Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape an overall extent of competition in the industry. Airbnb Porter’s Five Forces Analysis are illustrated in Figure 1 below:
Figure 1 Airbnb Porter’s Five Forces
1.Threat of new entrants in AirbnbPorter’s Five Forces Analysis
The threat of new entrants into pear-to-pear lodging industry is low. Theoretically, setting up a website should suffice to enter the industry. However, in practice there is a number of barriers to potential new entrants into peer-to-peer lodging industry. These include the following:
1. The time of entry. In e-commerce the role of the first mover advantage is usually paramount and it is usually very difficult if at all possible for the followers to even get close to the market disruptor. Once their business model proved to be viable, internet-based market disruptors such as Amazon, Facebook and Uber were able to gain large market share in the global marketplace in a short amount of time. Funding from investors, word-of-mouth, effective management and hype usually play an instrumental role in assisting e-commerce disruptors to secure their niche and strengthen their position in international markets.
This was the case with Airbnb as well. Founded in 2008, the company became a leading global hospitality service brokerage company within a matter of a few years. As of summer 2019, Airbnb boasts More than 6 million listings in more than 191 countries and regions worldwide.[2] The word Airbnb became a synonym for peer-to-peer lodging, leaving little room and market for potential new entrants.
Nevertheless, it would be naive to claim that the threat of new entrants does not exist. There is no limit on the numbers of times that a market can be disrupted and as such, any new company with another innovative idea can re-organize the market, given the idea resonates with the wants and needs of the target customer segment.
2. Capital requirements. Ability to raise capital is critical success factor for a start up such as rental and experiences platforms. After raising the first USD 20,000 capital from Y Combinator in 2009, the founders were able to raise USD 600,000 from Sequoia in 2009, USD 119,20 million from various early investors in 2010 and USD 450 million from TPG Capital in 2014. This was followed by raising more than 2,5 billion during the next few years. Since its founding in 2008, the company attracted the total funds of [3] more than USD billion.
While it can be easy for any company or even individual to build a website to start a peer-to-peer lodging business, it will be extremely difficult to secure funding from investors. In this case, investor scepticism would be totally understandable, because the niche is already taken by Airbnb.
3. Legal and regulatory barriers. Airbnb is consistently facing various legal and regulatory restrictions in international business because of the disruptive nature of its business. Some cities have laws that restrict hosting of paying guests for short periods and in other cities people must register, get a permit, or obtain a license before they can list their property or accept guests.
Airbnb works with governments around the world to clarify these rules so that everyone has a clear understanding of what the laws are.In some cities such as Los Angeles, New York City, Santa Monica, Las Vegas and San Francisco the services of Airbnb is still illegal[4]. While Airbnb has resources and experience to deal with a wide range of legal matters, new market entrants will be limited in both, resources and experience and this can serve as a significant entry barrier.
2.Rivalry among existing firms in Airbnb Porter’s Five Forces Analysis
Rivalry among existing firms in peer-to-peer lodging industry is fierce. The following set of factors fuel rivalry among existing firms in this industry:
1. Rate of growth of the industry. Airbnb has enjoyed global compound growth rate of 153% since 2009. The projected number of Airbnb users in Europe by 2020 is 24 million.[5]
As it has been illustrated in Figure 2 below, the numbers of sharing economy users have been consistently increasing in the US to reach 73,7 million in 2019 and this tendency is forecasted to continue. Not only in the US, the popularity of sharing economy is on the rise in the global scale. Impressive rate of growth in the industry is going to attract new market players, further intensifying rivalry among existing firms.
Figure 2 Number of sharing economy users in the United States from 2016 to 2021 (in millions)[6]
2. Diversity of competitors. Following the popularity of Airbnb, a wide range of competitors emerged positioning themselves as niche service providers in the industry pioneered by Airbnb. For example, Flipkey focuses on group bookings in popular tourist destinations, another competitor, TurnKey offers freedom to busy travellers by giving them door code instead of a key, meaning that travellers can rock up and leave whenever they want.
Similarly, HomeAway positions itself as a more refined and more polished competitor to Airbnb, targeting a slightly older crowd, whereas Vrbo is for kid-friendly vacations with listings that are bigger and have backyards. It is important to note that while Airbnb is an undisputed global leader in peer-to-peer lodging industry, niche competitors such as the ones mentioned above present increasing threat to the lodging colossus.
3. The role of brand equity. The role of brand equity in the global rental and experiences industry is paramount. Brand equity can be defined as “a brand’s power derived from the goodwill and name recognition that it has earned over time, which translates into higher sales volume and higher profit margins against competing brands.”[7] Airbnb has been privately valued at USD 35 billion[8] and such a high level of equity is a clear indication of the brand as the leading lodging colossus at the global scale.
3.Bargaining power of buyersin Airbnb Porter’s Five Forces Analysis
Bargaining power of buyers in the lodging and experiences industry is moderate. The following factors play significant role in limiting buyer bargaining power:
1. No direct substitution. Although, there is a indirect substitution such as traditional hotels and hostels for global rental and experiences platform, there is no direct substitution for peer-to-peer lodging services. In other words, peer-to-peer lodging services offer a wide range of advantages such as having kitchens and amenities, location in neighbourhoods and more space for less price. Traditional hotels and hostels are not able to match these advantages, and therefore, they cannot be substitute for those travellers for whom these advantages are important.
2. Size and concentration of buyers compared to suppliers. There are hundreds of millions of travellers around the world, but only a few dozen global hospitality service brokerage companies that are trusted by both, hosts and guests. Therefore, it can be argued that the size of buyers is significantly greater compared to the size of supplier and such a situation imposes certain limits on buyer bargaining power.
3. Buyer’s propensity to go for substitute products and services. As mentioned above, the advantages of peer-to-peer lodging include having kitchens and amenities, location in neighbourhoods and more space for less price. Substitute services such as traditional hotels and hostels do not offer these advantages, and therefore, buyers’ propensity to go for substitute services may be limited.
Airbnb Inc. Report contains a full analysis of Airbnb Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Airbnb. Moreover, the report contains analyses of Airbnb leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Airbnb marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review
[2] Fast Facts (2019) Airbnb Press Room, Available at: https://press.airbnb.com/fast-facts/
[3] Dealroom.Co (2019) Airbnb. Available at: https://app.dealroom.co/companies/airbnb
[4] Hamed, E. (2019) “5 CITIES WHERE AIRBNB IS ILLEGAL IN 2019” Mashvisor, Available at: https://www.mashvisor.com/blog/5-cities-where-airbnb-is-illegal-2019/
[5] Airbnb Statistics (2019) Property Management, Available at: https://ipropertymanagement.com/airbnb-statistics/
[6] Statista (2019) Available at: https://www.statista.com/statistics/289856/number-sharing-economy-users-us/
[7] Brand Equity (2019) Business Dictionary, Available at: http://www.businessdictionary.com/definition/brand-equity.html
[8] Schleifer, T. (2019) “Airbnb sold some common stock at a $35 billion valuation, but what is the company really worth?” Recode, Available at: https://www.vox.com/2019/3/19/18272274/airbnb-valuation-common-stock-hoteltonight
FAQs
What are Porter's 5 forces on Airbnb? ›
- Threat of New Entrants.
- Bargaining Power of Suppliers.
- Bargaining Power of Buyers.
- Threat of Substitutes.
- Industry Rivalry.
1. Competitive Rivalry. The first of Porter's Five Forces looks at the number and strength of your competitors. Consider how many rivals you have, who they are, and how the quality of their product compares with yours.
How do you answer Porter's 5 forces? ›- Step 1 – Preparation is Key.
- Step 2 – Threat of New Entry.
- Step 3 – Threat of Substitution.
- Step 4 – Supplier Power.
- Step 5 – Buyer Power.
- Step 6 – Competitive Rivalry.
- Bonus Step – Placing Your Current Strategy.
Five forces by porter are as follows: Competitors in the industry; Threat of new entrants; Bargaining power of suppliers; Bargaining power of buyers; Threat of substitutes. Competitors operating in the same industry may drive profit margins and revenue down for any given company.
What is an example of Porter's 5 forces in hospitality? ›A good example of this is when groups like tour operators bulk purchase or book hotel rooms. As customers gain greater bargaining power, hotels are likely to lower their prices. If the bargaining power is high, suppliers will have great difficulty hiking prices and can even incur losses.
What is the most important force in Porters Five Forces? ›Of Porter's Five Forces, competitive rivalry has the strongest influence on whether entering an industry would be profitable. When rivalry is high, there are many competitors, and those competitors have a high cost associated with exiting the industry.
What is the primary objective of Porters Five Forces model? ›The Five Forces primary purpose is to determine the attractiveness of an industry. However, the analysis also provides a starting point for formulating strategy and understanding the competitive landscape in which a company operates.
What is an example of buyer power Porter's five forces? ›Buyer power refers to a customer's ability to reduce prices, improve quality, or “generally play industry participants off one another.” Buyer power examples include larger and influential customers demanding higher-quality products for lower prices.
What is an example of threat of new entry? ›An Example of a High Threat of New Entrants
A clothing designer selling their merchandise on an online platform may face a high threat of new entrants from other small businesses who may enter the market and sell similar designs at a comparable price.
Sixth force of Porter's- Example
A very simple example of complementary goods, the sixth force of Porter's framework, is the hotdog and the hotdog bun. A normal consumer prefers to eat a hotdog in a hotdog bun.
What are Airbnb key factors? ›
- Quality Photographs Make a Difference. ...
- Time. ...
- First Impressions. ...
- Individualized Experience. ...
- Price. ...
- Response Time. ...
- Installing a Lockbox. ...
- Legalities.
Airbnb's revenue model is based on three key components: hosts, guests, and Airbnbmag. Airbnb earns most of its revenue from hosts, who list their properties on the platform and pay a fee for doing so. Guests also pay a fee to book accommodations through Airbnb.
What is Airbnb competitive advantage? ›Since its inception in 2008, Airbnb has grown rapidly and gained market share. Because it provides lodging at lower prices than its competitor Booking.com, Airbnb is in a strong position to weather any economic storm.
What are the porter's 5 force for mcdonalds? ›- Threat of New Entrants.
- Threat of Substitutes.
- Bargaining Power of Customers.
- Bargaining Power of Suppliers.
- Competitive Rivalry.
- The bargaining power of the customers. This refers to the ability of customers to force down prices. ...
- The bargaining power of suppliers. ...
- The threat of new entrants. ...
- The threat of substitutes. ...
- The intensity of rivalry between competitors.
Here are some examples of strategic questions: When you saw a major change happen here in the past, what actions and conditions led to that change? How might we create those conditions as we approach this change? What can we do together that none of us can do alone?
What are three questions that strategic analysis attempts to find answers to? ›If you were taking notes during the meeting, these are the key questions you and you management team should now begin to develop information on in order to answer: What is our business? (Mission) What will our business be? (The changing environment that we are certain about) What should our business be? (Vision)
What is an example of strategic questions? ›- Who is your target customer? ...
- What are the biggest challenges the company is facing? ...
- How can you improve the company's current product? ...
- How did the company get to where it is? ...
- Where does the company want to go? ...
- What should the company do more of?
The rivalry among competitors is the strongest of the five forces. This rivalry may cause price wars between competing firms if the industry is centered on price competition. Other sectors compete on product offerings. In this situation, each company tries to market a product with the best selection of features.
Is Porter's five forces strong or weak? ›The 5 forces of competition is a strong tool for conducting an in-depth analysis of the competitive structure of an industry. Furthermore, Porter's 5 forces model can be used to complement a SWOT analysis.
What is the key purpose and benefit of using Porter's 5 forces quizlet? ›
the Five Forces model helps business people understand the relative attractiveness of an industry and the industry's competitive pressure in terms of buyer power, supplier power, threat of substitute products and services, threat of new entrants, rivalry among existing competitors.
What is the threat of new entrants in Porter's five forces? ›The Threat of New Entrants, one of the forces in Porter's Five Forces industry analysis framework, refers to the threat that new competitors pose to current players within an industry. It is one of the forces that shape the competitive landscape of an industry, and it helps determine the attractiveness of the industry.
What is an example of strong buyer power? ›A few examples of Buyer Power
A good example of when buyers have influence is insurance – for a car, house, travel etc. A buyer can bargain with an insurer wanting to increase their premiums if there are plenty of other companies offering the same service cheaper.
If the consumer is price sensitive and well-educated about the product, then buyer power is high. Then if the customer purchases large volumes of standardized products from the seller, buyer bargaining power is high. If substitute products are available on the market, buyer power is high.
What is an example of a high bargaining power of buyers? ›Example. Bargaining power of buyers in the airline industry is high. Customers are able to check prices of different airline companies fast through the many online price comparisons websites such as Skyscanner and Expedia. In addition, there aren't any switching costs involved in the process.
What are three threats examples? ›- Bank robbers for banks.
- Car thieves for cars.
- Fake money.
- False checks, and/or.
- Computer viruses.
Usually, the number of suppliers of a particular resource greatly determine supplier power. For example, if a firm needs steel to produce their product, and there is only one seller of steel in the market, then the steel company has a strong supplier power.
What is an example of bargaining power of suppliers? ›Suppliers may have increased bargaining power when there are barriers restricting other sellers from entering the industry, such as high entry costs. For instance, a manufacturer may not enter an industry due to the high cost of buying machinery, procuring raw materials, getting land, and hiring staff.
Is Porters Five Forces a strategy? ›What are Porter's Five Forces? Porter's Five Forces model is a critical element of strategic analysis that helps companies decide how to shape the balance of competitive forces to maximize profitability.
What are Porter's five competitive forces on airline industry? ›- Rivalry among competitive firms.
- Customers' bargaining power.
- Suppliers' bargaining power.
- The threat of substitutes.
- The threat of new entrants (barriers to entry)
What are Porter's five forces for travel agency? ›
These 5 forces are: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among competing firms. Figure 3.0 at above represent the framework of Porter Five Forces Model.
What are Porter's five forces of travel? ›The Five Forces includes the rivalry among competitors; threat of new entrants; the bargaining power of buyers; the bargaining power of suppliers; and the threat of substitute products and services.
What are Porter's five forces and give an example of the airline industry using it? ›- The Threat of Entrant is Low.
- The Threat of Substitutes is Moderate.
- The Bargaining Power of Suppliers is Low.
- The Bargaining Power of buyers is high.
- Rivalry among Existing players is very high.
The airline industry has a number of structural barriers, primary of which are high cost of entry, access to finance, poor cash flow management and legal barriers.
What is the competitive strategy of the airline industry? ›Three main strategies are being followed including the expansion of global route networks; customer/marketing-orientated strategies aimed at improving service quality and securing brand loyalty; and cost control strategies.
What conclusions can be reached about the airline industry using the five forces framework? ›What conclusions can be reached about the airline industry using the five forces framework? The mega-airlines must constantly struggle to achieve consistent profitability. The supporting players, such as airports and aircraft suppliers, are quite profitable.
What is an example of Porter's 6th force? ›Sixth force of Porter's- Example
A very simple example of complementary goods, the sixth force of Porter's framework, is the hotdog and the hotdog bun. A normal consumer prefers to eat a hotdog in a hotdog bun.
A SWOT analysis (strengths, weaknesses, opportunities and threats) is a simple tool to help you gather your thoughts as you review your business and the industry around you. It divides an overall analysis into internal issues – strengths and weaknesses) and external issues (opportunities and threats).
What is an example of a push factor in travel? ›Push factors are related to the needs and demands of the tourists such as the wish for going on holiday out of their place of residence, resting and relaxing, adventure, prestige, health and social interaction.
What are five examples of push factors in travel motivation? ›In brief, these factors can be regarded as extrinsic motivations. Besides, push factors to involve forces an individual to take a trip to a particular destination. For instance, the need for rest, exploring and knowledge, escape, wellness, social communication, self-exploration or travel bragging, prestige.
What is an example of threat of new entrants in Porters Five Forces? ›
- Profitability does not require economies of scale.
- Products are undifferentiated.
- Brand names are not well-known.
- Initial capital investment is low.
- Consumer switching costs are low.
- Accessing distribution channels is easy.
- Location is not an issue.
Porter's Five Forces are Threat of new entrants, Bargaining power of buyers, Bargaining power of suppliers, Threat of new substitutes, and Competitive rivalry. This framework helps strategists understand what makes an industry profitable and provides insights needed to make strategic choices.
What is an example of threat of new entrants? ›An Example of a High Threat of New Entrants
A clothing designer selling their merchandise on an online platform may face a high threat of new entrants from other small businesses who may enter the market and sell similar designs at a comparable price.
The bargaining power of suppliers (strong force) The power of suppliers in the airline industry is a strong force in Porter's five forces in the airline industry.