Airbnb Business Model - Case Study Example

DISRUPTIVE BUSINESS MODELS AND EXTERNALITIES by (Name) The Name of the Class (Course) Professor (Tutor) The Name of the School (University) The City and State where it is located The Date Traditional business models have been shaken up because of sharing economy. Peer-to-peer sites such as Airbnb have recently come up and thus overhauled the traditional concept of business in relation to consumers through enabling the users to offer their properties such as cars and houses in return for cash obtained. This change in working on the business platform has significantly affected the traditional system since most consumers currently have all the forms of transaction at their disposal. As a result of shared economy, there is an increased sense of community but a reduction of waste (The New Economy, 2015). The Airbnb business model, an example of a peer-to-peer site, has had a greater impact on traditional companies. This is brought about due to the change in business structure and a breakdown in the distinction between customers and businesses. The social media has successfully achieved in bridging the gap between consumer and producer hence enabling customers to play a more important role in terms of marketing than they used to do in the past. Stephany (2015) states that direct impact goes to traditional businesses that fail to meet the current market standards. New economic values are being created while the formerly established industrial players are hence being eliminated. In San Francisco, the influence of Uber on the traditional taxi industry is evident. The usage of taxi services has increased dramatically while in New York the shares of Medallion Corp- an agency that lends money to New York taxi operators has considerably declined by a range of 30 percent due to a plunging in the demand for traditional taxis (WIRED and Economy, 2015). Peer-to-peer accommodation sites such as Airbnb have provided cheaper and more efficient markets. The impact of Airbnb in the hospitality sector has led to hotels cutting down their room charges due to the pressure they are facing from lower prices being offered peer-to-peer that is more appealing to consumers. There is scarcity in hotel supply, to overcome this; it will involve a lot of resources and large-scale work. Peer-to-peer accommodation tends to provide a faster alternative to this situation since its limit only depends on the willingness of people to offer the vacant rooms they possess. Airbnb sharing economy has managed to create a market from things that were previously less valued. As a result, there is maximizing of excess resources and minimizing of wastes (Raisinghani, 2008). Several controversies are being raised in relation this new model. Despite the fact that Airbnb contributes to affordable housing in New York, there is a belief that this new model could do more harm than good to the economy because of tax regulation. The users have made accusations towards Airbnb concerning the provision of a loophole in terms of tax evasion. According to Dean Baker, a Co-director of the Centre for Economic and Policy Research, Airbnb should be taxed similar to hotels and made subject to same safety standards such as Uber. This move will, however, trigger higher charges for consumers and thus undermining the fundamental objective of peer-to-peer that is the provision of affordable goods and services and moving business beyond the control of a single authority (Evans, 2015). Airbnb has therefore proven to be the most disruptive to the traditional industry. Due to the low cost of services that are being offered by Airbnb for example in hotel accommodation among others, the existing traditional businesses have been forced to lower their prices to avoid loss of customers who tend to prefer the affordable services offered by Airbnb. The reduction in the cost of service delivery as compared to the cost of maintenance and running the business means that these businesses are running at a loss in an attempt to try to survive in the changed market conditions. Airbnb is somehow providing cheaper alternatives to consumers while in the process evading the taxes and other regulations that govern the operation of work, through evasion of tax, it means that the traditional business or companies pay more in terms of tax to meet the standards. Airbnb has managed to break the barrier between customers and companies that has enabled customers to detect the trend in the market and also perform extra market transactions that would have rather been done by the companies. It is a move that has reduced the influence of the traditional companies towards its consumers and hence the consumers have acquired the rights and freedom to dictate the market trends (Delfmann, 2005). Traditional companies’ threat of losing control of their customers or consumers means that they can no longer make decisions on their own and implement it to the consumers. Those traditional companies have therefore been forced to adhere to the changes in the technological market or fear losing their relevance (Minkova, 2011). The shared economy has raised questions about its validity and future implications. Airbnb and Uber being examples of the shared economies provide affordable goods and services. Nevertheless, there are questions still pending as to whether they are just means of providing low wage- earning opportunities to as many people as possible of whether they will eventually lead to the displacement of the traditionally secure jobs that have been in existence (Innocenti and Sirigu, 2012). The new business model has resulted in an increased threat of substitutes in the market industry. These alternatives mainly refer to substitute products and services at large. Digital business, an example being taxi services such as Uber have led to the provision of a hybrid model to both the consumers and the taxi models via the digital app. Some of the digital services wrap around physical products such as the home automation technologies. What brings about the issue of threats to substitute is the low switching cost and the high buyer propensity to these substitutes (Baker, 2014). Uber taxi services can lead to customers switching from the traditional models they were previously used to and embrace the new model just by a mere installation of an app on their smartphones. Many factors have contributed to this propensity switch from the traditional model, some of the factors include the long waiting times for the taxis, lack of visibility into the taxi location among others (Journalist's Resource, 2015). These new business models’ way of operation has resulted to some such as the Airbnb model being able to operate in such a way that it avoids capturing the full costs of doing business. Business operations as much as they are aimed at achieving profit, they also have specific obligations to fulfill in the course of their operation. Payment of tax and adherence to the regulations of conducting certain business are some of the responsibilities a business has to meet. Airbnb business model has been accused of operating without payment of tax hence affording to offer cheap services while at the same time making profits. Since it is a private affair and not necessarily registered or operating under a particular regulatory body, there is no adequate supervision on whether the business is meeting specific standards of performing a particular duty. The sharing economy has become the order of business with nearly all industries adopting the model. As a result of technology and empowerment, many people can now access larger markets and also conduct business using assets that were previously less valued. There has been varying levels of success in terms of peer-to-peer business models; however, the most successful ones have had the highest destructive impact on traditional industries. An in-depth analysis needs to be done on these business models to make sure they merge properly with traditional industries. References Baker, M. (2014). Peer-to-peer leadership: why the network is the leader. http://www.aspresolver.com/aspresolver.asp?BIZP;2384876. Delfmann, W. (2005). Strategic Management in the Aviation Industry. Aldershot: Ashgate Pub. Group. Evans, N. (2015). How digital business disrupts the five forces of industry competition. [online] Computerworld. Available at: http://www.computerworld.com/article/2976572/emerging-technology/digital-disruption-from-the-perspective-of-porters-five-forces-framework.html [Accessed 20 Oct. 2015]. Innocenti, A. and Sirigu, A. (2012). Neuroscience and the economics of decision making. London: Routledge. Journalist's Resource, (2015). Uber, Airbnb and consequences of the sharing economy: Research roundup - Journalist's Resource. [online] Available at: http://journalistsresource.org/studies/economics/business/airbnb-lyft-uber-bike-share-sharing-economy-research-roundup [Accessed 20 Oct. 2015]. Minkova, V. (2011). Low Cost Carriers - Business Model, Impacts of its Expansion and Challenges. Munich: GRIN Verlag GmbH. Raisinghani, M. (2008). Handbook of research on global information technology management in the digital economy. Hershey, PA: Information Science Reference. Stephany, A. (2015). The business of sharing. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. The New Economy, (2015). Sharing economy shakes up traditional business models. [online] Available at: http://www.theneweconomy.com/business/the-sharing-economy-shakes-up-traditional-business-models [Accessed 20 Oct. 2015]. WIRED, A. and Economy?, A. (2015). Airbnb and Hotels: What to Do About the Sharing Economy?. [online] WIRED. Available at: http://www.wired.com/insights/2014/11/hotels-sharing-economy/ [Accessed 20 Oct. 2015]. Read More