The Sharing Economy: How Does Airbnb Work

We dive into the current state of the sharing economy and how Airbnb works to stay in the lead for world wide innovation and sustainable travel.

Millions of guests book Airbnbs when travelling around the world or exploring their countries. Guests search for the accommodation type (apartment, shared room, villa etc.) they need with the number of days they need it. When the first day of travel arrives, guests meet their Host who welcomes them into their home. The booking, transaction, choice of accommodation and requests were all handled by the online platform, Airbnb.

Since the platform's inception back in 2008, the sharing economy has taken the world by storm. First seen on websites like Amazon, Craigslist and eBay during the mid-90s, more companies have built their business models on the principle of shared economy and continue to connect people and experiences.

How does Airbnb fit into the shared economy?

The shared economy principle can become the future of sustainable resources. It helps millions of people around the world earn money from their under-utilised products and resources. Do you have a car that you don't use often? — add it to Turo and earn an extra income per day. Looking to get rid of some old appliances, furniture or clothes? — consider selling it on Craigslist or Gumtree. If you have a vacation home or room in your house that's under-utilised — add it to Airbnb.

Airbnb is a platform that links homeowners and guests all over the world offering unique experiences and accommodation. Book a yurt in Greenland, a cave in Spain, a treehouse in the Australian Everglades, or an apartment in New York. Airbnb doesn't own the properties available for rent on their platform, they simply supply hosts and guests with the tools, guarantees and support they need to manage their homes and book accommodation. The platform has helped create millions of jobs in more than 220 countries where it operates. Cleaning services specialising in Airbnb cleaning, Airbnb management companies, tour operators, hosting services and maintenance services are just some of the many businesses benefiting from Airbnb.

How does Airbnb work for Hosts?

Airbnb connects its Hosts with guests looking for accommodation, whether they're travelling alone for work purposes or want to treat the whole family to a break away from the city. Hosts start their journey by creating a listing. Airbnb will suggest an average daily rate based on the size of your home/apartment/room, the amenities and highlights on offer, and the city or town your listing is located in. From there, Hosts can add photos, list amenities and safety features, verify the listing on a map, add a cleaning fee and descriptions of the home. View the detailed steps to create an Airbnb listing on their website.

Hosts generate an income for every night their Airbnb is booked determined by the daily rate they have set. One of the perks about Airbnb is that the guests also pay a cleaning fee as part of their accommodation rate. Hosts should work out how much it costs them to clean their homes or hire a cleaning company and work that into the rate charged to guests. Guests will see this fee upfront when making a booking so there are no hidden costs for them and Hosts are assured they won't be out of pocket.

Airbnb goes out of its way to create safe, accessible and lasting experiences with its platform. That's why it has Host Protection Insurance as part of its services to Hosts. The insurance covers damages, incidents and injuries rated to an Airbnb stay of up to US$ 1 million ensuring Hosts are confident and comfortable when adding their homes to the platform.

How does Airbnb work for Guests?

Early in 2021, Airbnb announced that it would release 100 platform updates during the year. We're written a blog post about it. One of the highlights is that guests now have more ways of booking and discovering accommodation all over the world. Guests can search different accommodation types — yurts, boathouses, caves, treehouses, igloos, tents and the likes. Users exploring the apps will discover more Hosts as they can now search without having specific dates or locations in mind. This ensures Hosts are promoted while guests stumble upon unforgettable experiences.

Guests looking to book accommodation on Airbnb can search the database of listings, view photos and amenities as well as ratings left by previous guests. Once the guest is ready to book, they simply add their details and pay via the platform. The rate will include access to the listing and the physical address (before paying guests will only see an approximate address), communication with the Host and cleaning once checked out. Should guests have any questions about their booking or want to have a chat with the host before check-in, they can reach the host on the Airbnb platform. Depending on the cancellation policies set up by the host, guests have an option to pay a 50% deposit and the remaining amount one week before arrival and can cancel bookings far in advance to receive 100% of the payment back.

How does Airbnb make money?

How has Airbnb grown into a US$ 100 billion valued business we hear you ask? Airbnb makes money by charging guests and hosts a service fee to use their platform when either booking or hosting accommodation and experiences.

The host service fee

On average, hosts will pay a 3% service fee calculated from the booking subtotal and is deducted from the booking payout the host receives. The host service fee can be calculated using this formula: (rate per night + cleaning fee + additional guest fee) x 0.03Note that this formula is merely a guide as rates can differ if hosts are in Italy, have very strict cancellation policies or host Airbnb Plus accommodation. Airbnb management service companies, like Hometime, pay a 15% service fee to Airbnb.

The guest service fee

The majority of Airbnb guests pay under 14.2% of the booking subtotal and is indicated to guests before they book accommodation.The guest service fee, of 14% in this case, can be calculated using this formula: (rate per night + cleaning fee + additional guest fee) x 0.14The Airbnb Experience host feeHosts offering experiences through the Airbnb platform are charged a 20% service fee. This is deducted automatically from the hosts' payout. Should an experience be $100, Airbnb will deduct $20 and the Experience host will receive $80. This fee can be waived for certain types of social impact experiences.

The future of the sharing economy

Platforms like Airbnb, Uber, Vrbo, Turo, Rover, Etsy and more are booming in the Gen Z and millennial markets with an increase in popularity with Gen X markets. With more economies turning towards a sustainable future, the sharing economy isn't going away anytime soon. It's increasing with more apps, platforms and technologies launching daily making it easier for people to share instead of buying.

Sharing economy/gig economy/collaborative consumption/platform economy or access economy — whichever term you use to describe the trend, it's estimated to grow from US$14 billion in 2014 to US$335 billion by 2025. New Airbnb hosts who signed up to the platform during the height of the COVID-19 pandemic in 2020 made more than US$1 billion collectively despite their country's restrictions.

Like it or not, the sharing economy is here to stay and will continue growing as younger generations look for sustainable and alternative ways of living, travelling, learning and experiencing the world.

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