Airbnb During the Covid Pandemic: Stakeholder Capitalism Faces a Critical Test
Review of Past Cases
So far in this course, we’ve covered:
- Meaning of value
- Value creation & capture
- Tensions and trade-offs are unavoidable
- The external environment share the game and competition (Uber)
- The environment isn’t only about ‘fights’: its also about stakeholders collaborating (Natura)
- Firm’s strategic position (as well, ‘product differentiation’)
Recall: Product differentiation doesn’t refer to a different product, it refers to increasing the consumer’s Willingness to Pay
In this case, we’re still talking about that relationship between strategy and the environment as part of the Diamond E Framework.
Summary of Class
- We started with, what value does Airbnb provide?
- We then talked about what Airbnb’s value proposition is and what is required to sustain that
- Then we introduced the Strategy Triangle and started piecing things together.
- We talked a lot about what the goal is, and analyzing what we consider to be a company’s goals.
- Finally, we concluded by analyzing the alignment, what we thought about it, etc.
- Concluding notes are written at the end.
Case Introductory Conversation
Here we had a discussion surrounding the value Airbnb provides each of us as consumers.
It’s important to understand what “differentiation” a product like Airbnb provides compared to others. Why is Airbnb so much more well-known compared to Verbo, what does Airbnb do different compared to it or say, hotels.
Verbo vs Airbnb: Verbo often rents out the whole house whereas Airbnb often rents out a room in a house. Verbo is more expensive but provides more privacy.
Hotels vs Airbnb
There’s not just a difference in the physical place or the stay, there is a change in the experience. Not just the hotel that matters, but also the location, environment, surroundings.
Would you be an Airbnb host?
Side: YES
- For economical reasons, it’s extra income
- Flexibility (no commitment) - less worry about tenants
- Protected by Airbnb! - lower liabilities
- Meeting new people - cultural exchange
Key point: in order to be a host, you need to have extra space in your house to “rent” out. You need an under-utilized asset
And the flip side!
Side: NO
- Fees collected by Airbnb
- Hassle Factor (trouble and stress!)
- Uncertainty of guest behaviors
- Ruins local communities
- Or simply, you just don’t have the extra space
Now let’s analyze expectations that guests have on hosts, and vice versa
| Expectations from hosts | Expectations for Guests |
|---|---|
| Upkeep and maintain the facilities | Behave in a good way |
| Remain in contact (communicate!) | Know and trust the guest |
| Accurate information (the host looks like the host) | Follow the rules, turn the lights off or checkout on time.. etc |
| Give the guest some good recommendations | Make Payments: Guest should commit to paying what is due |
| Be “Ethical”, don’t throw hidden fees at me | Give honest reviews for each other |
| Get to know and trust the host | |
| Give host reviews for each other |
But where do these expectations come from? If you think about a Bazaar or market, there are some unspoken rules on how to act, but what does Airbnb do to regular these transactions and set these expectations?
Or in other words, how does Airbnb allow for both of these sides to interact successfully with each other.
Airbnb Core Activities
- Breakdowns the fees + additions
- Acts as the mediator
- Two way rating system
- Micro segmentation
- Balance of Power
- User Verification
What makes this rating system so valuable and important? Let’s compare and contrast it to say, Michelin star rating systems. The question boils down to expert reviews vs democratic systems. The realization is that, the democratic system works through volume, the average of many reviews.
Analyzing Financials
Mazi loves to as “How is the firm doing?”
Looking at exhibit 3, we see Airbnb is suffering a big net loss, however, this is largely due to huge investment in “Product Development” and “Sales and Marketing.” So why is Airbnb investing so much to grow? It is because of economies of scale, and because scale and volume is required to facilitate trust between the hosts and guests (as seen above).
Applying Strategy Alignment
Applying the Strategy Alignment Model:
Core Activities
copied from above
- Breakdowns the fees + additions
- Acts as the mediator
- Two way rating system
- Micro segmentation
- Balance of Power
- User Verification
Product Market Fit
This is where Micro segmentation happens, splitting up the hosts and the guests based on many different traits
- Those who want to travel
- Those who want to stay the night
- The partiers
- etc.
Value Proposition
- For guests: Flexibility
- For hosts: Flexibility
- For both, safety and trust
Our question then becomes, how do we maintain this, and does this align with our goals?
The Goals
What is our goal?
Thought: what if I said Airbnb’s goal was to grow, get to large volumes. What are our thoughts?
Question: Is growth always good? Is growth always the goal of all companies?
- 🔥 Example: Consider a small community restaurant. If the owner’s goals is to simply foster something small, something with a tight community, growth is not their goal. Another way to think about it is, they can’t manage and maintain their vision/mission at scale, so growth is actually bad.
- Counter Example: Certain companies need to keep growing to survive, to stay relevant. For example, a tech company that doesn’t grow is likely to be outcompeted by others.
So for Airbnb, growth is a necessity in order to maintain their value proposition of trust and safety. However, it is not their goal.
What might be Airbnb’s goal?
- Connecting People (Belonging)
- Monetization
- Maximizing “value” for Stakeholders
When bringing up what a goal might be, it’s ok to have a hunch like “Connecting People”, but it’s so much stronger to back it up with case evidence. The evidence for that point can come from the founder’s case in the book, or their response to backlash, etc.
From where do we know what the goals are?
- Statements or evidence
- Actions the firm takes
- Responses to crisis, what better way is there to figure out a company’s goal than when they are squeezed or tested.
So going off that point, let’s see, what did Airbnb do during the pandemic?
Airbnb’s Response to the Pandemic
- Refunded bookings to guests
- $250 million fund to help hosts
- Modified Rules
- Executive team took a 50% pay cut for the next 6 months, and suspending pay for the founders entirely
- Hiring Freeze! Protected the employees
- $17 million dollar fund to help “super-hosts”, $9 million of which came from the founders themselves
So looking at Airbnb’s response to the pandemic, what does this tell us about their goals?
Discussion Point
- One could look at all of this and say, Airbnb is working very hard to protect their brand and it’s all a facade
- Another could say that Airbnb is truly trying to protect their stakeholders, and that this is a genuine response.
So comes the question, let’s compare and contrast Shareholder Value maximization and Stakeholder Capitalism.
Shareholder Value Maximization vs Stakeholder Capitalism
- One view is that stakeholder capitalism is simply a long-term oriented view on shareholder capitalism.
- But then based on the above point, why has stakeholder capitalism has gained so much traction recently?
- Something must have changed physically in the world. What was that? The environment, resources have become less abundant, etc.
- But still even then, we need to consider the counter argument, why don’t I just make money still.
Let’s talk about the shareholder capitalist point of view
Really, this point of views comes down to, you cannot maximize multiple goals, mathematically, saying I care about 50 different things, that doesn’t give direction or good advice. I can’t go to my CEO and say “you need to maximize for all these 50 things that can sometimes be in contention.”
Let’s talk about the stakeholder capitalism point of view
The stakeholder capitalism point of view comes down to the idea that, if I focus on the long-term, I can actually make more money. If I focus on sustainability, I can actually make more money. If I focus on the environment, I can actually make more money.
Conclusion: The realization we get is that, stakeholder capitalism is not an “anti-model” or a model against shareholder focus. It is rather a result of the question “how long is long-term?” Stakeholder capitalism says “yes, you can make a bunch of money, but you can do that in a sustainable way, you don’t have to do it in an unsustainable way.” This focus on sustainability is a result of everything becoming less sustainable.
Analyzing Airbnb Management Compensation
Mazi Advice
When you see an exhibit like this, stop yourself and ask “would you do this differently?”
Looking at this exhibit, we can clearly see our discussion unfold within Airbnb. That is, we see elements of the stakeholder capitalism model at work as well as Airbnb’s focus on growth as a prerequisite to their value proposition.
Conclusion
A general consensus around the class was that there wasn’t much to change in their compensation structure. The question “What would you do differently” is very common in strategy, it’s akin to “what recommendation would you give to the CEO?” The fact that we aren’t feeling that much is wrong means that there is strong alignment with our goals… that is good!
In future cases, there will be more instances of misalignment. The goal of this case was to demonstrate piecing everything together.
Key Takeaways
Strategy is ALL ABOUT TRADEOFFS. There’s no winning everything. Even short vs long-term can happen implicitly.
Environmental responses can stabilize and challenge an organization’s value position. Changes in the environment can be localized and rapid.
Prioritization is the key to effective response.
Tradeoffs involve balancing the needs or demands of multiple and potentially conflicting stakeholder groups. Temporal horizons matter; not all demands can be satisfied simultaneously.