A trip consists of various aspects like destination, transportation and accommodation. In each of these aspects, different services are included that help in delivering the selection set upon which selection is done by potential tourist (Richardson, 2015). With increased technological advancement, a new concept in tourism has been introduced that is termed as sharing economy and crowd-based capitalism(Schor et al, 2015). This report is based on the concept of sharing economy in tourism industry. For the purpose of analysis, an audit of Airbnb is conducted for analysing its performance within sharing economy.
Sharing economyis a term which owns different meanings. It is often used for describing social and economic activity including online transaction. Originally it has come through open-source community which refers to peer-to-peer dependent sharing of approaches o services and goods (Shaheen, 2016). The term is now used widely for describing any sales transaction that are done through online market places, even to the ones that business to customer (B2C), rather than being peer to peer. Because of this, the word sharing economy has been criticised much. Heo (2016) state that services that cause peer-to-peer exchange can be driven through profit. However, most of the commentators state that term is valid for description of more democratised organisation, even it is implemented for large spectrum of services.
There are different forms of sharing economy, involving the use of information technology for giving information to individuals that enables the resources’ optimisation with the help of mutualisation of capacity in services and goods. In accordance with a common premise, when sharing of information related to goods is done (particularly through online marketplace), the value of the products enhanced for society, for community, for individuals and for the business (Richardson, 2015).
The Chen (2016) states that sharing economy is misnomer, and ‘access economy’ is the right word for this activity. According to the author, when sharing is mediated through market, when an organisation is an intermediary in between customers who do not know one another, it is not shared longer at all. Customers are paid for accessing services or goods of someone else. Henten and Windekilde (2016) stated that for replacing the misleading idea of sharing through mutualisation or mutuality.
In peer economy, the sharing economy is at home, where trading of services and goods are done. They are shared with no or low costs of transaction, for multiple or one times, enable through Web 2.0 technology. The sharing economy alludes to social interaction with social advantages and economic benefits for its customer (Heo, 2016).
Crowd-based capitalism includes labor or capital on shared platform, disconnected people pooling the assets, where customer can use and find such resources. For instance, the platform of employment-sharing let the users to do the advertisement of skills for meeting whatever demands present in the marketplace (Jacobs, 2015). Schor et al (2016) stated that this increment of peer-to-peer exchanges have been supported not only through the rise of platforms for digital technology but also with the help of familiarity of services given, which makes it even more appealing for large number of people.
Crowd-based capitalism has resulted into the blurring of lines in between professional and personal operations. For instance, an Uber driver can use the car for picking up the passengers through way for working in morning, and then for giving a ride towards home to the kids from school (Cohen and Kietzmann, 2014).
The sharing economy services and products and crowd based capitalism in tourism are composition of peer to peer to business model and ICT and carry a social component. All of this results into the development of hybrid character and the collection of statistics is complicated. However, why and how sharing economy services and products are seen in the tourism which have been described through different qualitative research and only some of the researchers have brought new procedures for overcoming the challenges. They have also started to do the quantification of sharing economy within tourism (Möhlmann, 2015).
Ert, Fleischer and Magen (2016) state that sharing economy has broadened the supply of travel choice. Anyone who wishes to start a tourism business can initiate it in the sharing economy. Online platforms give easy access to large number of service, many of them are affordable and of higher quality as compared to the counterparts of traditional business.
Advocates of sharing economy state that sharing economy enable more of the flexibility. Some tourists state that there platforms can be used for authenticity, personalisation and for making contacts with citizens. Journalists have recommended that sharing economy assists in responding effectively to troughs and peaks demanding tourism services. Along with it, Airbnb states that travelling over Airbnb causes important decrement in water and energy usage, greenhouse gas emissions, waste, and motivates sustainable practices among both guests and hosts. However, none of the comprehensive researches have been done over the ecological influence of home sharing.Critics have observed different approaches in which the sharing economy can negatively influence the tourism. Some state that it is enhancing the number of workers in tourism sector and it is resulting into the development of economy where there is less security of job (Cohen and Kietzmann, 2014).
Figure: Peer-to-peer model
The company started its journey back in 2008 as a simple plan which joined economic advantages for residents and for travellers of tourist locale. As explained by Ert, Fleischer and Magen (2016) that the business model of Airbnb is dependent on individual who are unable to afford their household expenses and in need of additional money; such individuals use to rent out their properties. The success of the company can be described by secondary impacts of this simple plan:
· A convincing indulgent value proposition: “Live like a local”.
· Creation of a trustworthy marketplace and easy access, through community and interaction.
· The network power resulting in maximising scale benefits.
· Leveraged belongings.
By now, particularly when considering the experiential factor – living at someone’s home, permitting for interaction between residents and visitors and for tourism “off-the-beaten-track” – has created it attractive to contrast the notion to real “shared” actions, particularly Couch surfing. This has resulted in flawed categorisation or Airbnb, where exchange of economic products takes place between private individuals, accommodation of tourists and both reimburse an enterprise that has established an accredited platform, as “sharing”(Fox, 2016).
The extravagant development of Airbnb and likewise enterprises is still too fresh to be discussed briefly in the literature. In order to keep tempo with its unsettling and speedy development, it is required to merge academic literature insight with growths and trends recognised by reports of industry, trade journals and common news media (Brown, 2016).
If Airbnb is considered as a branch of the networked economy, the dominancy of its success has two explanations in the literature: idealistic aims and, specifically, the legitimacy of P2P communication in the experience of accommodation, at one side, and by economic advantages for guests and hosts, on the corresponding side, Airbnb and rest of the types of P2P travel are classified by Shapiro (2014) as instances of Mutual lifestyle which merges the advantages of ownership with minimised individualistic cost and burden and also lowest possible environmental affect. The wish for social contact is usually viewed as the key driver underneath the development of the fact. As it is said by Kin (2016), Airbnb and twitter are mediums of communication with one another in ways which are both progressive and creative. Chief Executive Officer of Marriott, Arne Sorensen is quoted stressing the “experience of the real neighbourhood life” as the rationale for the success of Airbnb.
However, if one looks at these conceptual strategies which search for advocating and explaining the appearance of the combined economy, to researches into the authentic aims of contributors in the experience; idealism looks to involve as a secondary source. Airbnb is taken into account as a low-cost option for guests. Hosts of Airbnb are also focused in first place or to a significant level by financial motivations. These motives of finance do not essentially challenge the environmental or social benefits customers may look for in sharing; nevertheless, a significant factor to look for Airbnb’s future is whether or not its economic impact will continue to be that individuals have to purchase fewer products while still having ingress to services of those products (Henten and Windekilde, 2016).
This economic factor is actually important for Airbnb’s business model. Rentals of P2P administer the equivalent business models as conventional B&Bs, excluding the effect of promotional benefits of international platform or Airbnb community. In contrast with hotels, hosts of Airbnb offer economical pricing due to the case of fixed costs of private residences as electricity and rent are already enclosed, because of the reason of negligible costs of labour, the fact that profit of Airbnb is generally an extra income, and also because hang about are generally not taxed. The platform’s business model itself is dependent upon commissions taken from hosts and guests (Jacobs, 2015).
The accommodation of PSP can hence be viewed as a double-sided market in which transactions are supported by platforms and they add value to double-sided market by fetching both sellers and buyers “on board”. The host side is favoured or subsidises by the price composition in the case of Airbnb, as a branch of development approach of company: To make sellers join the network, they are incentivised, hence increasing its charisma to those seeking for accommodation (Biesiada, 2016). Dissimilar from more conventional business models, in double-sided markets development results in maximising revenues to scale, as for accessing greater network, more payment will be done by users. Hence, it is not shocking that the platform, as it continues to list to its offerings represents an explosive and continuous progress, with a prediction of eighty million nights reserved in 2015.
The expectation from Airbnb to compel revenues and rates of hotel down as an extra supply will put impact on the allocation of power in the market. With regard to Merril Lynch, by the year 2017 oversupply will impact negatively in the business values of hotel. According to the research by King (2016) the effect of Airbnb on the revenues of hotel has been quantified: 13 percent loss of revenue of room is estimated by authors for Austin and 0.35 percent downfall in revenue of hotel room per month for every 10 percent increase in listings of Airbnb for Texas on the whole. It is observed by the same authors that hotels which lack business facilities and lower-end hotels suffer a lot. It is represented in the research on the impact of Uber on taxis in Chicago and New York, in an equal way, a minimisation of objections as the substitute offer progresses, which can be depicted as system clean-up: Taxis are requisite to enhance quality or they may evicted from business.
It is basic interpretation that Airbnb is not good for hotel but is good in terms of tourism. The organisation states that it is complementary to do traditional hospitality as 70 percent of the offer is outside the districts of hotel. On the other hand, Merril Lynch analysts, states that 43 to 67 percent of Airbnb listings are directly in opposed to the offers of traditional hotels as they are not shared spaces. Feldberg (2016) recommends that spending can suffer due to the cheaper accommodations. The development of income rather than jobs can hurt the hotel industry, a finding corroborated through research in Spain.
The innovative approach towards accommodation of tourism has been espoused through Airbnb and other similar organisation can be viewed best via the lens of innovation theory, which was popularised and proposed through Clayton Christensen in different seminal works. This theory highlights the process, with the help of which the market is transformed through a products. A disruptive product sometimes underperforms relative to key performance features of prevailing items (Martin, 2016). It offers large number of advantages, typically targeting lower prices, simpler and more convenient. The disruptive product cause low-end of business or develops an overall new market. This starting market is limited in terms of profit margins and size; therefore it is unappealing for the leading organisation that targets the profitable markets and continues to make improvements in the products with the help of innovation. With the passage of time, the disruptive product makes improvement, and makes it more appealing for large number of consumers and attracts larger level of mainstream market (Jacobs, 2015).
Cost is the major factor in making decisions for hotel, so it can be said that Airbnb’s relatively low prices seem to be basic draw. Airbnb hosts are enough able to cost their spaces in a competitive way, because of the reason that primary costs of hosts are fixed (like electricity and rent) are covered already, the hosts have no or minimal labour costs. The hosts basically are not fully based over the revenue of Airbnb. Taxes generally are not charged by hosts. As an example of low costs of Airbnb, Sickle (2016) has tested the services provided for New York Times through spending five nights in various Airbnb spaces present around the city of New York (three apartments, one shared room and one private room) and more than $900 have been spent.
Along with the economic costs, the accommodations of Airbnb also give different advantages that come through residing at residence. For instance, according to some tourists the feeling of being at home is preferable than feeling of being at hotel. Hosts of Airbnb may be capable of giving useful local advice. Guests of Airbnb also have an approach to residential amenities, like dryer, washing machine and full kitchen(Broughton, 2015).
In a developing fraction of world’s economy, there is an involvement of digitally enabled peer-to-peer exchange. A dramatic expansion is experienced on this kind of exchange in last few years. Now it has been transformed from general retailing, services intensive to human like hosted accommodation, transportation from city to city, lending from peer to peer and decentralised manufacturing(Mest, 2016). In case of Airbnb, there is an involvement of peer-to-peer provision of known real-world services and this is a traditional subject of self-regulation. Due to this, the line between personal and professional in provision of commercial services is blurred. Moreover, there is generally an involvement of semi-anonymous transactions in Airbnb. Due to these factors, different regulatory challenges can be created due to which innovation is impeded, particularly those grassroots innovation due to which new opportunities were created for peer-to-peer exchange. In addition to this, due to these regulatory barriers the development of employment might be slowed down, in which people giving products, services and capital with the help of peer-to-peer platforms are involved. It is argued that the resolution of these challenges should include self-regulatory approaches. There is no similarity among self-regulation and deregulation. Rather than that, it includes a process of reallocating regulatory responsibilities to parties that government (Boehmer, 2014). In Airbnb, it should not be considered as entities that need to be regulated but rather than this they must be treated as actors that play a key role in regulatory framework. It has been analysed that in past in case of non-intermediated peer-to-peer exchange, the basic solution to failure in market was steps taken by government agency. Nowadays, there is a need of having third-party platforms for mediating exchange that helps in alerting the capability of market to provide on its own. It also makes a new institution that is able to affect the conduct of conduct. As, it is not always necessary that there is a perfect alignment between third-party platforms with interests of community, so, it is useful to have some involvement of government(Shapiro, 2015).
In the end of 2014, it has been announced by CEO of Airbnb that in peer-to-peer marketplace of company more than one million homes are listed. It is considered to be one of the advanced digital platforms that ensure self-regulation through facilitating peer-to-peer commerce. In accordance with self-regulating of sharing economy in Airbnb, the company has become capable of centralising some activities linked with providing commercial services and decentralising other various services such as pricing and infrastructure of supply. Airbnb is a digital platform that is viewed as self-regulated primary channel for demand and thus is capable of enforcing limits of trading and threatening expulsion of platform with no extra cost. However, it is critically analysed that since most of hosts of Airbnb use to rent out their basic residences only on occasions, so it creates a threat of dismissal from the platform due to self-regulation (Sturken, 2016).
It might thus involve a distinct set of entities in solution to self-regulation for accommodation sector. Airbnb should focus on making a linkage with condominium board, co-op associations and homeowners association. These entities are also termed as HOAs and have responsibility of regulating and collecting dues from members and keeping a control over few elements of maintenance, regulation and living standard of society (Mest, 2015). It has been analysed that self-regulation is usually emerged as a natural residual of economic exchange and it has gained a lot of success in previous history. There are four important factors that must be focused by sharing tourism sector. First of all, credibility must be established by Airbnb at the initial stage. Secondly, actors involved in self-regulation must explain capabilities of strong enforcement. Third important factor is that company should perceive itself as a legitimate and independent. Finally, Airbnb should take benefit from reputational concerns of participants and social capital. In various inefficiencies of market for peer to peer transactions, there is a need of various entities within Airbnb for acting as partners in self-regulatory solution. Moreover, insight from government and transparency selected judiciously can help in increasing the likelihood of Airbnb’s success (Karlsson and Dolnicar, 2016).
There are different forms of sharing economy, involving the use of information technology for giving information to individuals that enables the resources’ optimization with the help of mutualisation of capacity in services and goods.Online platforms give easy access to large number of service, many of them are affordable and of higher quality as compared to the counterparts of traditional business.Airbnb is considered as a branch of the networked economy, the dominancy of its success has two explanations in the literature: idealistic aims and, specifically, the legitimacy of P2P communication in the experience of accommodation. Airbnb has adopted innovative approach for adding value to its services. Airbnb is continuously gaining success in sharing economy but it has to focus on self-regulation for gaining long term success.
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