Wednesday, July 29, 2015

What is AirBnB's competitive advantage?

Cyrus Sanati, of Fortune, wonders what AirBnB's competitive advantage is, and if it will be able to ever earn the loft valuation is currently enjoys:
 I am not a fan of any business model where the person purchasing the service is expected to pay a  "fee" to a middleman, especially when that middleman (Airbnb), has no real competitive advantage whatsoever. Simply put, the barriers to entry online are way too low and Airbnb's sole revenue stream, the fees it charges its hosts AND guests, are very vulnerable to attack. I fear Airbnb will eventually be subject to vicious competition, forcing the company to lower those fees until its profit margins go to zero.

Is this true?
Real two-sided markets, like eBay (at least in the collectibles sector) have a very defensible middle man position, collecting fees both from buyers and sellers. I would add Uber in the same category, as I think the friction on the consumer side (multiple ride-sharing apps) and driver side (multiple ride-sharing apps), plus the positive externalities from network density, secure a strong middle man position.
AirBnB rentals would naturally cross-list on, or, and I'm willing to invest more time, at a website on a PC, to find something that's well priced. So I don't think I agree with Sanati that fee-for-service middle men businesses are destined to have low margins, I think it may be true for AirBnB in it's market.


Blogger JD said...

Totally agree.
People (often professionals) said this about eBay for years. It was total nonsense.
You can remove the middle man from airbnb by knocking on doors in residential areas and offering people money to stay the night. Personally, I'd rather pay the commission.

6:44 PM  

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