Case Study Analysis: Airbnb Company

Introduction

In a world where global economic dynamics may change in a short amount of time, various companies may fall just as quickly as they arise. With the onset of the COVID-19 pandemic and consequent travel restrictions, the hospitality industry was hit especially heavily (Davahli et al., 2020; Gursoy and Chi, 2020). The business in question, Airbnb, was no exception in navigating one of the worst economic crises of the past century (Gyódi, 2021; Lee and Deale, 2021). Before the pandemic, Airbnb was known to have been successfully using the stakeholder model, which allowed the business to prosper (Esty and Ciechanover, 2021). In other words, before the pandemic, the company was always able to find a delicate balance between wants and needs of its stakeholders, including stockholders, employees, hosts, and guests. However, the pandemic posed a significant problem to the survival of the company, its business model, and long-term vision. Airbnb faced a problem of choice concerning whose interests it should sacrifice in order to survive the pandemic.

This report aims at providing specific recommendations for Airbnb about how it should approach the management of its business during the pandemic from the strategic viewpoint. The following objectives were identified:

• Analyse Airbnb’s internal environment to reveal its strengths and weaknesses;
• Assess the company’s external environment to outline opportunities and threats;
• Conduct the corporate- and business-level strategy analyses to assess;
• Provide relevant recommendations for navigating the firm through the crisis.

This report consists of four central parts. First, the paper briefly describes the case of Airbnb during the pandemic to provide the reader with a background. Second, the report states the problem under analysis and provides a literature review concerning the relevant concepts used for case analysis. Third, SWOT, Porter’s five forces, corporate-level, and business-level strategies are conducted. Finally, the recommendations concerning the future of the navigation of the company through crisis are provided.

Case Brief

Airbnb is one of the most successful start-ups of the 21^st century. The financial results promised a prosperous future was awaiting the company before the pandemic (see Appendix A). However, in 2020, the company experienced a significant decline in revenues as a result of cancellation of numerous booking due to the travel restrictions. Upon the onset of the COVID-19 pandemic, Airbnb’s booking rates plummeted shortly: in March, the rates were 42% lower than in 2019; a month later, they were 72% lower (see Appendix B). The ways in which Airbnb operates influenced its adaptations to the circumstances of the pandemic. The emphasis that the company places on continued long-term value creation” for all stakeholders drove it to prioritize the regular employees and members of the platform, starting with reducing CEO’s base salary to 1$ and target bonus to $0 (IPO Prospectus Form S-1, 2020).

The company responded quickly by implementing measures to support the hosts to ensure long-term partnership, cut costs, and raise additional cash to increase liquidity of the company (Esty and Ciechanover, 2021). Airbnb announced full refunds for cancelled reservations, reimbursed up to a quarter of lost funds to the hosts, and introduced supporting grants for the top-rated, long-term members of the platform (Esty and Ciechanover, 2021). The losses that Airbnb-affiliated landlords incurred became the reason for growing discontent. Some hosts left the platform entirely, especially those with short-term rentals; others sued Airbnb for unfair treatment and insufficient compensation (Esty and Ciechanover, 2021). While the company was trying to preserve its stakeholder model, shareholders, hosts, and employees expressed distrust with the governing body, which put the company leaders before difficult choices they needed to make to ensure the company’s long-term success.

Statement of Problems and Plan of Analysis

Statement of Problems

The pandemic put several problems in front of the Airbnb associated with its financial performance, engagement with stakeholders, the company’s short-term strategy, and the its long-term vision. The company needed to minimise its losses by cutting costs and finding alternatives sources of revenues. Cutting costs could be achieved through laying-off its employees, reducing wages of the employees, minimising marketing expenses, and avoiding the provision of support to the hosts during the pandemic (Esty and Ciechanover, 2021). However, all of these decisions were associated with hurting the interests of the some of the stakeholders. For instance, if the company decided to lay-off its employees, the decision would be welcomed by the shareholders, while the morale of the employees would fall. Similarly, the company could support the hosts by not allowing to refund any of the deposits, which would inevitably lead to the loss of trust from the customers. In other words, the company needed to find a balance between the short-term goals of sustaining financial stability and the long-term goal of meeting the needs of all the stakeholders to ensure durable partnership. In particular, in 2020, the company needed to address the following problems:

• Airbnb faced the problem of reduced revenues, which had a significant impact on the company’s profitability;
• The stakeholder model utilised by the company needed revision due to increased discontent of the key stakeholders;
• The company needed to make a decision concerning its vision.

Plan of Analysis

In order to solve the problems outlined above, the following plan of analysis was designed.

• Analyse the company’s historical development and growth. Historical analysis is expected to help to understand how the past strategy affects the present situation.
• Conduct environmental analysis. Environmental analysis is crucial for developing a long-term and short-term strategy, as it helps to determine positive and negative factors that affect the company from inside and outside. The environmental analysis was conducted using SWOT and Porter’s five forced, which are the most appropriate techniques for analysing internal and external environment (Öneren, Arar, and Yurdakul, 2017; Arifin et al., 2019).
• Analyse corporate-level strategy. The corporate level strategy is associated with determining the vision and mission of the company. The vision and mission statements help to understand the long-term goals of the company and unite the stakeholders around a common idea (Perret, 2018; Fiset and Robinson, 2020).
• Assess business-level strategy. The business-level strategy helps to determine how the company achieves a competitive advantage. Analysis of business-level strategies is expected to help to determine if the strategy is built on the company’s strengths to ensure sustained success (Seifzadeh and Rowe, 2019).
• Describe structure and control systems. The aim of this analysis is to identify that structure and control systems the company is using to implement its strategy and to evaluate whether that structure is the appropriate one for the company.

Literature Review

This literature focuses on the reliability and appropriateness of the identified methods of analysis. SWOT analysis is a commonly used method for analysing the external and internal factors that affect a business (Öneren, Arar, and Yurdakul, 2017). SWOT analysis encourages a realistic look at the company’s strengths, weaknesses, opportunities, and threats, which allows informed decision-making (Benzaghta et al., 2021). SWOT analysis is usually visualised as a two-by-two matrix, which allows the managers to see the big picture that affects the company. On the one hand, internal factors demonstrate what strengths the company has to create a sustained competitive advantage and what weaknesses should be addressed to avoid long-term problems (Arifin et al., 2019). On the other hand, the external analysis demonstrates what situations in the external environment the company can use to improve its current position and what events can negatively affect the company in the nearest future (Arifin et al., 2019). Porter’s five forces analysis supplements the SWOT analysis by helping to focus on the competition, identify the entities that hold power, and help to determine the corporate risks (Bruijl, 2018). Even though the two instruments for analysing the external environment were created more than 50 years ago, they remain relevant in today’s reality (Öneren, Arar, and Yurdakul, 2017; Bruijl, 2018).

Vision and mission statements are of extreme importance for the companies’ strategic management. The vision statement states how the company sees its effect on community, industry, or the world (Solly, 2021). Vision statement also describes the company’s long-term goals, which serves as a benchmark for future decision (Solly, 2021). Mission statement summarises the company’s aims and objectives. A mission statement usually mentions the target audience, the contribution of the product, and distinction, which makes the company unique in the market (Alegre et al., 2018). Recent research demonstrates that mission and vision statements have a positive impact on employees’ job satisfaction and organisational commitment (Dobrinić and Fabac, 2021). Moreover, using mission and vision statements as the central part of developing the long-term strategy is associated with improved financial performance of firms (Alegre et al., 2018). However, despite the well-known benefits, mission and vision statements are rarely used effectively by organisations (Alegre et al., 2018).

Business-level strategy is usually assessed based on Porter’s model of generic strategies. According to the framework, there are five strategies a company can use to achieve competitive advantage (Islami, Mustafa, and Latkovikj, 2020). The model is a two-by-two matrix, with scope and source of competitive advantage as the key differentiation points, as demonstrated in Figure 1 below (Viltard, 2017). The technique is frequently employed by strategic analysts worldwide to determine the best course of action for a business to set itself apart from its rivals.

While the approach helps to understand how to gain strategic advantage, it has significant limitations. The central drawback of the model is that there may be many more dimensions that can affect the company’s competitive advantage (Moon, H. C. et al., 2014). For example, strategies may be based on customers or products, increasing the number of initial generic strategies from four to eight (Moon, H. C. et al., 2014). However, even though Porter’s model of generic strategies is limited, it is still beneficial for the purpose of this report.

Analysis & Findings

Historical Analysis

Since 2009 when it first launched, the Airbnb’s operations have been said to reinvent homestays and tourism experiences (Hati et al., 2021; Reinhold and Dolnicar, 2021, p. 17). At its core, it advocates for providing a more personal experience than chain hotels by allowing private hosts to place their rentals on its platform. Airbnb emphasizes the value its operations deliver to the owners, shareholders, and stakeholder groups (IPO Prospectus Form S-1, 2020). The company made the first steps toward the stakeholder model in 2018-2019 and began implementing structural changes in early 2020: from reporting processes to career opportunities monitoring (Esty and Ciechanover, 2021). As a result, the company is widely discussed in modern research as an exemplification of a shared economy platform (Mahajan, 2018; Chua, Chiu and Bool, 2019; Dogru et al., 2020; Krouk and Almeida, 2020; Polisetty and Kurian, 2021). Airbnb’s services broadened in 2016 when it began offering the ‘Experiences’ feature, where travelers could experience unique activities alongside the locals, further highlighting its commitment to a personal approach (Esty and Ciechanover, 2021). Since its establishment, Airbnb has quickly developed into one of the largest vacation accommodation providers (Adamiak, 2019; Esty and Ciechanover, 2021).

Environmental Analysis

The results of SWOT analysis are provided below:

• Strengths:
  • Strong engagement with all stakeholders (Esty and Ciechanover, 2021);
  • Increased trust of the customers, including both hosts and guests (Esty and Ciechanover, 2021);
  • Strong leadership (Esty and Ciechanover, 2021);
  • Well-tailored marketing campaign (Esty and Ciechanover, 2021);
  • Low prices (Esty and Ciechanover, 2021);
  • Protection of hosts and guests (Esty and Ciechanover, 2021).
• Weaknesses:
  • Poor profitability between 2017-2020 (Airbnb, 2021);
  • Growing discontent of shareholders with leadership (Esty and Ciechanover, 2021);
  • Increase in the number of ‘capitalist’ landlords dependent on the revenue from short-rentals through Airbnb (Fairley et al., 2021);
  • Growing discontent of hosts due to the lack of protection from Airbnb (Esty and Ciechanover, 2021).
• Opportunities:
  • Increased interest from customers for renting rooms to care for older adults during the COVID-19 pandemic (Esty and Ciechanover, 2021);
  • Economic crisis that forces customers to choose Airbnb over hotels (Borio, 2020);
  • Increased interest to travelling during the post-COVID period (Adom, Alimov, and Gouthami, 2021);
  • Low interest rates on loans (Alsharef et al., 2020).
• Threats:
  • Low demand due to the pandemic (Esty and Ciechanover, 2021);
  • Decreased number of hosts after the pandemic due to capitalist landlords going out of business (Fairley et al., 2021).

Results of Porter’s five forces analysis for hospitality industry is provided below:

• Threat of substitution (Medium). Even though there are numerous substitutions to Airbnb, such as hotels, hostels, and private rentals, Airbnb has its unique features that cannot be imitated (Esty and Ciechanover, 2021).
• Threat of new entrants (Medium-to-High). While the entry in the market maybe easy due to low entry capital is needed (hostels and private rentals), it is unlikely they will emerge during the COVID-19 period due to low demand in the industry. However, during the post-COVID period new competitors may emerge.
• Bargaining power of customers (High). Guests have a high number of options that differ in their pricing. Moreover, the competitors are fighting for the decreased number of travellers by offering very low prices (Gursoy and Chi, 2020).
• Bargaining power of suppliers (Low-to-Medium). Hosts can rent their rooms through other services, such as social media and advertisements websites. However, the services and protection Airbnb offers remains unique.

Corporate Strategy

The company has established its current mission statement in 2019 by issuing a business update. The company wrote, “Airbnb’s mission is to create a world where anyone can belong anywhere and we are focused on creating an end-to-end travel platform that will handle every part of your trip” (Airbnb, 2019, para. 2). Thus, the mission statement is coherent with the company’s strength and historical development. While the company initially emerged as a rental service that helped customers to rent rooms, it effectively grew to a service that provides a wide variety of services (Esty and Ciechanover, 2021). Today, the company offers such services as meet and greet, cleaning, check-out, ad creation and communication with guests (Airbnb, 2021). Thus, the company’s corporate strategy is coherent with its mission. However, the vision statement was not established by the company.

Business Level Strategy

Airbnb’s strategy can be called non-conventional, as it uses elements of different generic strategies. On the one hand, it uses differentiation as the main strategy, because it provides unique travelling experience unlike its competitors from the hospitality industry (Esty and Ciechanover, 2021). On the other hand, it uses cost leadership as another strategy for achieving competitive advantage, as it offers low-cost accommodation for tourists (Esty and Ciechanover, 2021). The company uses both strategies effectively, which is a significant strength of the company.

Structure and Control Systems

The atmosphere of mutual accountability is one of the features that has played a role in the pandemic-induced host-visitor dynamics. As Leoni and Parker (2019) note, Airbnb utilizes mostly bureaucratic systems of monitoring and control of users’ compliance with the rules and requirements of the platform. This digital coordination applies to both visitors and hosts – while neither group is employed by Airbnb, they are nonetheless interested in complying as some of the similar controls may be applied: loss of profits, loss of status, and others (Leoni and Parker, 2019).

Proposed Solution

The central conclusion of the analysis is that Airbnb, ultimately, is capable of surviving the detrimental effects of the coronavirus pandemic. The company has a strong corporate and business strategy that can help the company to recover after the negative effects of the pandemic wear off. Thus, it is crucial to focus on protecting the current strategy of the firm with relevant adjustment to survive during the pandemic. These adjustments should include securing enough cash to ensure the company’s ability to pay its current portions of debt.

Much of the financial impact of the pandemic was placed on the hosts due to the implementation of the total refund strategy, many landlords expressed extreme discontent. As a result, many of the capitalist landlords will leave the platform due to the lack of demand (Krouk and Almeida, 2020). If that were the case, the future of Airbnb holds more of what it represented initially – a space for small-scale, casual rentals available in the ‘spare room’ format. Thus, the service may win from the pandemic.

Returning to the central question of the case study regarding whose interests should Airbnb sacrifice, it is best to reduce attention to the interests of hosts. While the hosts are main suppliers, they have a relatively small bargaining power due to the uniqueness of service the company offers. However, the interest of all the other stakeholders should be carefully considered to ensure long-term stability.

The recommendations for addressing the impact of the pandemic can be summarised as follows:

• Do not change corporate and business strategies. The company’s current strategy ensures the company’s long-term success. The short-term losses can be mitigated during the post-COVID period due to a rise in demand;
• Secure liquidity. The company needs to survive the COVID-period and pay its short-term obligations. This can be achieved by securing enough cash through debt, as the interest rates on loans are very low (Alsharef et al., 2020).
• Engage with stakeholders. Continue engagement with stakeholders is the key to success, which will ensure their long-term support.
• Sacrifice the interests of hosts to a limited extent. Since the bargaining power of hosts is low, their interests.
• Preserve current leadership. One of the company’s central strengths is its leadership. Thus, Airbnb needs to find a way to address the stockholders’ discontent with the company’s leadership without changing leaders.

Reference List

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Appendix A

Summary of Airbnb’s financial data, sourced from IPO Prospectus Form S-1 (2020, p. 22).

Appendix B

COVID-19 Impact on Airbnb’s Business through dynamics of monthly booking trends, sourced from IPO Prospectus Form S-1 (2020, p. 11).