In the landscape of the sharing economy, few companies have made as significant an impact as Airbnb. By pioneering a peer-to-peer model that connects travelers with local hosts, Airbnb has transformed the way people find accommodations and experience new destinations. With a presence in over 190 countries, supporting a vibrant community of more than 650,000 hosts and facilitating around 30 million reservations annually, Airbnb stands as a testament to the power of the sharing economy. 

This case study aims to explore the intricacies of Airbnb’s product model and the strategic transformations that have driven its success. Through this analysis, we aim to provide valuable insights for product managers and tech professionals, highlighting the innovative strategies that have enabled Airbnb to thrive in a competitive market.

Airbnb’s Business Model

Airbnb’s revenue model is built on three primary sources:

1. Commission from Hosts: Airbnb charges hosts a commission ranging from 3% to 5% of the booking fee for rentals. For hosts offering experiences, such as events and activities, the commission is higher at 20%.
2. Fees from Guests: Guests are charged a service fee of 0% to 20% of the booking amount, depending on the specifics of their reservation. This fee is added to the total booking cost and varies based on factors such as the length of stay and location.
3. Host-Only Fee: Some hosts, particularly those listing traditional hospitality services like hotels and serviced apartments or using software integrations, pay a host-only fee. This fee generally ranges from 14% to 16%, though it can be higher for Airbnb Plus listings or hosts with strict cancellation policies. 

Airbnb: Key User Demographics and Market Segments 

Airbnb’s business model caters to two primary customer segments:

1. Hosts: These are individuals or businesses that have available spaces for rent. Hosts can list their properties on Airbnb, specifying conditions such as availability, check-in and check-out times, and house rules. They have the autonomy to accept or reject reservations and can review guests post-stay.
2. Guests: These are travelers seeking accommodations. Guests use Airbnb to search for places to stay, filtering by location, property type, price, and other criteria. They book and pay for their stays through the platform, benefiting from the unique and diverse lodging options that Airbnb offers.

How Airbnb Reached Product Market Fit by Testing Assumptions

Airbnb’s journey from idea to successful startup involved rapid testing and continuous iteration. The founders, Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, quickly moved from the concept of renting out airbeds to establishing a global platform. Here’s a detailed look at their discovery steps and key insights that led to their initial growth.

The Discovery Steps

Renting the First Three Airbeds

Within 1-2 weeks of their initial idea, the founders created a simple website offering three airbeds for rent at $80 per night. They pitched this to design blogs, gained attention, and secured three bookings. This early test not only generated a small income but also provided valuable insights into guest expectations and the hosting experience.

Sharing the Idea with Friends and Family 

In October 2007, the founders shared their idea with friends and family. The responses were polarized, ranging from excitement to skepticism. This feedback helped them understand the potential market and refine their approach.

Testing at SXSW 

To test the scalability of their concept, they relaunched a more polished website for SXSW, targeting attendees who couldn’t find hotel rooms. Despite their efforts, only five hosts signed up, and just two people booked, one of whom was a co-founder. This test highlighted the need for a better understanding of guest barriers and market appeal.

Founder Chesky Became a Guest 

Brian Chesky stayed with a host to experience the guest side of Airbnb. This stay revealed the awkwardness of cash payments and the necessity for an online payment system to streamline transactions and reduce discomfort for both hosts and guests.

Democratic National Convention (DNC) Housing Crisis 

Capitalizing on the housing shortage during the DNC, Airbnb secured its first 100 bookings and 800 listings. This broader context testing shifted their perspective from a conference accommodation service to a more general travel platform.

The Craigslist Hack

To attract more hosts, the founders emailed people who listed short-term rentals on Craigslist, highlighting the potential for increased earnings on Airbnb. This manual outreach eventually became automated, significantly growing their host base.

Improving Photography 

Noticing that poor photos were a barrier to bookings, the founders flew to New York to take professional photos for listings. This led to a significant increase in bookings, proving the impact of high-quality visuals on user engagement and trust.

Staying with Hosts 

Following advice from Y Combinator’s Paul Graham, the founders regularly stayed with hosts in New York to gather feedback and observe the hosting experience. This hands-on approach provided deep insights into host needs and helped refine the platform.

Applying Insights to Other Markets 

The success of professional photography in New York was replicated in other key markets like Paris, London, and Miami. By solving similar challenges in these locations, Airbnb saw consistent growth and increased bookings.

Chesky Lived Out of Airbnbs 

Even after reaching product-market fit, Chesky continued to live in Airbnbs to test out his assumptions and learn new insights, further immersing himself in the guest experience and continuously improving the platform based on those insights.

Learn more about assumption testing, including essential tools and techniques, in our detailed blog The Critical Role of Assumption Testing for Product Teams.

Airbnb’s Product Management Shift Under Brian Chesky

Brian Chesky set out to address specific challenges that had been plaguing Airbnb, which had a historical context and a recent trigger.

Problem Identification:

A. Complex Organizational Structure and Inefficiencies:

• Over time, Airbnb’s organization became complicated with the influx of multidisciplinary teams and their diverse ideas. This complexity resulted in a structure divided along functional and divisional lines, which diverged from Brian Chesky’s vision of a design-led company.
• Each sub-division operated with its own roadmap, with product managers (PMs) running them independently. This led to a lack of cohesion in the overall product strategy.
• There were more than 150 screens and over 70 user policies, contributing to the complexity and inefficiencies within the organization.
• Despite numerous A/B experiments and launch decisions, there was little qualitative basis to support the results, resulting in minimal impactful changes to the core product and increasing operational costs.

B. Loss of 80% Business During the Pandemic:

• The COVID-19 pandemic severely impacted Airbnb, causing an 80% drop in business almost overnight. This sudden loss forced the company to reassess its operations and cost structure.
• The pandemic served as a critical trigger for Chesky to simplify the organization and cut costs drastically.

Centralized Roadmap and Decision-Making:

In response to the crisis, Chesky took a hands-on approach by reviewing all roadmaps and reducing them by 80%. This centralization aimed to streamline decision-making and focus on core product enhancements.

Chesky assumed direct ownership of the central roadmap and all major decisions, ensuring a unified direction for the company.

Organizational Redesign:

Consolidation of PM and Marketing:

• Chesky consolidated the product management (PM) and marketing functions into a smaller, unified team. This move was intended to eliminate silos and foster closer collaboration between product development and marketing efforts.
• The new structure aimed to ensure that PMs were not only developing products but also taking responsibility for their marketing and overall success.

Emphasis on Design Centrality:

• Chesky’s long-term goal was to position design at the heart of Airbnb’s operations. The redesign emphasized the importance of design in the product development process, aligning with his vision of a design-centric organization.
• This shift involved making designers central to decision-making, ensuring that the aesthetic and user experience aspects were prioritized.

Centralized Design and Decision Making

Implementation of a Core Central Team

• A core central team of about 30-40 people, including Chesky, was established to oversee the Airbnb experience holistically. This team was tasked with making critical decisions and maintaining a comprehensive view of the product roadmap.
• The central team comprised experts in various fields who could provide a unified, global perspective on the product and user experience.

 

Shifting Decision-Making to a Central Expert Team

• Decision-making processes that were previously distributed among smaller teams were now centralized under the expert team. This shift aimed to ensure consistency and coherence in the product strategy and execution.
• By centralizing decisions, Airbnb sought to reduce the fragmentation and misalignment that had previously hindered its progress.

Foreseeing the Future: Potential Challenges and Solutions

Maintaining Decision Efficiency:

• Centralizing decision-making can lead to bottlenecks and slower processes if not managed properly. Ensuring the central team operates with efficient processes and clear communication channels is crucial to avoid delays.
• Implementing streamlined workflows and decision-making frameworks can help maintain agility and responsiveness.

 

Ensuring Comprehensive Fact-Gathering:

• Without dedicated PMs overseeing specific tasks, there is a risk of gaps in fact-gathering, documentation, and collaboration.
• To mitigate this, Airbnb might need to hire additional roles such as program managers, data scientists, and community/ops managers to support these activities.
• Establishing clear roles and responsibilities within the central team can ensure comprehensive fact-gathering and effective execution.

A Closer Look at Airbnb’s Product Management Transformation

Airbnb’s recent transformation under Brian Chesky has involved a significant integration of product management and marketing functions, aimed at streamlining operations, enhancing user experience, and aligning internal processes. This shift has several key aspects:

Integration of Product Management and Marketing:

• Unified Approach: By merging product management and marketing, Airbnb aims to create a cohesive strategy that spans from product development to market launch.
• Eliminating Silos: This integration breaks down traditional organizational silos, fostering collaboration and knowledge sharing across departments.

 

Breaking Down Silos and Increasing Transparency:

• Collaborative Environment: The move towards a unified product management function encourages cross-functional collaboration, ensuring that decisions are made with a holistic view of the business.
• Transparency: Increased transparency ensures that stakeholders have visibility into the decision-making process, promoting accountability and trust within the organization.

 

Public Accountability for Product Managers:

• Ownership and Responsibility: Product managers at Airbnb are expected to take public accountability for their decisions and outcomes, mirroring a trend seen in consumer goods industries.
• Market Alignment: This emphasis on accountability reinforces the need for product managers to align closely with market trends and customer needs, driving product success.

Implications for Agile and Scrum Practitioners

Airbnb’s transformation holds several implications for Agile and Scrum practitioners, particularly Product Owners, who play a crucial role in Agile methodologies:

Lessons for Product Owners:

Importance of Outward Focus and Market Alignment:

• Product Owners should not only focus on internal team dynamics but also stay closely aligned with market trends and customer expectations.
• This outward focus ensures that products remain relevant and competitive in the marketplace.

Emphasis on Accountability and Ownership:

• Similar to Airbnb’s approach, Product Owners should embrace ownership of product decisions and outcomes.
• Accountability fosters a culture of responsibility and encourages proactive problem-solving.

Avoiding Echo Chambers Through Cross-Functional Collaboration:

• Agile teams thrive on diverse perspectives. Product Owners should facilitate cross-functional collaboration to avoid echo chambers and ensure that decisions are well-rounded and inclusive.

Adaptability and Responsiveness to Market Changes:

• Airbnb’s transformation highlights the importance of agility in responding to market changes swiftly. Product Owners should be adaptable, adjusting strategies based on continuous feedback and evolving market dynamics.

 

The implications of Airbnb’s transformation extend beyond its walls, offering valuable lessons for Agile and Scrum practitioners. Emphasizing outward focus, accountability, and cross-functional collaboration are crucial takeaways for product owners aiming to drive innovation and maintain relevance in today’s fast-paced market.