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January 20, 2017

BMi: Airbnb + The Experience Economy

airbnb trips

Airbnb recently launched their new ‘Experiences’ that will enable guests to book authentic experiences with local hosts from their mobile phone.  Experiences are part of Airbnb’s new mission to create Trips that enable travelers to break out of the ‘tourist box’ they are put into by most tourism operators.

Airbnb Trips

“With Airbnb Trips, you don’t even need a home or a car to make money, just your time and talents.”

Airbnb CEO Brian Chesky started the project in the fall of 2014 with a private team of 6 that they codenamed ‘Snow White.’   CTO Nathan Blecharcyzk took over the Homes business during this time. The Trips team grew to over 200 people  (of Airbnb’s 2,500 employees). The vision was to move Airbnb beyond Homes and enable it to become a brand that is the primary travel reference point for an entire generation.

brand - generation

They spent over 160 hours crafting each and every single experience. Airbnb takes a 20% commission from the guides and will require huge scale to make the endeavor profitable:

“We couldn’t figure out how to make the economics work.” In order for trips to be profitable for guides, each excursion needs about six to eight travelers; for Airbnb to make money, millions of tourists need to participate. To help both sides get the scale they need, the company is using a concept it calls “batching,” in which Airbnb uses its data and algorithms to match the preferences of travelers with guides. (The guides set their own prices and cover their costs.).” Vanity Fair – Airbnb’s Ambitious Second Act

Will Airbnb capture the minds and imaginations of the largest generation in history and be the hub for booking their travel experiences?

“80% of Young people want to spend their money on experiences –not things says Airbnb exec ”  Twitter @jowyang 

global millennials

The Experiences Model

The experience model doesn’t just redefine Airbnb’s business model, it redefines the business model of an entire economy. First and foremost, from an individuals’ perspective as Experiences now become another entrepreneurial opportunity to earn income for anyone:

“And in Chesky’s mind the excursions will provide talented individuals—some of them former lawyers, surgeons, and Uber drivers perhaps—with a source of income or even a livelihood.” Vanity Fair – Airbnb’s Ambitious Second Act

Airbnb host income

The average host on Airbnb makes $7,530 USD per year. How much can the average Experiences guide make? Over half of the Experiences on Airbnb are priced below $200, but with an average of 6-8 guests per Experience, there is a lucrative opportunity to make income, especially if it was combined with some kind of homes.

Then there are the extensions into the rest of the travel and cities ecosystem that will happen around Airbnb. The Trips app will enable you to book flights, restaurants, and really everything else that relates to the trip.

Beyond experiences, they have:

  • Places –  has insider guidebooks, local group meetups, ‘nearby now,’ the ability to connect with other members of the Airbnb community and contextual restaurant reservations
  • Flights + Services – will enable people to book flights, rent cars, on-demand food delivery, and other activities right through the app

To accomplish this, they will integrate partners such as Resy and Detour; new partners will inevitably join the Trips platform as it expands, but for now there are no plans for an API.

Partnership Future

lumos-micro

+ BMi – Business Model Innovation and the #NewEraBiz

As we look at the tourism and travel industry globally, the new Trips app has the potential to revolutionize the travel market and anyone who doesn’t adapt their strategy will be caught flat-footed. From a macro perspective:

  • Airbnb expects millennials to be 75% of travelers by 2020
  • This type of all-encompassing initiative could rapidly accelerate the shift in dollars from the traditional economy into the sharing economy

Resy handpicks the restaurants that they offer on their app. Detour gives immersive audio walking tours. If this initiative is successful, it could radically shift traffic away from sites like TripAdvisor and Yelp, and push travelers towards entirely new destinations in major tourist centres.

Airbnb initially launched 500 Experiences in 12 cities and is expected to roll out in another 39 cities in the near futures. As ‘Experiences’ becomes an entirely new ‘category’ for traveling, this could put a significant amount of pressure on any tourism business that doesn’t offer an ‘experience’ to guests. The business model (micro) for stagnant tourism operators, especially those who are out of touch with the young generation, will be under siege in the years ahead.

The ecosystem of cities could also change dramatically with the launch of Experiences. If travelers both stay in Airbnbs and use the app to find restaurants, book experiences, and rent cars, then the local tourism economy will become much more P2P (peer-to-peer) and it will be difficult, if not impossible, for local bodies to control where travelers spend their dollars.

lumos-ecosys

If Airbnb starts to move travelers through its Trips platform in a major way, any business that is linked to the tourism ecosystem will be forced to partner to provide value-added services and become themselves an ‘experiences’ platform. This doesn’t include hokey coupons or sponsored maps, companies will have to curate their own local experiences and create open-ended adventures for their guests in the same way Airbnb does. This requires foresight and thought into both the physical and digital experience.  Any company missing the shift into the experience economy will be left in the dust.

Business Model Innovation (BMi) has been a persistent topic on the Lumos blog since the beginning. BMi is about developing new ways to bring existing product and services to existing markets. One of the key advantages of BMi is that most of the innovation happens beneath the surface, making it difficult to understand and replicate: