Airbnb: Reinventing hospitality with network effects
Networks effect is applicable to many industries in which all parties benefit from growing number of users and shared resources. From healthcare to social media, understanding networks effects can effectively help businesses understand their competitive advantage in order to establish a dominance in their respective area.
Networks effects are also applied to the hospitality in many forms. This article talks about how Airbnb utilizes network effects to achieve initial success. The value of the network grows as more renters and more homeowners join the platform. Value is created for homeowners when there is a large enough population of potential renters on Airbnb to give the homeowner access to a consistent flow of travelers visiting the local area. Similarly, value is created for renters only when there is a sufficient number of homeowners on the site to provide coverage of many different cities one might travel to and provide several options in that city. When scale is reached on both sides of the platform, both homeowners and renters are able to capture value via a match between accommodation availability and the renter’s desired time/location/capacity.
In addition to businesses like Airbnb, Expedia and other Online Travel Agent platforms can also be analyzed in the same fashion. The value of the network grows are more hotels and travelers join and use the platform to make reservations. The more hotels are readily accessible through the platform, the more travelers will book through the platform given the ease of selecting their optimal arrangements through a wide range of selection.
Link to article: https://digit.hbs.org/submission/airbnb-reinventing-hospitality-with-network-effects/