The hotel industry
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The hotel industry is a saturated industry that normally requires firms to maintain substantial overhead, substantial capital property, and brand reputation to successfully compete for fluctuating market shares. As a result, rivalry is high and there is little room for new entrants in the fiercely competitive and economically sensitive hotel industry. That being said, Airbnb has created a market that enables almost anyone who owns sleeping space to become a competitor to hotels and traditional Bed and Breakfast establishments. Airbnb’s web based hoteling application enables customers to rent privately owned sleeping space to anyone looking for an affordable place to sleep. The benefit gained from the services provided generate revenue for Airbnb and their customers (a reported $500 million in transactions in 2011) by allowing them to rent (short term) otherwise vacant rooms, houses, or anyplace a person can lay their head to sleep. Airbnb’s core competency is its ability to use technology (including iPad, iPhone app) to manage future customer’s property for rent and make it attractive and appealing to potential renters (guests). While listing a rental on their website is free, Airbnb charges a 3% fee to the property owners for all bookings and 6-12% of the booking price to renters.
Looking back at the problems in the case, I feel that instead of being reluctant to comment on the “EJ” incident, Airbnb should have responded much more quickly to the public after the “EJ” incident; apologize via the media to the host “EJ”, announce proper solution to such problems and publish improvements over such safety issues. This would have saved them from bad publicity. Airbnb is a market leader and offers competitive advantages in its brand recognition; ease of use, extensive listings, and network effects, the company faces difficulty in maintaining a sustainable competitive advantage. The peer-to-peer rental marketplace is a recent start, and as such, is not a defined market and can be shaped with relative ease. Due to relatively low barriers to enter this market, Airbnb’s competitors can almost perfectly duplicate its business model, which makes long-term growth challenging. Moreover, with the arrival of new competition and problematic legal/consumer issues, Airbnb must prioritize a series of strategic options.