Airbnb, originally called AirBed & Breakfast, is an online marketplace that offers lodging and connects travelers with local hosts. The founders of the company started by hosting guests on air mattresses in their living room, effectively turning their apartment into a bed and breakfast.
They did this when all the hotels around them were fully booked before a popular conference. They sold four spots in their apartment, provided their guests with breakfast and showed them around the local neighborhood.
The company’s founders are Brian Chesky, Joe Gebbia, and Nathan Blecharczyk. Airbnb was founded on August 1, 2008 with its headquarters in San Francisco, California, USA. Having received massive funding of $4.4 billion till December 2017, it is a part of the billion-dollar club with a valuation of $31 billion.
Their goal at first was to “make a few bucks” as they could not afford the rent for their loft apartment, but the vision grew after they launched the company.
They then decided to focus on creating value around experiences as seen through a local’s perspective. This became the main focus of the business. They put together a website which offered short-term living quarters, breakfast, and a unique business networking opportunity for those who were unable to book a hotel in the saturated market.
Airbnb is currently present in over 34,000 cities and over 190 countries across the world. Over 140,000 people stay at an Airbnb listed location every day.
HOW Airbnb operates
Airbnb operates as an online marketplace, connecting travelers with local hosts. The platform enables people to list their available space and earn extra rental income. It enables travelers to lease or rent short-term lodging including vacation rentals, apartment rentals, homestays, hotel beds or hotel rooms.
Using Airbnb, they can save money and have a chance to interact with locals. It provides insurance to listed properties, gives cheap options to travelers to stay with local hosts, facilitates the process of booking living space for travelers, and provides a rating and reviewing sysSet featured imagetem for hosts and guests. It has a user-friendly app and web platform.
Hosts are the people who own property and want to make some money by renting out their available space. They create a listing for their property on Airbnb, add property details and set their rent, check-in and check-out times, etc. Hosts can accept or reject a booking after reading the reviews of the guest or after going through the guest’s social profiles. To help set expectations, a host can add “house rules” that guests must agree to before booking.
If a guest breaks a rule after they book, the reservation can be cancelled without penalty. The host gets to choose nightly prices and Airbnb’s pricing tools help with that. The hosts that stand out are the ones that go the extra mile to provide their guests with a great experience. To be a successful Airbnb host, one has to be a reasonably good marketer, excellent at customer service, passionate about one’s home town and willing to share it with others.
Guests are the people who book the listed spaces from local hosts. Guests have the option to search for a property by filtering according to rent, amenities provided, location, and so on. They can book a space by paying through the portal.
How Airbnb Works
Consequently, hosts list out their property details on Airbnb along with other details like pricing, amenities provided, etc. Airbnb sends a professional photographer to the property location to take high-quality photographs.
The guest searc hes for a property in the city where he wishes to stay and browses through available options according to different features. Bookings are made through Airbnb where the guest pays the amount mentioned by the host and an additional fee for transaction charges.
The host approves the booking, the guest stays at the residence and finally, Airbnb pays the amount to the host after deducting their commission. However, the host and the guest can rate each other and can write reviews based on the experience.
Airbnb offers free listings to property owners and lets guests browse the listed spaces and select whichever best suits their needs on the platform. The business model of Airbnb is such that the booking and monetary transactions are done on the platform. This is where the company earns its share of the revenue from two different sources which are – a flat 10% commission from hosts upon every
booking done through the platform and a latter charge of 3% of the booking amount as transaction charges from guests upon every confirmed booking.
Airbnb‟s first customers came through a simple website built by the owners. Since then, it has grown to host 1.2 million listings on its platform. The major sources of customers for hosts and residences for guests are through social media, word of mouth marketing, digital marketing including internet ads, promotional offers, affiliate models as well as refer and earn offers.
AIRBNB IN NIGERIA
Airbnb continues to enjoy rapid growth in Africa, recording the fastest growth in Nigeria. Annual guest numbers more than doubled over the past year from 572,000 to 1.2 million; the Californian company announced in a new report, with active listings up from 62,000 to 100,000. The figures show a 5th straight year of strong growth from a base of just 6,000 listings and 22,700 guests in 2012-2013. South Africa remains the cornerstone of Airbnb’s business in Africa, accounting for 43,400 listings and income worth $86 million.
A tourist hub, Cape Town is the most popular city with 17,600 active listings, generating $55 million for local hosts. Morocco is the 2nd largest market in Africa, with 21,000 active listings earning $22 million. Kenya ranks 3rd with 5,900 listings, earning $3.9 million.
Nigeria is the 5th largest market but showed the fastest growth of 325% over the past year with effective locations at Ibadan, Abuja and places in Lagos like Lekki County Apartments, Mixta Apartments, Urban Shelter Apartments, Lekki Gardens Apartments and many more as high yield accommodations.
The easiest way to explain Airbnb in Nigeria is to call it the Uber of houses. The same way people use their cars to sign up on Uber, Lyft or Taxify services to earn income, is the same way people rent out their houses for the short term using Airbnb.
Uber has pioneered the aggregation of transportation at scale. Airbnb has also done the same in the hospitality sector. (Aggregation is a construct where an app or web platform brings suppliers into an ecosystem for users and customers to find and patronize them).
Uber aggregates taxi services for travelers or just for a city trip. Similarly, Airbnb aggregates spare rooms for those that need rooms when they are out of town. Aggregation has made it possible for an individual to have a „home away from home‟, particularly for those who desperately want to save on accommodation when they travel.
Technology has made the aggregation possible. Feasibility Studies of Airbnb in the Nigerian Market Airbnb has been operational in Nigeria since 2014 and has given rise to hybrid hotels where people build houses and don‟t rent them out to tenants nor label them as hotels but rent them out completely on the Airbnb platform, thereby making more money and avoiding taxes.
It’s important to note that before Uber became established and its relative success drowned most of our misgivings, people in Nigeria had laughed at the idea of giving rides to total strangers.
It simply was unthinkable, but it eventually happened. The possibility of Airbnb catching on is high as long as the hosts provide their guests with great experiences. It is up to us to get it right with professionalism and customer service.
There is a large market of international guests that use Airbnb. Thus, focusing on that market will yield better results than targeting domestic clients who are hesitant to use their bank cards. As a host, one simply needs to provide a secure location and maintain good reviews and ratings to win the trust of new guests.
Challenges of Airbnb in Nigeria (Why Airbnb May Fail to Attract the Same Success as Uber). Issues that Airbnb may face given the peculiarity of the Nigerian market can be summarized as follows:
● Fear: It’s difficult to get people to use their debit cards to make reservations online. Even when people would like to try out the service, most will be afraid to put their card details online, for access to someone‟s home which is not a hotel. This sentiment, for most people, remains an issue.
● Lack of trust: Most Nigerians do not believe that what they see advertised online will be the reality on the ground when they visit the location. This is a huge challenge.
● Security: Nigeria has a reputation for being unsafe with the police largely seen as inefficient. This gives room for distrust among the populace and even with tourists, who may then prefer to stay in more traditional accommodation like a hotel.
Looking at the high crime rate in the country, many people are afraid of listing their homes on the service, mainly because they‟re scared to bring complete strangers into their homes. There are still numerous stories of bad incidents between hosts and guests of Airbnb all over the world.
Not knowing the real identity of the guest in your home who could be a potential kidnapper, armed robber or fraudster has made many stay clear of the service in Nigeria.
● Spending patterns: Nigeria is largely in a pre-monetization era of the internet, at scale. While we have Konga, Jumia and other e-commerce businesses, the fact remains that it will take years to see dramatic evolution as regards spending over the internet.
That has to happen before transactions which do not deliver value on the spot can be done by many people. Uber has a certain level of risk because you pay the driver when you get to your destination. But when it comes to knocking on the door of a stranger‟s house to sleep there, it is a tough one. However, the commodification of trust is an industry challenge and everyone has a duty to make sure it is industrialized.
● Low brand awareness: Within Nigeria however, brand awareness is still quite low. Many Nigerians don‟t even know the service exists in the first place. There are no effective marketing programmes in place to enlighten the public. For every 100 persons in Nigeria who know about Uber, only 10 of them know about Airbnb and only 5 out of the 10 know that Airbnb is operational in Nigeria.
It is a cheaper and more convenient alternative to hotels, especially for family travels. Airbnb can do a lot more if they intend to grow their market in Nigeria. Even with trust issues in Nigeria, people will still be willing to use the platform based on international trust of the brand.
● Administrative bottlenecks: There‟s a high level of awareness of the Airbnb brand and the requirement of having a US bank account for hosts is one of the bottlenecks limiting listings. Also, having local customer care to solve issues readily will help in resolving some of these bottlenecks.
● Exorbitant pricing: Airbnb listings are in dollars and not in naira. This already rings a warning bell in the heart of an average Nigerian, insinuating that it‟s a service strictly for the rich. This is should not be so, because Airbnb is designed to be cheaper than hotels of the same living standard.
Our currency is greatly devalued and this affects the pricing. One Airbnb listing can cost $45 per night, which is approximately N16,200. Not only is that on the high side, but there are also additional charges involved. There are hotel rooms available for less than that amount which are still comfortable. Airbnb is supposed to be cheaper than hotels but in this case, the opposite seems to be true.
● Locations: Limited locations are available while going through the website. Airbnb only operates in Lagos, Abuja, Ibadan and from what is seen, the available apartments are in the highbrow areas of Lekki, Ikoyi, Magodo, Victoria Island and so on. This limitation definitely puts a cap on the growth of the business.
● Not a business for the average Nigerian: Looking at the pictures of tastefully furnished apartments on display on the website gives the impression that Airbnb is not a business an average man in Nigeria can venture into. There‟s the need to furnish the apartment with furniture and electronics to meet the required standard and this is capital intensive. The reason Uber is successful is that people with average incomes were able to participate using their affordable cars.
● Power: Nigeria‟s perennial power issues make it challenging for hosts to run their residences around the clock. The percentage of rental income that is spent on alternative power generation cuts deep into the profits they would have otherwise made, thus making Airbnb unattractive to the average Nigerian.
Impact of Airbnb in the Nigerian Market Airbnb allows individuals to list their spare rooms or entire apartment for a selfestablished price to potential guests from all over the world. Particularly in heated housing markets, this new business model has emerged as an attractive opportunity for generating alternative income streams. However, the surge in the popularity of these platforms has also led to substantial opposition, due to decreasing housing affordability, illegal utilisation of residences as hotels, unfair competition, and other negative effects such as noise nuisance or overcrowding within and around buildings. Most cities in Nigeria have not significantly regulated these platforms.
The effect of such regulations appears straightforward: basic economic theory tells us that in the absence of negative externalities, such regulations induce a reduction in house prices and rent by restricting the most efficient use of housing. This reduction will be particularly pronounced at locations that are attractive to tourists. However, the presence of substantial negative externalities may lead to the exact opposite: regulation may cause prices and rent to increase as the reduction in negative external costs due to regulation will increase residential demand.
The economic costs Airbnb imposes in Nigeria seem to outweigh the benefits for the time being. The introduction and expansion of Airbnb into cities like Lagos and around the world carry large potential economic benefits and costs; the cost to renters and local jurisdictions likely exceed the benefits to travelers and property owners.
Airbnb might, as claimed, suppress the growth of travel accommodation costs, but these costs are not the first-order problem for Nigerian families. The largest and best-documented potential benefit of Airbnb expansion is the increased supply of travel accommodation, which could benefit travelers by making travel more affordable.
There is evidence that the increase in the supply of short-term travel accommodation is a pressing economic problem and the reduced supply of housing as properties shift from serving local residents to serving travellers‟ needs raises housing costs.
This cost is real because housing demand is relatively inelastic (people‟s demand for somewhere to live doesn‟t decline when prices increase); even small changes in housing supply like converting long-term rental properties to Airbnb units can cause significant price increases.
The potential benefit of increased tourism supporting city economies is much smaller than commonly advertised. There is little evidence that cities with an increasing supply of short term Airbnb accommodations are seeing a large increase in travelers.
Instead, accommodation supplied through Airbnb seem to be a nearly pure substitution for other forms of accommodation. Surveys indicate that two to four percent of those using Airbnb say that they would not have taken the trip were Airbnb rentals unavailable.
The perception that Airbnb tries to foster is that its hosts are relatively typical households looking to earn supplementary income by renting out rooms in their homes or by renting out their entire residence when they are away. Some cities present the best investment possibilities for either traditional rental or sharing services like Airbnb.
Research shows that in Los Angeles, USA it would take 278 months to recuperate value through traditional rental methods, and 122 months through Airbnb. This compared to Lagos, Nigeria where it takes the least amount of time to recuperate property value through traditional renting at 132 months. When thinking about investing in rental property, real estate location matters greatly. Remember the saying, ‘Location! Location! Location!’ Well, in rental real estate in Nigeria, it can be the difference between making a profit and losing money.
The present pioneers of Airbnb in Nigeria have the potential to become a force to be reckoned with in the areas of tourism and hospitality provided that standards are enforced, in addition to professionalism and customer service excellence. Granted, customers may have second thoughts about paying for and checking into a stranger‟s flat or house for holidays but with Airbnb’s verification methods in place, customers may begin to trust the platform increasingly.
Lastly, while it is true that Nigeria has problems with corruption, which has been the bane of our society for as long as one can remember, this phenomenon is not restricted to Nigeria alone. Anyone who has lived outside the country can attest to this. So, instead of writing reviews that will deter those who are willing to go into the business of renting their homes for certain periods of the year and thereby earn money legitimately, Nigerians should be encouraged to explore uncharted territory.
Whether Airbnb has the potential to become as successful as Uber, is yet to be seen. If the issues raised in this piece including perception management and marketing are tackled properly, the sky may just be the starting point for this unique business model in Nigeria and Africa as a whole.
William & Partners is a wholly owned indigenous firm of Estate Surveyors and Valuers, established in 1974 and registered by the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON). The firm is also a member of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), and thereby empowered to practice the profession of real estate surveying and valuation throughout the federation. We have over 40 years of experience in the Real Estate market and expertise in services ranging from Asset Valuation, Real Estate Advisory, Real Estate Management, Brokerage and Feasibility/Viability Appraisal.
This article was first published in BusinessDay Newspaper on the 5th of November, 2019.