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From renting air mattresses to generating over $9.9 billion in revenue, Airbnb has revolutionised the travel industry and transformed itself into a global marketplace, with over 448 million bookings made in 2023. The company's journey from a modest inception to a global giant provides valuable lessons for aspiring entrepreneurs and developers looking to build their own marketplaces.
Brief history of Airbnb
Airbnb's story began in 2008, when two roommates, Brian Chesky and Joe Gebbia, found themselves struggling to make rent in San Francisco. To address their financial woes, they decided to offer an air mattress in their living room to attendees of a nearby conference, branding the concept "AirBed & Breakfast." The idea gained traction, and with the help of their third co-founder Nathan Blecharczyk, they launched the website Airbnb, connecting homeowners with travellers seeking unique, affordable accommodations.
Why do travellers prefer Airbnb over booking sites?
The platform provides diverse accommodations, from spare rooms to villas and even unique options such as tree houses and boats. This variety, coupled with affordability, local experiences, and a user-centric platform, has drawn many travellers away from conventional hotels.
Let's explore the key factors that make Airbnb the preferred choice for travellers worldwide.
User-centric platform: Airbnb's website and app provide an intuitive interface, streamlined booking process, and comprehensive search options. This user-friendly experience makes it easier for travellers to find suitable accommodations and plan their trips.
Disruptive business model: Airbnb's model leverages the sharing economy, allowing people to monetise their surplus space. This approach provides an affordable alternative to traditional hotels for both hosts and guests.
Local experience: Airbnb provides guests with an opportunity to stay in residential neighbourhoods, allowing them to experience destinations more authentically. Hosts often offer insider tips and recommendations, enriching guests' travel experiences.
Community and trust: Airbnb's platform fosters a sense of community between hosts and guests. Features such as identity verification, user reviews, and a support team help establish trust, ensuring safe and transparent interactions.
Customisation: Airbnb's platform allows travellers to find lodging that meets their specific needs, from the number of rooms to amenities such as a kitchen or Wi-Fi.
Trusted platform: Airbnb's review system allows guests to read feedback from past travellers. They also have a guest refund policy which reassures guests that they will be rebooked or refunded if a listing fails to meet standards.
Economic contributions of Airbnb
Airbnb's marketplace has had a significant impact on various communities worldwide, offering new economic opportunities and support to local economies. The peer-to-peer marketplace model has contributed to the growth of tourism in local communities. By offering travellers diverse accommodations in residential neighbourhoods, Airbnb enables guests to explore areas beyond traditional tourist hotspots. This decentralisation of tourism has led to an increase in visitor spending at local businesses such as restaurants, cafes, shops, and attractions, thereby fueling economic growth in these areas.
Additionally, Airbnb's model has had a positive impact on local employment. In 2022, Airbnb supported over 107,000 jobs in the UK alone, while its presence in the European Union has generated nearly 345,000 jobs. This increase in job opportunities has bolstered regional economies and strengthened communities, providing stability and growth.
In addition to supporting employment, Airbnb's model has empowered hosts to generate extra income. In the US, educators collectively earned over $330 million by hosting on Airbnb in 2022, helping them supplement their salaries and manage expenses. In the UK, nearly 40% of hosts rely on their Airbnb earnings to afford their homes and manage the rising cost of living. This demonstrates Airbnb's role in supporting individuals and communities alike, helping them thrive in today's economy.
Exploring Airbnb's business model:
Airbnb's business model focuses on serving two main stakeholders: hosts and guests. Let's explore the value proposition offered to each group:
Hosts
Hosts form the backbone of Airbnb's community and business model. With over 7 million listings worldwide, Airbnb has cultivated a diverse community of hosts who open their homes to travellers from around the globe. Here are the key motivations for hosts:
Flexibility: Airbnb offers hosts the flexibility to rent out their spaces on their own terms, whether part-time or full-time. This allows hosts to balance hosting with their other commitments.
Additional income: Since its inception in 2008, Airbnb has enabled hosts to collectively earn over $110 billion, providing an additional revenue stream for individuals and families.
Networking opportunities: Hosting on Airbnb can lead to valuable connections, allowing individuals to network with travellers, entrepreneurs, and other hosts, expanding their professional and social networks.
Utilising surplus space: Many hosts have spare rooms, vacation homes, or secondary properties that are not always occupied. By listing these spaces on Airbnb, hosts can maximise the use of their assets and turn idle space into income-generating opportunities.
Cultural exchange: Hosting on Airbnb provides hosts with the opportunity to meet and interact with travellers from around the world. Hosts often enjoy sharing their local knowledge, customs, and traditions with guests, fostering cross-cultural exchanges and building meaningful connections.
To support hosts in delivering high-quality experiences, Airbnb offers valuable features:
Seamless payment processing: Airbnb manages the entire payment process, collecting fees from guests and paying hosts directly. This seamless system eliminates the need for hosts to handle transactions manually, reducing administrative burdens.
Host guarantee program: Airbnb provides up to $1 million in coverage for each listing, protecting hosts from potential property damage or third-party claims.
Global reach: The platform connects hosts with travellers worldwide, expanding their market beyond local boundaries. This global reach increases the likelihood of bookings, with 50% of hosts receiving a booking within 3 days of listing (as of 2022).
Smart tools: Airbnb offers pricing and scheduling tools that consider various factors such as listing type, location, season, and demand. These tools help hosts manage their calendars, optimise pricing, and handle bookings efficiently.
Guest reviews: Hosts can access reviews from past hosts, helping build trust and ensuring transparency for future bookings. Additionally, Airbnb's review system allows guests and hosts to rate each other following a stay. To ensure accuracy and objectivity, neither party can see the other's review until both have submitted feedback or the review window has closed. This approach helps provide balanced, trustworthy insights into each party's experience.
How does Airbnb make money?
If you're interested in building a marketplace like Airbnb, it's essential to understand the various streams in which it generates revenue. The model focuses on sharing resources rather than directly providing services, allowing the rental platform owner to connect sellers and buyers, generating revenue in the process.
Airbnb's business model generates revenue primarily through its fee structures for stays:
Split-fee:
Host fee: Most hosts pay a 3% fee, with exceptions for specific cases, such as listings in Italy or those with Super Strict cancellation policies. This fee is calculated from the booking subtotal (including nightly rate, cleaning fee, and any additional guest fees, excluding Airbnb fees and taxes) and is deducted from the host's payout.
Guest fee: Typically under 14.2% of the booking subtotal, this fee varies depending on various factors and is displayed at checkout. For stays exceeding three months, the guest service fee is reduced after the third month.
Host-only fee: This entire fee is deducted from the host's payout, generally ranging from 14–16%. Higher fees may apply to hosts with Super Strict cancellation policies, while monthly stays may incur lower fees.
Airbnb Experiences: Airbnb also offers “Airbnb Experiences”, which connect local tour and activity providers with travellers seeking unique experiences. Based on the price of the experience, a 20% service fee is automatically deducted from the host's payout.
VAT charges: Depending on local laws, VAT charges may apply to the service fees, making the fees VAT-inclusive where applicable.
Step-by-step guide on how to build a marketplace like Airbnb:
Developing a rental marketplace similar to Airbnb involves navigating a competitive landscape, making it crucial for entrepreneurs to select a reliable service provider. Before embarking on building your marketplace, you should consider the technical and operational foundations required to ensure the platform's success.
First, you need to decide how you want to build such a marketplace platform.
Let’s briefly compare ready-made marketplace templates and custom solutions.
Pre-built solutions
Ready-made marketplace solutions are pre-built platforms that allow you to quickly launch an online marketplace with essential features already in place. These solutions are more affordable as a short-term option and are better suited for faster deployment to market. However, they offer limited customization on features, which can make it challenging to stay competitive. Additionally, these platforms may struggle to scale effectively and handle a high volume of peer-to-peer users. Platforms that provide ready-made solutions include Sharetribe, Arcadier, and RocketBazaar.
Custom solutions
Custom developed solutions involve building a marketplace tailored to your specific needs from the ground up. This approach allows for full customization of features and higher integration capabilities, enabling better scalability and accommodation for growth. While this method requires a more significant investment in resources for operational needs and has an extended development timeline before market entry, it ultimately provides a more robust and flexible platform. Tools that can aid in custom development include Bubble, Webflow, Xano, and Backendless.
If you’re looking to create a marketplace like Airbnb, a custom solution will be designed and developed by expert software developers that can build the required functionality you need to align with your business goals, attracting potential investors in the process.
Now let’s go through the 3 steps to building your marketplace.
Define core features and functionality
To build a marketplace like Airbnb, your platform needs to perform these core services. Here, we’ll list suitable applications to kickstart your marketplace development.
User authentication and profile management: It's crucial to provide a seamless login and registration process for users. This ensures easy access while maintaining a secure environment.
Tools we recommend: Memberstack, Auth0
Machine learning: Apply machine learning to personalise searches, optimise pricing, and enhance security measures against fraud.
Tools we recommend: Levity, Peltarion
UI/UX design: A well-designed user interface enhances the user experience by ensuring an engaging and seamless interaction across various devices and platforms.
Tools we recommend: Webflow, Figma
Search functionality: Fast and accurate search capabilities are fundamental for users to filter and find properties that match their specific criteria efficiently.
Tools we recommend: Algolia, Elasticsearch
Booking system: A system to manage reservations, availability checks, and payment processing is essential for keeping transactions smooth and reliable.
Tools we recommend: Airtable, Google Sheets with automation
Messaging system: Enabling direct communication between buyers, sellers, and agents facilitates better coordination and enhances the overall service reliability.
Tools we recommend: Chatwoot, Tawk.to
Review management: Collecting and displaying reviews is key to building trust and transparency within your platform. Honest feedback helps users make informed decisions.
Tools we recommend: Yotpo, Trustpilot
Notification system: Keeping users up to date with booking confirmations, reminders, and other important alerts is crucial for an engaged and informed user base.
Tools we recommend: Zapier, Automate.io
Hosting and scalability: Reliable hosting solutions are necessary to support your platform's growth and ensure consistent performance under any load.
Tools we recommend: Firebase, Vercel
Maps integration: Incorporating detailed maps helps users easily locate properties and explore surrounding areas.
Tools we recommend: Mapbox, Google Maps API
Data management: Effective tools for managing vast amounts of data are essential for operational efficiency and informed decision-making.
Tools we recommend: Parabola, Airtable
Security measures: Protecting user data and transactions should be a top priority to maintain a safe and credible platform.
Tools we recommend: Auth0, Sentry
Select your tech stack
Looking at the features listed above, it’s important to select the appropriate tools and applications that will enable you to implement them. When building, consider the following technology for your platform:
Frontend development:
Adalo: Enables the creation of mobile apps with a visual builder.
Webflow: Offers design tools and CMS for building responsive websites.
Bubble: Allows complete web application development including user interface and interactions.
Backend development:
Bubble: Manages backend processes, logic, and database interactions.
AppGyver: Provides backend services and integrates with REST APIs for comprehensive app functionality.
Glide: Converts spreadsheets into fully functional apps, handling simple backend processes.
Databases and data storage:
Airtable: Acts as a powerful database with a user-friendly spreadsheet interface.
Backendless: Provides a database solution with real-time data handling.
Google Sheets: Can be used for simpler data storage needs, integrated with automation tools for enhanced functionality.
Automation frameworks:
Zapier: Automates workflows and processes between your apps.
Make: Offers advanced automation capabilities with visual programming.
Automate.io: Connects various cloud applications with easy-to-configure automation.
Infrastructure and hosting:
Bubble: Includes hosting as part of the platform service.
Webflow: Provides website hosting with automatic scaling and high performance.
Firebase: Offers cloud solutions for hosting and backend services including databases, real-time communication, and more.
Session management and caching:
Bubble’s internal functionalities: Includes session management tools.
Zapier: Useful for simpler session or state management across workflows.
Retool: Provides internal tools to configure for session management tasks.
Step 3: Build an MVP
Building a rental marketplace like Airbnb brings the need to enter the competitive market as quickly as possible to attract users to your platform. But to maintain a competitive edge, you need to have a deep understanding of the features your target audience want. Which is why we recommend building an MVP.
The benefits of this approach are clear: you save on development costs by not building a wide range of functionalities. Yet, you still deliver enough core features to gain feedback directly from your users.
This direct line to your market allows them to inform you which features are essential and which are unnecessary, guiding your development to focus on what matters to your audience.
Below are features we recommend building in your MVP:
Sign up/sign in: This feature enables both guests and hosts to create accounts, allowing them to manage personal details and engage with the peer-to-peer platform securely.
Search functionality: A feature that assists travellers in finding suitable accommodations and experiences.
Search results page: This should display a list of potential accommodations, featuring high-quality images, the number of possible guests, amenities offered, and a map integration showing property locations with price tags.
User roles for guests and hosts: Distinct roles must be delineated on the platform, enabling travellers to search for and book accommodations while allowing property owners to list their spaces and manage booking details.
Property detail page: Each listing should have a detailed page with comprehensive information about the property, including amenities, number of beds and bathrooms, and the type of accommodation.
Payment integration: Integrate a reliable payment gateway (like Stripe or PayPal) to ensure that all financial transactions are secure and easily managed.
Automated messages and alerts: Automate communication for booking confirmations, reminders, and check-in/check-out information to reduce the need for manual messaging.
Advanced filters: This feature enhances the search process, allowing users to specify criteria such as type of accommodation, availability dates, price range, amenities, and the number and type of rooms.
Host contact form: A feature that activates when a user clicks a call-to-action button, allowing them to fill in essential details and contact the host directly via email.
Calendar integration: Allow hosts to manage their property’s availability directly through an integrated calendar. This feature helps prevent double bookings and makes it easier for hosts to update their listings' availability in real-time.
How much does it cost to build an MVP?
To build the listed features above, we’ve broken down the average costs as follows:
Sign up/Sign in
Integration using services like Auth0 or Firebase.
$2,000 - $4,000
Search functionality
Implementation with Elasticsearch or Algolia.
$3,000 - $6,000
Search results page
Custom UI/UX design with map integration.
$3,500 - $7,000
User roles for guests and hosts
Implementation of user roles and permissions.
$2,000 - $4,000
Property detail page
Detailed listings with comprehensive information, custom UI/UX.
$4,000 - $8,000
Payment integration
Integration with Stripe, PayPal, or another payment gateway.
$2,500 - $5,000
Automated messages and alerts
Integration of email and SMS notifications using services like Twilio or SendGrid.
$2,000 - $4,000
Advanced filters
Custom filters for search queries.
$3,000 - $6,000
Host contact form
Form setup and integration with backend systems.
$1,500 - $3,000
Calendar integration
Integration with a calendar service or custom calendar development.
$2,500 - $5,000
Additional costs:
UI/UX design:
Design costs for the entire platform to ensure a user-friendly experience.
$5,000 - $10,000
The total cost for developing the MVP, considering the higher and lower estimates for each feature and additional design costs, would range from $28,000 to $60,000.
Please note this estimation provides a financial overview necessary for budget planning and to set expectations for the scope of building an MVP similar to Airbnb. The final cost will vary based on specific project requirements, the chosen development team and the technology stack.
Final words
Developing a marketplace like Airbnb, a company that started from a simple idea of renting out air mattresses, shows the power of innovation in meeting market needs. This story is not just inspirational; it serves as a blueprint for entrepreneurs aiming to succeed in the marketplace industry.
While the journey of building an MVP can be both time-consuming and costly, the rewards are compelling. Airbnb itself transitioned from a modest beginning to a global powerhouse, fundamentally changing the travel and hospitality industry. This demonstrates that with the right execution and a focus on core functionalities that cater directly to user needs, significant returns can be achieved.
For entrepreneurs, this means that the upfront costs and effort required to launch your platform can be seen as a foundational investment in a larger vision. By starting with an MVP, you not only manage resources efficiently, but also create a direct channel for user feedback in the competitive marketplace. This feedback is instrumental in iterating and improving your service. Just as Airbnb leveraged the power of community and technology, so too can aspiring entrepreneurs in creating their success stories in today's market landscape.