Michael Porter’s Five
Generic Strategies
HOSP4060 Hospitality
Strategy Design and
Execution Seminar
Michael Porter’s Five
Generic Strategies
Cost Leadership
• Emphasizes producing standardized products a low per-unit cost for
consumers who are price sensitive.
Cost Leadership
• Striving to be the low-cost producer in an industry can be especially
effective when the market is composed of many price-sensitive
buyers.
Differentiation
• A strategy aimed at producing products and services considered
unique industrywide and directed at consumers who are relatively
price-insensitive.
Differentiation
• A successful differentiation strategy allows an organization to charge
a higher price for its product and to gain customer loyalty because
consumers may become strongly attached to the differentiation
features.
Focus
• Producing products and services that fulfill the needs of small groups
of consumers.
Focus
• Focus strategies can be especially attractive when:
• The target market niche is large, profitable, and growing.
• When industry leaders do not consider the niche to be crucial to their
own success
• When the industry has many different niches and segments.
Airbnb: Scaling Safety with Rapid Growth
Case
Author: Matthew Beck, William Foster, Claire Kenney & James S. O’Rourke
Online Pub Date: January 04, 2017 | Original Pub. Date: 2016
Subject: Business Ethics, Public Relations (Business), Crisis Management
Level: Intermediate | Type: Indirect case | Length: 5972 words
Copyright: © 2016. The Eugene D. Fanning Center for Business Communication, Mendoza
College of Business, University of Notre Dame
Organization: Airbnb | Organization size: Large
Region: United States of America | State: California
Industry: Accommodation
Originally Published in:
Beck, M., Foster, W., Kenney, C., & O’Rourke, J. S. (2016). Airbnb: Scaling safety with rapid
growth. 16-03. Notre Dame, IN: T h e E u g e n e D . F a n n i n g C e n t e r f o r B u s i n e s s
Communication, Mendoza College of Business, University of Notre Dame.
Publisher: The Eugene D. Fanning Center for Business Communication, Mendoza College
of Business, University of Notre Dame
DOI: http://dx.doi.org/10.4135/9781526406620 | Online ISBN: 9781526406620
SAGE
SAGE Business Cases
© 2016. The Eugene D. Fanning Center for Business Communication, Mendoza College of Business, University of
© 2016. The Eugene D. Fanning Center for Business Communication, Mendoza College of
Business, University of Notre Dame
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for
classroom discussion or self-study, and is not meant to illustrate either effective or ineffective
management styles. Nothing herein shall be deemed to be an endorsement of any kind. This
case is for scholarly, educational, or personal use only within your university, and cannot be
forwarded outside the university or used for other commercial purposes. 2017 SAGE
Publications Ltd. All Rights Reserved.
This content may only be distributed for use within Johnson and Wales University.
http://dx.doi.org/10.4135/9781526406620
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Case
The Lopez Incident
When 19 year-old Jacob Lopez traveled overseas to Madrid in July 2015, he anticipated an
enjoyable trip and planned to stay at an Airbnb property. His decision to book an Airbnb in
Madrid stemmed mainly from his great experience at an Airbnb property in Brazil just a year
prior.1,2
Lopez arrived in Madrid on July 4th and met his host, who turned out to be transsexual, at the
subway near the property. The male-transformed-to-female walked with Lopez to the
apartment and, upon arrival, locked the main door to the unit. Then, according to Lopez, the
woman ordered him to perform a series of sexual acts. Lopez initially refused to obey. He was
scared for his life after the host began to hint that she would harm him if he did not comply.
She also severed the Internet lines to hinder his ability to reach out for assistance.
Lopez texted his mother, Micaela Giles, in the United States. Giles immediately phoned
Airbnb from the family’s Massachusetts home for help. However, Airbnb personnel indicated
that an address to the property could not be provided as she was not the registered guest.
They went on to say that Giles would need to ask the Madrid police to call Airbnb directly for
the address to be released. She hung up the phone and repeatedly attempted to call the
Madrid police. Each time she rang authorities, she was led through a series of prompts in
Spanish only to have her calls continuously dropped. After several attempts, Giles tried to call
Airbnb again, but was unable to connect to the company’s emergency hotline.
Eventually, Lopez was able to escape by telling the host that he had to meet friends who
knew where he was and who would call the police if he did not show up to join them.
According to Lopez, the host sexually assaulted him prior to his escape. When questioned,
the host maintained that the sexual actions were consensual. Lopez has undergone extensive
counseling to overcome the trauma resulting from the situation.3
Airbnb Company Overview
In 2007, two twenty-something entrepreneurs, Brian Chesky and Joe Gebbia, saw a need in a
century-old industry. These two recognized that the lodging and hospitality business had not
tapped into the sharing economy. Doing so could provide convenient and economical options
for consumers. So, with a website called airbedandbreakfast.com, the duo launched their
idea.4 Chesky and Gebbia decided to pair the debut of their start-up with a local San
Francisco design conference in hopes of garnering more attention. For $80 a night, the
friends rented air mattresses in their shared apartment and reached out to members of the
city’s designer population to do the same. Gaining the interest of only three guests and three
hosts, the first attempt was an overall failure.5
But Chesky and Gebbia did not stop there. Instead, they paralleled their second attempt with
an even bigger event, the 2008 Democratic National Convention in Denver, Colorado. At this
time, Nathan Blecharczyk, Gebbia’s former and technologically savvy roommate, joined the
team. The three were able to secure a steady revenue. However, when elections came to an
end, revenue dropped significantly.6
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On the advice of an established entrepreneur, the three took their gig to New York City, an
area overpopulated with tourists and desperate for economical lodging options. This
environment, paired with an increasingly “open” society in which members were quickly
becoming more willing to share due to social media expansion, proved to be the perfect
springboard for the startup.7
Not long after its debut, Air Bed and Breakfast, or more commonly referred to as Airbnb,
transformed into a global billion-dollar company. The entity’s transactional process is fairly
straightforward. Airbnb hosts post pictures of their property on the company’s website and
online community members can search the site to find lodging. Property prices range from
less than $50 to more than $1,000 a night and guests can choose between renting an entire
home or apartment, a private room, or a shared room.8
Airbnb prides itself in fostering a community feel amongst guests and hosts. Chesky sums it
up as follows, “Airbnb is about so much more than just renting space. It’s about people and
experiences. At the end of the day, what we’re trying to do is bring the world together. You’re
not getting a room, you’re getting a sense of belonging.”9 Airbnb’s business model provides
assets to both hosts and guests. Hosts are able to earn supplemental income, sometimes
enough to cover the cost of their own rent or other property-related expenses, and guests
have access to relatively low-cost accommodations that they can book efficiently.
Today, a small team of Airbnb executives manages the company. These key staff members
include the Chief Executive Officer, Chief Technology Officer, Chief Product Officer, Chief
Financial Officer, Head of Global Hospitality, Head of Global Policy and Government Affairs,
and Chief Business Affairs and Legal Officer.10
Airbnb’s Business Model
Airbnb is among the fastest growing accommodation companies in the world. In December
2014, Chesky shared some news via Twitter: “Airbnb now has 1 million homes on its platform,
and is adding more than 20,000 new ones each week.”11 Equally impressive, the company’s
growth stemmed from a small workforce of approximately 1,600 employees globally.12 Airbnb
deliberately runs a lean operation, but what is most compelling about the company is that it
does not own real estate. Unlike traditional hotel companies, which own and profit from
physical real estate, Airbnb is purely in the business of connecting people with other people
and, by doing so, people with places.
The company’s core focus is connecting cost-focused travelers to homeowners that provide
lodging solutions in desirable sections of cities that hotels traditionally underserve. Many
users are repeat customers highlighting the fact that the service enables travelers to live like
the locals. In essence, Airbnb provides unique travel experiences as well as quick, affordable,
and safe accommodation for travelers.
Airbnb’s business model is straightforward. Users fall into one of two classifications: hosts or
guests. Hosts represent the asset owners who list their homes and apartments on the
platform. In effect, hosts provide the listings that are available to customers on the Airbnb
digital platform. Guests reflect the demand on the platform, representing customers that are
seeking to rent listings in cities around the world.
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Airbnb’s two main customer segments are personal travelers and business travelers, with
personal travelers comprising the majority of its users.13 Airbnb approaches customer
acquisition through two core sales channels – online advertising and word-of-mouth.14
According to Kenontech.com, a blog that highlights startups, “Airbnb is very aggressive with
its online marketing and ads can be found through an extensive network of affiliate sites and
as part of search results on major search engines.”15Kenontech.com goes on to say that the
second sales channel, which emphasizes a word-of-mouth approach, stems from the
founders’ belief that “if they provided their users with a great experience there would be a high
probability that their users would spread the word.”16
Furthermore, the company generates revenue from two main sources, commission from
renters and commission from homeowners. Commission rates are maintained at a minimum to
keep users from moving the transaction offline. Airbnb charges hosts a 3% host service fee for
each booking completed on its platform. Withdrawn from the host payout, this fee covers the
cost of processing guest payments.17 Airbnb also charges a guest service fee when a
customer’s reservation is confirmed. The current guest service fee is a variable fee that ranges
between 6-12% of the reservation subtotal (before fees and taxes). The higher the subtotal,
the lower the percentage, allowing users to save money when booking large reservations.18
The section below, ‘Sample Nightly Fee Rates’, illustrates a sample calculation that the
company provides on its website to explain the host service fee structure.
Sample Nightly Fee Rates
Example: 4-night reservation at a listing with a nightly rate of $100 and $50 cleaning fee
Subtotal: (4 nights x $100) + $50 cleaning fee = $450
Host Payout: $450 – (3% × $450) = $436.50
$450 – $436.50 = $14
Host Service Fee to Airbnb = $14 (rounded up to nearest dollar amount)19
The Nature of the Sharing Economy
The sharing economy offers the ability for anyone with an asset, whether a car, home, or extra
space in his or her driveway, to capitalize monetarily on that asset simply by renting it.20 The
nature of the sharing economy facilitates peer-to-peer business transactions. By way of a
digital clearinghouse, companies such as Parking Panda allow consumers to find a parking
space before they even enter a garage. Via Uber or Lyft’s electronic platform, a consumer can
summon a personal driver with just a couple of clicks.21 As for finding a deal on overnight
accommodations in an instant, Airbnb allows travelers to forego a call to the Holiday Inn by
renting another consumer’s bedroom for $50 a night or, if one prefers a more glamorous
option, renting a beachside mansion for a $1,000 a night by simply perusing the company’s
website.22
All members of the sharing economy share three main attributes:
1. They rely on recent technological advances to satisfy established consumer demands
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in innovative ways;
2. They enter a space with well-established companies and disrupt the current
competitive landscape; and
3. They function in interstitial areas of the law due to the timing of emergence.23
Rapid Growth of Airbnb
Since 2008, Airbnb has enjoyed unmatched growth in the accommodations industry
compared to its peers. According to the Wall Street Journal, which reported Airbnb’s most
recent valuation in June of 2015, the company has a valuation of $25 billion and 2015
revenues were projected to reach $900 million.24 By comparison, Marriott, which manages
more than 4,000 hotels, is valued at $21 billion and last year reached $13.8 billion in
revenue.25 In only a few years, Airbnb grew from a small start-up to an established company
with a market value larger than many of its traditional hotel competitors. Furthermore, Airbnb’s
valuation is approximately twice the size of rival travel site Expedia and more than five times
the size of HomeAway, Airbnb’s closest online competitor (see Figure 1).
Analysts contend Airbnb commands a premium valuation given the company’s accelerated
growth rate over the last few years. Airbnb’s $900 million in projected revenue for 2015 was
360% of the company’s revenue in 2013, which totaled $250 million. From 2014 to 2015, the
company had an estimated revenue growth of 113% year-over-year.26 Airbnb’s next closest
competitor for year-over-year growth was HomeAway at 24% and Expedia at 20%. Traditional
hotels like Marriott continue to grow at more conservative rates hovering between 5% and 10%
(see Figure 2).
Beyond revenue and valuation, Airbnb is quickly becoming a mainstream lodging brand
recognized among travelers. According to equity research firm CB Insights, the term “Airbnb”
recently surpassed “Marriott” in Google search popularity for the first year ever in 2015.27
Analysts remain bullish that Airbnb’s online dominance will likely continue to grow, further
enhancing its competitive position among its primary rivals in the lodging industry (see Figure
3).
With many promising growth metrics, institutional investors continue to flock to Airbnb as a
seemingly secure investment opportunity with a bright future. The Dow Jones Venture Source,
an online database that tracks company performance of privately held ventured-backed
companies, currently ranks Airbnb as the third most valuable private start-up in the world,
trailing only Uber and Xiaomi.28 Airbnb maintains a stable roster of prominent investors.
Notable companies include Sequoia Capital, Andreessen Horowitz, Tiger Global Management,
TPG Growth, T. Rowe Price, and Fidelity Investments.29 What is clear is that the company is
well capitalized and positioned to grow. What remains uncertain to some is the company’s
ability to sustainably manage this rate of growth.
Political and Regulatory Environment
On September 2, 2014, an independent city-wide poll from Quinnipiac University asked, “Do
you think New York City residents should be permitted to rent rooms in their homes for a few
days at a time to strangers, similar to a hotel, or should this practice be banned?”30 The
results of this poll showed a sound majority of voters, 56%, in favor of allowing short-term
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rentals to strangers. Only 36% of New York voters wanted to ban the use of short-term
rentals.31
Approximately one year later, in November 2015, Airbnb commissioned a survey to gauge
whether New York residents perceived the company and their rental service in a favorable or
unfavorable way. David Binder Research polled more than 400 respondents over an 11-day
period and found the following:
65% believed Airbnb should be legal in New York
22% believed Airbnb should be illegal in New York
05% answered they view Airbnb “very unfavorable”
10% answered they view Airbnb “somewhat unfavorable”
25% answered they view Airbnb “somewhat favorable”
12% answered they view Airbnb “very favorable”
48% of voters had “No Opinion” of Airbnb 32.
While Airbnb maintains sound consumer support in many of the cities where it operates, the
company is no stranger to political and regulatory controversy. Over the last two years, the
company has been embroiled in high-profile political battles with regulators in some of its
most lucrative markets, including San Francisco and New York City. In November of 2015, San
Francisco voters headed to the polls to vote on Proposition F, which was commonly known as
the “Airbnb Initiative.”
Proposition F was a ballot initiative drafted by city officials in an effort to toughen regulations
on short-term rental apartments and homes in the city of San Francisco.33 A political initiative
capable of reducing short-term listings and revenue for Airbnb, Proposition F presented the
first significant instance in which Airbnb faced an organized political effort to regulate the
company’s business model in its own backyard – San Francisco. Numerous Airbnb
opponents, including hotel industry backed opposition, affirmed Airbnb was operating under
interstitial areas of law and urged regulators to codify clear rules that would regulate online
rental platforms to a similar standard that traditional hotels must comply with under the law.
Proposition F attempted to enact the following key rules for Airbnb and other short-term rental
platforms. If the proposition passed by a majority vote, each company, and their rental hosts,
would be required to comply with the following rules:
1. A 75-day imposed limit over the course of a year on all forms of short-term rentals
where the host is not present during the stay. Hosts prohibited from listing a unit if it
exceeded the 75-day limit.
2. Require hosts and rental platforms to submit quarterly reports to the San Francisco
Planning Department detailing which nights the unit was rented out and which nights
the host occupied the unit
3. Insert Legal Standing provisions enabling permanent residents and nonprofit housing
groups the right to sue hosts and rental platforms for violating the rules.
On November 4, 2015, Airbnb scored a victory as voters favored letting city residents rent out
their homes.34 Proposition F lost by a vote of 55 percent to 45 percent. Airbnb outspent its
opposition by a factor of 16 to 1, spending $8 million dollars to defeat the measure. In
comparison, Unite Here, a hotel workers’ union, raised only $482,000 in support of the
measure. In the wake of Airbnb’s victory, Christopher Nulty, a spokesman for the company,
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released the following statement: “Voters stood up for working families’ right to share their
homes and opposed an extreme, hotel-industry-backed measure.”35
Terms of Service and User Liability
As opposition groups across the country remain committed to portraying Airbnb as unsafe and
preoccupied with evading sensible regulations, Brian Chesky, CEO and Co-Founder of
Airbnb, provides his viewpoint as it relates to the sharing economy. Chesky asserts, “There
were laws created for businesses, and there were laws for people. What the sharing economy
did was create a third category: people as businesses.”36 Regulators in cities across the
world, in particular where Airbnb operates, continue to grapple with the new business model
that has risen from the sharing economy. While consumers continue to lend support to Airbnb
and similar sharing economy services, questions still remain on where liabilities rest in this
new way of doing business. Do liabilities rest with the users of the service or the company
facilitating the service?
Airbnb’s Terms of Service agreement clearly defines which party assumes liability and how
Airbnb approaches risk management and legal strategy. Airbnb operates in hundreds of
countries, territories, and cities across the world. Naturally, this diverse geographical presence
makes it inherently difficult to inform users of all the applicable public safety, housing, and
zoning laws that might apply to them as hosts or guests. Instead of opting to educate all
users of the relevant housing and safety laws that apply to them in their respective territories,
Airbnb chooses to place all legal responsibility on the user through their terms of service
agreement.
Airbnb’s Terms of Service state, “Please read these terms of service carefully as they contain
important information regarding your legal rights, remedies, and obligation.” Airbnb’s Terms of
Service are over 16,000 words in length.37 In comparison, Marriott’s Terms of Use for the
United States and Canada are just under 2,500 words.38 Uber’s Terms are under 5,000
words,39 and Homeaway, an Airbnb competitor which owns more than five other rental
companies, has a Terms page on their website that totals just under 13,500 words.40 As of
February 14, 2016, Airbnb’s Terms of Service were last edited on July 6, 2015, two days after
the Lopez incident.
Airbnb says that it has no control over the conduct of its hosts, guests, or any other user of
the site. The company disclaims all liability in this regard to the maximum extent permitted by
the law. Airbnb states that it does not control the content contained in any of its listings and
the condition, legality, or suitability of any accommodations. Moreover, Airbnb states that all
bookings are made and accepted at the member’s own risk. The Terms of Service agreement
also states that Airbnb does not act as an insurer.
However, as of May 2012, Airbnb began offering a Host Protection program or Host
Guarantee, in which hosts are covered up to $1 million for damage and injuries. Airbnb’s
website states that the Host Guarantee does not cover cash and securities, pets, personal
liability, or common areas.41 Furthermore, the insurance is “secondary,” meaning the Airbnb
policy takes effect only after a host exhausts his or her personal insurance coverage.42
Members of Airbnb are sometimes listed as “verified” or “connected” which simply indicates
that they went through the verification process. Per the Terms of Service, this is not a
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guarantee of the member’s identity or whether they are trustworthy, safe, or suitable.
Members are encouraged to use their own judgment when accepting and selecting hosts and
guests.
Airbnb’s preferred strategy of informing users of their legal responsibilities through the Terms
of Service agreement does not come without contention between users and the company.
Many users confirm they do not read the Terms of Service agreement and the company is
aware of this significant caveat.
In September 2012, Nigel Warren, a New York City resident, illegally rented out his bedroom
for $100 a night while he was away in Colorado for a three-night trip. Upon his return from
Colorado, Nigel was contacted by his landlord who had been cited for five violations for
operating as an “illegal transient hotel.”43 The fines, if enforced, would have amounted to
$40,000 in punitive damages. Fortunately for Mr. Warren and his landlord, the city dropped
the sizable fines due to an administrative error of the city’s buildings department.
Due to his experience, Mr. Warren posed a pressing question that many stakeholders wish
the company would more thoroughly address. Acknowledging that Airbnb knows within
reason that many of its hosts who live in large cities are violating rules, he wondered why
Airbnb doesn’t warn people about the potential for legal hassles. “By ignoring local laws, you
(Airbnb) are making casualties of the very people you need to make your site a success,”
Warren said.44
Airbnb’s Safety Tips
Tips for Guests:
Clicking on the link “Trust and Safety” at the bottom of Airbnb’s homepage directs viewers to
another page with a link entitled “I’m a guest. What are some safety tips I can follow?” Airbnb
suggests reading the reviews of other guests to ensure the host is reputable. If guests are
skeptical about the host after reading the review, they are encouraged to use their intuition
and not book their stay with that host. Guests can also ask hosts to complete “profile
verifications” before booking with them. Airbnb suggests that guests talk to the host and start
a conversation about the upcoming stay. It also recommends traveler’s insurance and reminds
guests to call the local police or emergency services immediately if personal safety is
threatened.45
Tips for Hosts:
Above the link for guest safety tips, customers can learn about how to stay safe as a host.
Airbnb encourages hosts to read reviews of the guests and to use common sense when
accepting a guest’s request to stay at their listing. Hosts can require guests to complete
verifications before they book, such as Verified ID. With Verified ID, guests might be asked to
upload their government-issued ID, link their Airbnb account with their page on another social
media site (i.e. Facebook), or upload an Airbnb profile photo. Airbnb also asks hosts to call
the local police or emergency services if their personal safety is threatened. Airbnb suggests
that hosts designate a safe location in case of an emergency. Hosts can also notify their
neighbors that they are hosting an Airbnb guest as a precautionary measure.46
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Other Incidents Leading Up to July 2015
Incident 1:
In June of 2011, an Airbnb host who identified herself as “EJ” reported that the person who
rented her apartment trashed it and stole jewelry, cash, and electronics. EJ wrote about this
incident on her personal blog. Airbnb initially responded by trying to persuade EJ to remove
her blog post and declined to help her recover from the damages. Following the incident,
Chesky stated in a blog on Airbnb’s website on August 1, 2011 that he hopes “this can be a
valuable lesson to other businesses about what not to do in a time of crisis. With regards to
EJ, we let her down, and for that we are very sorry. We should have responded faster,
communicated more sensitively, and taken more decisive action to make sure she felt safe
and secure. But we weren’t prepared for the crisis and we dropped the ball. Now we’re
dealing with the consequences.”
Following the response Airbnb said they would provide a $50,000 insurance guarantee for any
loss or damages at the property of an Airbnb host. Since the incident, the policy has
increased to $1 million but is secondary to the host’s personal insurance. Also, Airbnb
planned to launch a 24/7 hotline for its users to report problems. Finally, Chesky offered his
own e-mail address in case customers had trouble getting in contact with an Airbnb
representative.47
Incident 2:
A couple rented an Airbnb property in the Hamptons (New York) in June 2014. Following
Airbnb’s safety tips, the couple read the reviews of the host and, because of the positive
nature of the reviews, decided to book the stay. Before arriving at the home and meeting with
the host, the couple texted the host to let him know the timing of their arrival and asked a few
questions about items in the house and where to pick up the keys. The host was reportedly
friendly and responsive.
Later that night at 2:45 a.m., the male guest received a text from the host that read, “Do you
want to try.” Shortly after, the host let himself into the locked house with another set of keys
and appeared to be inebriated. The host then asked the male guest, “The girlfriend, she’s
cool, right?” The male guest calmly asked the host to leave, but not before the host picked up
the guest’s keys and wallet. The male guest asked the host to put the items down and the
host did so before departing.
Shortly afterward, the terrified couple left the home. The female guest tried to call the 24-hour
emergency line, but could not reach an Airbnb representative after waiting on the line for 45
minutes. The couple then filed a complaint and received a response that Airbnb would be
forwarding the case to their Trip Experience Team. The couple drove back to Manhattan where
they found a hotel priced at $350 per night. That Monday, the couple called Airbnb twice by
phone, but no one returned their calls.
Only after Business Insider reached out to Airbnb for comment on the incident did Airbnb take
down the host’s listing and ban him from the site permanently. They reimbursed the couple
for their stay, apologized for the delay, and gave them a $500 credit to try Airbnb again. A
spokesperson for Airbnb commented about the incident in a Business Insider article, “We
deeply regret that this matter was not handled properly and our response fell well short of the
standards we set for ourselves. This behavior is totally unacceptable and the host has been
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permanently removed from Airbnb.”48
In September 2015, the couple ventured back onto Airbnb’s site and found that the same
property where the incident occurred was relisted on the site under a different name. As a
result, Airbnb banned the property again.
Nick Papas, an Airbnb spokesman, commented in another Business Insider article, “We have
technological tools and procedures that help ensure bad actors don’t try to come back to our
community. In this case, one investigator didn’t properly employ these tools. We’ve since
addressed this issue and we are implementing procedures to ensure it doesn’t happen again.
We will also make it clear to the host that he is not welcome and has no place in the Airbnb
community.”49
Response to Lopez Incident
The onus was left on Jacob Lopez’s mother to rescue her son in Spain. At the time of the
incident, Airbnb’s policy was to withhold the location of the guest if anyone other than the
guest were to ask and would not report a crime unless contacted by the guest. Lopez’s
mother called the Madrid police department, but was unsuccessful in her attempts. Even if
she had been able to reach someone in Madrid, the inefficiency of Airbnb’s protocol would
likely not have allowed for police to reach her son in time.
Nick Papas commented in a New York Times article, “We realize we can learn a lot from this
incident and we can do better. We are clarifying our policies so that our team will always
contact law enforcement if we are made aware of an emergency situation in progress. Safety
is our number one priority, and we want to get our hosts and guests as much help as
possible.”50
As reported on July 13, 2015, Belinda Johnson was promoted to Airbnb’s Chief Business
Affairs and Legal Officer. In this role, she is responsible for legal matters, civic partnerships,
public policy, social and philanthropic initiatives, and communication. According to Airbnb
CEO Brian Chesky, she’ll “become more of the face and the voice of the company.”51
References
1. Stump, Scott. “Airbnb Horror Story Reveals Safety Issues for Lodging Site,” Today Money.
A u g u s t 1 7 , 2 0 1 5 . http://www.today.com/money/airbnb-horror-story-reveals-safety-issueslodging-site-t39091
2. Gander, Kashmira. “Airbnb safety: Sexual assault allegations against host in Madrid raise
questions about website’s responsibilities,” Independent. August 16, 2015. Accessed February
2016.
http://www.independent.co.uk/travel/news-and-advice/airbnb-safety-sexual-assaultallegations-against-host-inmadrid-raise-questions-about-websites-10457992.html
3. Lieber, Ron. “Airbnb Horror Story Points to Need for Precautions,” The New York Times.
August 14, 2015. Accessed February 2016. http://www.nytimes.com/2015/08/15/yourmoney/airbnb-horror-story-points-to-need-for-precautions.html
4. H e l m , B u r t . “ A i r b n b i s I n c . ’ s 2 0 1 4 C o m p a n y o f t h e Y e a r , ”
Inc.http://www.inc.com/magazine/201412/burthelm/airbnb-company-of-the-year-2014.html
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5. Ibid.
6. Ibid.
7. Ibid.
8. A i r b n b w e b s i t e . “ A b o u t U s , ” A c c e s s e d F e b r u a r y 2 0 1 6 . W e b .
https://www.airbnb.com/about/about-us
9. H e l m , B u r t . “ A i r b n b i s I n c . ’ s 2 0 1 4 C o m p a n y o f t h e Y e a r , ”
Inc.http://www.inc.com/magazine/201412/burthelm/airbnb-company-of-the-year-2014.html
10.Bloomberg. Company Overview of Airbnb, Inc. Accessed February 2016. Web.
http://www.bloomberg.com/research/stocks/private/people.asp?privcapId=115705393
11. Griswold, Alison. “Airbnb’s Latest Milestone: 1 Million Homes, and Hardly Anyone Noticed,”
Slate.com. D e c e m b e r 8 , 2 0 1 4 . A c c e s s e d A p r i l 2 0 1 6 .
http://www.slate.com/blogs/moneybox/2014/12/08/airbnb_has_1_million_homes_brian_chesky
_announces_milest_one_and_almost_no.html
12. Poletti, Therese. “What really keeps Airbnb CEO up at night,” February 13, 2015.
Marketwatch.http://www.marketwatch.com/story/what-really-keeps-airbnbs-ceo-up-at-night2015-02-13
13. On, Ken. “Dissecting Airbnb’s Business Model Canvas,” Kenontek. February 9, 2014.
Web. http://www.kenontek.com/2014/02/09/dissecting-airbnbs-business-model-canvas/
14. Ibid.
15. Ibid.
16. Ibid.
17. Airbnb website. “What Are Host Service Fees,” Accessed February 2016. Web.
https://www.airbnb.com/help/article/63/what-are-host-service-fees
18. Airbnb website. “What Are Guest Service Fees,” Accessed February 2016. Web.
https://www.airbnb.com/help/article/104/what-are-guest-service-fees
19. Airbnb websote. “What Are Host Service Fees,” Accessed February 2016. Web.
https://www.airbnb.com/help/article/63/what-are-host-service-fees
20. Kokalitcheva, Kia. “Who’s Liable When an Airbnb Stay or Uber Ride Ends Badly?”
Fortune. November 10, 2015. Accessed February 2016. http://fortune.com/2015/11/10/sharingeconomy-safety-liability/
21. Geron, Tomio. “Airbnb and the Unstoppable Rise of the Share Economy,” Forbes/Tech.
F e b r u a r y 1 1 , 2 0 1 3 . A c c e s s e d F e b r u a r y 2 0 1 6 .
http://www.forbes.com/sites/tomiogeron/2013/01/23/airbnb-and-the-unstoppable-rise-oftheshare-economy#73ff0df56
22. Ibid.
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23. Nadler, Michael and Kaplan, Roberta. “Airbnb: A Case Study in Occupancy Regulation
and Taxation,”
T h e U n i v e r s i t y o f C h i c a g o L a w R e v i e w. 2 0 1 6 .
https://lawreview.uchicago.edu/page/airbnb-case-study-occupancy-regulation-and-taxation
24. Winkler, Rolfe, and Douglas Macmillan. “The Secret Math of Airbnb’s 24 Billion Valuation,”
Wall Street Journal. June 17, 2015. Accessed February 2016. http://www.wsj.com/articles/thesecret-math-of-airbnbs-24-billionvaluation-1434568517
25. Ibid.
26. Krishnan, Nikhil. “Why That Crazy-High Airbnb Valuation Is Fair,” LinkedIn. June 24, 2015.
Accessed February 2016. https://www.linkedin.com/pulse/why-crazy-high-airbnb-valuationfair-nikhil-krishnan
27. Ibid.
28. Austin, Scott; Canipe, Chris; and Slobin, Sarah. “The Billion Dollar Start Up Club,” Wall
Street Journal. February 18, 2015. Accessed February 2016. http://graphics.wsj.com/billiondollar-club/
29. Ibid.
30. News Release, PDF. “New Yorkers Welcome Democratic Convention 3-1; Quinnipiac
University Poll Finds; Voters Want Right To Rent Rooms Like A Hotel,” Quinnipiac University,
September 2, 2014. https://www.qu.edu/news-and-events/quinnipiac-university-poll/new-yorkcity/release-detail?ReleaseID=2076 as cited in Fischer, Ben. “Q-Poll Doesn’t Quite Say What
Airbnb Wants It To Say,” Biz Journals. September 2, 2014. Accessed February 2016.
http://www.bizjournals.com/newyork/blog/techflash/2014/09/q-poll-doesnt-quite-saywhatairbnb-wants-it-to.html
31. Ibid.
32. Noto, Anthony. “Poll: Majority of New Yorkers view Airbnb in positive light,” Biz Journals.
N o v e m b e r 5 , 2 0 1 5 . A c c e s s e d F e b r u a r y 2 0 1 6 .
http://www.bizjournals.com/newyork/news/2015/11/05/majority-of-new-yorkers-viewairbnbin.html
33. Lien, Tracey. “Everything you need to know about San Francisco’s Airbnb ballot measure,”
L o s A n g e l e s T i m e s. O c t o b e r 3 0 , 2 0 1 5 . A c c e s s e d F e b r u a r y 2 0 1 6 .
http://www.latimes.com/business/technology/la-fi-tn-airbnb-prop-fsan-francisco-20151029htmlstory.html
34. Said, Carolyn. “Prop F: S.F. voters reject measure to restrict Airbnb rentals,” SF Gate.
November 4, 2015. Accessed February 2016. http://www.sfgate.com/bayarea/article/Prop-FMeasure-to-restrict-Airbnb-rentals_6609176.php
35. Ibid.
36. Kessler, Andy. “Brian Chesky: The ‘Sharing Economy’ and Its Enemies,” Wall Street
Journal,
J
a
n
.
1
7
,
2
0
1
4
http://www.wsj.com/articles/SB10001424052702304049704579321001856708992
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37. A i r b n b w e b s i t e . “ A i r b n b T e r m s o f S e r v i c e . ” A c c e s s e d F e b r u a r y 2 0 1 6 . W e b .
https://www.airbnb.com/terms
38.Marriott.com “Marriott Terms of Use for United States & Canada.” Accessed February 2016.
Web. http://www.marriott.com/about/terms-of-use.mi
39. Uber website. “Uber Terms and Conditions.” Accessed February 2016. Web.
https://www.uber.com/legal/usa/terms
40.Homeaway.com “Homeaway Terms and Conditions.” Accessed February 2016. Web.
https://www.homeaway.com/info/about-us/legal/terms-conditions
41. Airbnb website. “Airbnb Host Guarantee Terms and Conditions.” Accessed February 2016.
Web. https://www.airbnb.com/terms/host_guarantee
42. Lieber, Ron. “A Liability Risk for Airbnb Hosts,” The New York Times. December 5, 2014.
Accessed February 2016. http://www.nytimes.com/2014/12/06/your-money/airbnb-offershomeowner-liability-coverage-but-hosts-stillhave-risks.html
43. Lieber, Ron. “A Warning for Hosts of Airbnb Travelers,” The New York Times. November
30, 2012. Accessed February 2016. http://www.nytimes.com/2012/12/01/your-money/awarning-for-airbnb-hosts-who-may-bebreaking-the-law.html?_r=1
44. Ibid.
45. A i r b n b w e b s i t e . “ A i r b n b T r u s t a n d S a f e t y . ” A c c e s s e d F e b r u a r y 2 0 1 6 . W e b .
https://www.airbnb.com/help/article/241/i-m-a-guest—what-are-some-safety-tips-i-can-follow
46. A i r b n b w e b s i t e . “ A i r b n b T r u s t a n d S a f e t y . ” A c c e s s e d F e b r u a r y 2 0 1 6 . W e b .
https://www.airbnb.com/help/article/231/i-m-a-host—what-are-some-safety-tips-i-can-follow
47. Olivarez-Giles, Nathan. “Airbnb offers $50,000 insurance policy after user’s ‘nightmare.’”
L o s A n g e l e s T i m e s. A u g u s t 1 , 2 0 1 1 . A c c e s s e d F e b r u a r y 2 0 1 6 .
http://latimesblogs.latimes.com/technology/2011/08/airbnb-insuranceguarantee.html
48. Bort, Julie. “An Airbnb Host Got Drunk And Let Himself Into The House While A Business
Insider Employee Was Sleeping.” Business Insider. June 24, 2014. Accessed February 2016.
http://www.businessinsider.com/biemployee-has-airbnb-horror-story-2014-6
49. Bort, Julie. “Banned Airbnb Host Who Entered The House While His Guests Were
Sleeping Was Back On Airbnb.” Business Insider. October 6, 2014. Accessed February 2016.
http://www.businessinsider.com/bannedairbnb-host-was-back-on-the-site-2014-10
50. Lieber, Ron. “Airbnb Horror Story Points to Need for Precautions.” New York Times.
August 14, 2015. Accessed February 2016. http://www.nytimes.com/2015/08/15/yourmoney/airbnb-horror-story-points-to-need-for-precautions.html
51. Bellstrom, Kristen. “Exclusive: Meet Airbnb’s highest ranking female exec ever.” Fortune.
July 13, 2015. Accessed February 2016. http://fortune.com/2015/07/13/airbnb-belindajohnson-promotion/
http://dx.doi.org/10.4135/9781526406620
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Case Synoposis
Briefly summarize the case in your own words and evaluate the internal and external
issues that are being faced.
Strengths
Weaknesses
Opportnuities
Threats
s
Company Name:
Key External Factors
Opportunities
Threats
Total
Weight
Rating
Weighted
Score
Company Name:
Key Interal Factors
Strengths
Weaknesses
Total
Weight
Rating
Weighted
Score
Refer to the PoweerPoint, Michael Porter's 5 Strategies, identify two speciic strategies
that AirBNB can employ. Reference specific information in the EFE and IFE to support
your response. Your strategies should be specific and include financial impact.
Strategy 1
Strategy 2
Choosing Your Route to Success
Which do you prefer when you fly: a cheap, no-frills airline, or a more expensive operator with fantastic service
levels and maximum comfort? And would you ever consider a small company with just a few routes?
The choice is up to you, of course. But the point we're making here is that when you come to book a flight, there
are some very different options available. Why is this so? The answer is that each of these airlines has chosen a
different way of achieving competitive advantage in a crowded marketplace.
In this article and video, we'll look at three approaches described by Michael Porter.
Click here to view a transcript of this video.
The no-frills operators have opted to cut costs to a minimum and pass their savings on to customers in lower
prices. This helps them grab market share and ensure their planes are as full as possible, further driving down
cost. The luxury airlines, on the other hand, focus their efforts on making their service as wonderful as possible,
and the higher prices they can command as a result make up for their higher costs.
Meanwhile, smaller airlines try to make the most of their detailed knowledge of just a few routes to provide better or cheaper services than their larger, international rivals.
Generic Strategies
These three approaches are examples of "generic strategies," because they can be applied to products or services
in all industries, and to organizations of all sizes. They were first set out by Michael Porter in 1985 in his book,
"Competitive Advantage: Creating and Sustaining Superior Performance."
Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable
products and services) and "Focus" (offering a specialized service in a niche market). He then subdivided the
Focus strategy into two parts: "Cost Focus" and "Differentiation Focus." These are shown in figure 1 below.
Porter's Generic Strategies Diagram
Tip:
The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be interpreted as
meaning "a focus on cost" or "a focus on differentiation." Remember that Cost Focus means emphasizing costminimization within a focused market, and Differentiation Focus means pursuing strategic differentiation
within a focused market.
The Cost Leadership Strategy
Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge"
that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within
a Cost Leadership strategy:
• Increasing profits by reducing costs, while charging industry-average prices.
• Increasing market share by charging lower prices, while still making a reasonable profit on each sale
because you've reduced costs.
Tip:
Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!
The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or
market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to
attack by other low-cost producers who may undercut your prices and therefore block your attempts to increase
market share.
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You, therefore, need to be confident that you can achieve and maintain the number one position before choosing
the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:
• Access to the capital needed to invest in technology that will bring costs down.
• Very efficient logistics.
• A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of
other competitors.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to
you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously
find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy
of "continuous improvement."
The Differentiation Strategy
Differentiation involves making your products or services different from and more attractive than those of your
competitors. How you do this depends on the exact nature of your industry and of the products and services
themselves, but will typically involve features, functionality, durability, support, and also brand image that your
customers value.
To make a success of a Differentiation strategy, organizations need:
• Good research, development and innovation.
• The ability to deliver high-quality products or services.
• Effective sales and marketing, so that the market understands the benefits offered by the differentiated
offerings.
Large organizations pursuing a differentiation strategy need to stay agile with their new product development
processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies
in different market segments.
The Focus Strategy
Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand
loyalty amongst their customers. This makes their particular market segment less attractive to competitors.
As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its
own.
But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy
is to ensure that you are adding something extra as a result of serving only that market niche. It's simply not
enough to focus on only one market segment because your organization is too small to serve a broader market (if
you do, you risk competing against better-resourced broad market companies' offerings).
The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs).
Tip:
Generic strategies apply to not-for-profit organizations too.
A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting donations and achieving more
for its income, while one pursuing a Differentiation strategy will be committed to the very best outcomes, even if
the volume of work it does, as a result, is smaller.
Local charities are great examples of organizations using Focus strategies to get donations and contribute to
their communities.
Choosing the Right Generic Strategy
Your choice of which generic strategy to pursue underpins every other strategic decision you make, so it's worth
spending time to get it right.
But you do need to make a decision: Porter specifically warns against trying to "hedge your bets" by following
more than one strategy. One of the most important reasons why this is wise advice is that the things you need to
do to make each type of strategy work appeal to different types of people. Cost Leadership requires a very
detailed internal focus on processes. Differentiation, on the other hand, demands an outward-facing, highly creative approach.
So, when you come to choose which of the three generic strategies is for you, it's vital that you take your organization's competencies and strengths into account.
Use the following steps to help you choose.
Step 1:
For each generic strategy, carry out a SWOT Analysis of your strengths and weaknesses, and the opportunities
and threats you would face, if you adopted that strategy.
Having done this, it may be clear that your organization is unlikely to be able to make a success of some of the
generic strategies.
Step 2:
Use Five Forces Analysis to understand the nature of the industry you are in.
Step 3:
Compare the SWOT Analyses of the viable strategic options with the results of your Five Forces analysis. For
each strategic option, ask yourself how you could use that strategy to:
• Reduce or manage supplier power.
• Reduce or manage buyer/customer power.
• Come out on top of the competitive rivalry.
• Reduce or eliminate the threat of substitution.
• Reduce or eliminate the threat of new entry.
Select the generic strategy that gives you the strongest set of options.
Tip:
Porter's Generic Strategies offer a great starting point for strategic decision-making.
Once you've made your basic choice, though, there are still many strategic options available. Bowman's Strategy
Clock helps you think at the next level of details, because it splits Porter's options into eight sub-strategies. You
can also use USP Analysis and Core Competence Analysis to identify the areas you should focus on to stand out in
your marketplace.
Key Points
According to Porter's Generic Strategies model, there are three basic strategic options available to organizations
for gaining competitive advantage. These are: Cost Leadership, Differentiation and Focus.
Organizations that achieve Cost Leadership can benefit either by gaining market share through lowering prices
(whilst maintaining profitability) or by maintaining average prices and therefore increasing profits. All of this is
achieved by reducing costs to a level below those of the organization's competitors.
Companies that pursue a Differentiation strategy win market share by offering unique features that are valued
by their customers. Focus strategies involve achieving Cost Leadership or Differentiation within niche markets in
ways that are not available to more broadly-focused players.
Apply This to Your Life
• Ask yourself what your organization's generic strategy is. How does this affect the choices your make
in your job?
• If you're in an organization committed to achieving Cost Leadership, can you reduce costs by hiring
less expensive staff and training them up, or by reducing staff turnover? Can you reduce training costs
by devising in-house schemes for sharing skills and knowledge amongst team members? Can you
reduce expenses by using technology such as video conferencing over the Internet?
• If your organization is pursuing a Differentiation strategy, can you improve customer service?
Customer Experience Mapping may help here. Can you help to foster a culture of continuous
improvement and innovation in your team?
• And if you're working for a company that has a chosen a Focus strategy, what knowledge or expertise
can you use or develop to add value for your customers that isn't available to broad market
competitors?
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