the founders raised their first funding round of $20K USD. More importantly, they received mentorship
from world-class entrepreneurs. In the accelerator program they
were pushed hard to grow the business week over weekalthough
that initially proved to be a stubborn challenge. Under the guidance
of their mentors, Brian and Joe eventually went to New York, going
door-to-door, to take more professional photographs of the properties available for rent. This proved to be an important milestone.
They broke through the revenue plateau and quickly doubled sales
to $400 a week and were finally on their way to the meteoric growth
they are now known for today.
Airbnbs launch happened in the aftermath of the global financial
crisis. Some would argue that Airbnb created a new pattern of
consumption similar to that stimulated by Silicon Valley icons Uber
and eBay. Many of Airbnbs early hosts had never considered renting
out spare space in their homes or apartments. With layoffs at record
levels, many felt compelled to earn extra income to pay their rent,
kids tuition, and simply to make ends meet. Hence, Airbnbs timing
was impeccable.
Furthermore, many of Airbnbs guests were NOT regular bed and
breakfast patrons but, more typically, customers of low-priced hotel
chains, such as Red Roof Inn or Howard Johnsons.

Economics
From an economic point of view, the host and renter agree upon a
pre-arranged price. At the time of the booking payments are made to
Airbnb directly through the app. By policy, Airbnb gets a commission
for each rental (based on a percentage of the total rent) and the host
keeps the balance.

Host Insurance
Initially, Airbnb did not provide liability insurance for its hosts. In
one well-publicized incident that occurred in June of 2011 a guest
punched a hole though a locked closet door and robbed the host.
He stole a passport, credit cards, jewelry and cash. Additionally,
damage to the hosts apartment totaled in the tens of thousands of
dollars. The story went viral through major media outlets, including
traditional news media such as the Wall Street Journal, The New
York Times, USA Today, and social sites including Gawkerand,
at precisely the wrong time, while Brian and Joe were out raising a
major round of institutional venture capital. In addition, the host, a
corporate events planner, began blogging about the incident, adding
more fuel to the fire.
It was Airbnbs first real crisis and could have easily led to the
demise of the company if not handled properly. They had to escalate
their level of protection for hosts. Ultimately they announced The
Airbnb Guarantee providing up to $50K USD in insurance to hosts
to reimburse them for property damage and theft, as well as other
changes to reinforce the trust system with more safeguards. It was
a pivotal milestone in the companys history. The fervor subsided,
and Airbnb successfully raised over $100M in venture capital later
that summer. Moving forward from this incident, Airbnbs growth has
been nothing short of staggering.

Global Visibility
Airbnbs rapid success has attracted a wide range of attention, from
prominent angel investors such as Amazon Founder and CEO Jeff
Bezos, Yelp CEO Jeremy Stoppleman and actor Ashton Kutcher,
and prominent institutional venture capitalist funds, including
Sequoia, Andreesen Horowitz, Greylock and General Catalyst
Partners, who have collectively invested over $800M USD across
six separate rounds of capital raising. The most recent valuation for
Airbnb is approximately $10B USD, one of the highest valuations in
history for a VC-backed company. With this capital, they are now
present in nearly 200 countries around the globe.

2014 Michael Grandinetti, Hult International Business School. Images: mashable.com and airbnb.com

Today, Airbnb has more rooms in its portfolio than virtually all of the
worlds leading hotel chains. Further, the recent $10B valuation
is higher than the market capitalization of all but a handful of the
worlds largest hotel chains.
Recently, Airbnbs success has also attracted the attention of the
hotel industry, and Attorney Generals in various cities around the
globe who are looking to protect this powerful industry lobby. Hotel
chains assert that Airbnb has been stealing business (although this
is unlikely in all but a few cases concerning low-end hotel chains).
Hotels pay significant taxes to the cities in which they operate, giving
them considerable political lobby clout. For example, some chains
have won the backing of a number of Attorney Generals who have
dusted off decades-old statutes, and who have asserted that Airbnb
is in violation of short-term rental laws that typically only apply for 30
days or less.
In the US, Attorney Generals in New York and San Francisco have
been working hard to reign Airbnb in. New York Attorney General
Eric Schneiderman issued a subpoena to Airbnb demanding information on every host-property owner with more than one property
listed on the site. Airbnb resisted the request on the grounds of
privacy.
In Europe, governments including London in the UK and Catalonia
in Spain have also taken legal action. Catalonia is the first European
government to slap a 30K Euro fine on Airbnb for violating strict
regulations on property rentals.
Similar to Uber in the network-transportation spacewhich does not
consider itself a taxi companyAirbnb does not consider itself to
be a hotel company. In essence, Airbnb asserts that it is essentially
a multi-sided market that connects guests with hosts, or in other
words, an eBay for rooms.
Today, Airbnb is an icon that has helped to pioneer what is known as
the Collaborative Economy, or alternatively, the Sharing Economy.
Along with other icons such as Uber, TaskRabbit, and ShareDesk,
it has forever changed the way that consumers around the world
consume products and services.

Challenge: Take the stance of an Airbnb competitor.

If you were the Chief Executive Officer of an Airbnb competitor what
would you do?

Step 1
Pick a country in the North or Latin American region

Step 2
Pick an Airbnb competitor for whom you will create your strategy

Step 3
Answer each of the following questions:
A. Airbnb already operates in almost 200 countries around the world.
How significant are they in your country of choice and why?
B. Who are your target customer segments in your chosen country?
Do business travelers constitute an important segment? Why or why
not might this matter?
C. How would you position your company of choice vs. Airbnb
D. What value proposition does Airbnb offer that might be different
from yours?
E. How can you ensure your company can continue to compete with
Airbnb long-term?

Step 4
Apply for intake Fall 2015: hult.edu/apply-now

Step 5
Submit proposal in Word format to enrollment.americas@hult.edu
Please put Airbnb Scholarship Competition in the subject line.

Today, however, new battle lines are being drawn, with much at
stake for Airbnb and its investors on one side, and hotels and city
tax collectors on the other. This will inevitably present a fresh set of
challenges for Airbnb management.

2014 Michael Grandinetti, Hult International Business School. Images: mashable.com and airbnb.com