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How Airbnb Changed the Traditional Lodging Industry By taking advantage of existing properties and involving homeowner in the transaction, Airbnb disrupted the lodging industry and is now valued at $20 billion.

By Richard Koch

Opinions expressed by Entrepreneur contributors are their own.

Carl Court / Staff

The following excerpt is from Richard Koch and Greg Lockwood's book Simplify. Buy it now from Amazon | Barnes & Noble | iTunes

Just like the taxi industry, in the 2000s, the hotel sector was ripe for disruption. In many cities, hotels in central locations were (and still are) overpriced and lacked the "atmospheric" character of the place itself. Airbnb enables homeowners to offer their couches, spare rooms or entire homes for rent for short stays, and the company has become a network of over 25,000 active hosts in 190 countries. More than twenty million guests have booked thirty million nights on the platform since it was founded in 2008.

Related: Can You Be Both a Price- and a Proposition-Simplifier?

The beauty of the proposition lies in the experience. For the host, it's now easy to operate a "hotel," however modest, with global reach of potential guests. Meanwhile, the guests can request anything from a room in a shared apartment with a local host to a country estate or a villa by the sea. This is obviously a more local experience than staying in a characterless hotel, advertised with the slogan "belong anywhere." The experience is also easy. You search for a city, list the number of guests and number of nights and ask for a room in a shared home (with the host) or an entire home (without the host). Then you're able to specify a particular neighborhood, host language or amenities. Finally, you scroll through the matched listings and reviews.

Many guests make their bookings entirely on the basis of the reviews. When you arrive, you meet the host, receive the keys and get advice about the property itself as well as what to do in the neighborhood. After your stay, you are encouraged to review the host and the property, and your payment is transferred.

Related: The Secret to Spotify's Success

Airbnb enables hosts to supplement their income from an asset they already own. The company has done a tremendous job of ensuring quality profiles of properties and giving the owners an efficient system to manage all aspects of the transaction -- from booking, property profiles and guest verification to payment and insurance.

But like Uber, Airbnb has come under pressure from the industry it's disrupting. The legality of generating revenue from renting out private property has raised alarm bells from regulators, particularly in cities such as New York, where vested interests have formed anti-Airbnb groups and launched hostile ad campaigns. In response, the company has now started to work with city authorities in order to ensure its operations are fully legal. Some rival companies have also appeared, although all of them are far less successful, with far lower profiles, than Airbnb.

Related: How Uber Used a Simplified Business Model to Disrupt the Taxi Industry

Airbnb has already raised $800 million, and the company is valued at $20 billion. It now offers more lodging options than any hotel chain in the world. And, like Uber, its advantages over its traditional rivals are obvious:

  • For both guests and hosts, it's easy to find and list properties.
  • It's easy to filter properties based on availability.
  • The payment process is simple.
  • It's universal -- you can book in 190 countries.
  • By clicking one button, a host can schedule a photographer to present their property in the best light.
  • The guests' ID can be easily verified.
  • Both guests and hosts have access to -- and can write -- detailed reviews.
  • Hosts can get insurance easily.

If you're a strong proposition-simplifier, you can create word-of-mouth referral, resulting in explosive growth with little investment in customer acquisition. If you move first and/or fastest, you can gain an enormous advantage in building the best service -- because of the iron laws of networks -- as well as really strong barriers against your rivals. One further important advantage of moving fast is that it enables you to raise substantial funding on the most attractive terms: that is, at the highest valuations. Speed therefore reinforces a virtuous circle.

Richard Koch

British Author, Speaker, Investor, and former Management Consultant and entrepreneur.

Richard Koch is an entrepreneur who has made over $300 million from starting businesses and investing in early stage venture capital. His businesses have included Filofax, Plymouth Gin, Belgo Restaurants, Betfair, FanDuel, and Auto1. Formerly he was a consultant with the Boston Consulting Group and a partner of Bain & Company before cofounding LEK consulting. He is author of many books on business and ideas, including The 80/20 Principle, which has sold over a million copies and been translated into 35 languages, and his newest title Simplify: How the Best Businesses in the World Succeed. Richard wrote the foreword to the Entrepreneur Press bestseller, 80/20 Sales and Marketing by Perry Marshall.

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