The Business Model of AirBnB

AirBnB is one of the world’s most prominent startups. The company has been valued at over $10 billion and is often considered to be a pioneer in its field of business. It is compared to revolutionary and breakthrough business models like Uber!

At its core, AirBnB is nothing but the eBay of the hospitality industry. It allows several sellers to post their properties on the AirBnB platform. Buyers come to this platform and can select a property based on their needs. AirBnB acts as a middleman in these transactions and makes a commission on both sides.

This model has turned out to be hugely profitable for this online company. There is barely any investment, and the business is hugely scalable. However, AirBnB has run into a slew of moral and even legal hazards. Many people around the world are accusing AirBnB of immoral and in some cases even illegal business practices. In this article, we will understand some of the problems that are faced by people in the AirBnB ecosystem.

Safety Hazard for Guests

AirBnB has been accused of paying no attention to the safety of the guests that use its services. AirBnB sends its photographer to go to the location and provide realistic pictures to the guests. However, it does not send any safety professional to the properties. This is a big problem! The hospitality industry is required to conform to a wide variety of safety norms such as fire exits, water sprinklers, earthquake exits, etc. AirBnB properties do not adhere to these safety norms. In case of any mishap, guests at AirBnB are more likely to be negatively affected. Depending on the country and the jurisdiction, neglecting safety instructions can be considered merely immoral or even illegal. It is not surprising that AirBnB faces a lot of flak about this from their critics. AirBnB cannot solve this problem by merely sending safety experts to inspect the locations. The problem is that adhering to safety norms is expensive. If AirBnB listings are mandated by law to adhere to these standards, the cost of compliance will rise rapidly, and AirBnB will lose its competitive edge.

Safety Hazard for Providers

Guests are not the only ones who face safety hazards at AirBnB. Providers of services also take a substantial risk when they let out their house on AirBnB. AirBnB does not verify its customers. The only record that providers have is the previous ratings given by other service providers. This is not difficult to manipulate. Some of the common problems faced by AirBnB service providers is as follows:

  • Limited Insurance: AirBnB provides limited insurance to their providers. They claim that they will make good any loss that accrues to the service providers. However, the insurance provided by them is complicated. It only covers a fraction of the costs that are incurred in the event of damage. Also, there is an inordinate amount of paperwork to be done to receive any insurance money.

  • Squatters: AirBnB service providers have been surprised by the number of squatters that they have encountered. People who regularly provide services on AirBnB have appointed lawyers to deal with such cases which is part and parcel of the AirBnB experience for service providers.

Discrimination

Hotels all over the world are required to provide services to their guests regardless of their race, creed or religion. This is because strict anti-discriminatory laws have been passed all over the world. However, since AirBnB is not a regulated marketplace, these rules do not apply to it. Studies have found that race-based discrimination is rampant in people who list their properties on AirBnB. It is substantially more difficult for African Americans to get accommodation on AirBnB than it is for a White Caucasian person. Once again, this is outright illegal! However, it is difficult to prove whether the cancellations are made because of racism or because of some other reason.

Drives Up Rentals

The biggest allegation against AirBnB is that they drive up rentals in the neighborhoods. In many cities like New York City, there is a law prohibiting giving houses on short-term rentals, i.e., for less than 30 days. AirBnB service providers often circumvent this law by taking out multiple leases for longer durations and then subletting the apartments on AirBnB. This is also illegal since the original tenant is required to occupy the house if they are renting a part of the house for small periods of time.

Renting apartments and subletting them allows unscrupulous people to make a living out of it. They do not have to adhere to the law. Hence they do not have compliance costs that other hospitality businesses have. They can simply rent out a residential apartment and undercut the competition on price. However, there is a problem with this. This also amounts to tax evasion in a lot of cities. AirBnB service providers often do not pay the taxes that they should.

Hence, if the number of AirBnB units in a neighborhood increases, it becomes a total nuisance. It drives up rents for everyone leaving the genuine renters at a loss. They evade taxes causing a loss of revenue to the governments which once again affects their ability to provide services to the people of a neighborhood.

The bottom line is that AirBnB has a very questionable business model. Far from being a stroke of genius, this model infringes on several laws simultaneously causing safety hazards and loss of revenue to other genuine businesses!


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