Air BnB PESTEL Analysis

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  • Post last modified:March 3, 2019

             Air BnB’s Pestel Analysis

Leading the sharing economy are two names – Air BnB and Uber. Both have risen fast and  have disrupted the existing norms and have emerged as major contenders for the traditional businesses.  However, Air BnB’s ride is slightly tougher than Uber. Its disruptive innovation model is faced with some unique challenges that are different than Uber’s.   Apart from political and legal, there are other challenges in its way too. Still, it has seen some rapid growth during the recent years. It is projecting to earn as much as $3.5 billion dollar an year by 2020.

This is an enormous sum and higher than the bottom lines of 85% of the companies that feature on the Fortune 500 list. By 2020, its revenues are projected to grow as much as $8.5 billion. The company is now entering its ninth year and it is growing fast.  So far, the company has been running on venture funding. The company has kept expanding its presence and has expanded to 191 countries and 34,000 cities.  The model of income that Air BnB has used is based on charging a small amount from both the seller and the buyer. Till now, the company has been operating on losses and plans to start making profits by 2017. This is a PESTEL analysis that analyzes how the company is affected by political, economic, social, legal and other forces.

Political:

The sharing economy is based on a disruptive model and there are two sides of it. On one side is the creative effect it has had on the jobs and earnings of the sellers and savings for buyers. On the other, is the disruptive effect it has had on the existing industry model. This has not just affected the people or the economy but has caused an unprecedented level of discord resulting in hot political debate.  Many politicians are seeing Air BnB profiting from a non licensed market and in several of US states rules are being enacted for this segment of the economy. As per Air BnB, its hosts have paid more than $14.5 Millions in taxes. In US, for more than 88 percent of the homeowners who have rented out their homes, sharing has been a lifeline and has helped them avoid eviction and foreclosures.  However, home sharing has not been the norm and anything that is different from the norm looks like a violation to law and politics. It is why political pressures against Air BnB have kept rising. However, Air BnB is working to minimize the effect politics can have on its business. Still sometimes the effects of politics can be unpredictable. The popularity of Air BnB has kept rising and that is having a good effect on its business. Still, politics has rarely been so favorable for businesses and its impact generally can hinder growth. Air BnB too has been made to bear its share of stumbles as in case of Uber. Still, despite all this politics, one cannot deny that sharing economy has given the economy a new direction and that’s where its effect will work to counter the effect of unfavorable politics.

Economic:

The sharing economy has generated opportunities where they did not exist. Whether it is Uber or Air BnB both have helped millions find jobs when number of jobs in the economy had shrunk. It has had major effects on the economy in other forms too. Apart from creating high scale employment, Air BnB has also had a negative impact on the existing hotel industry. The higher the number of visitors at the Air BnB’s properties, the higher the losses of the hotel industry. Air BnB does not just provide a cheaper option for the hotel rooms. It also provides the visitors with a different setting than the ordinary hotels.  Visitor can find home like settings at affordable costs.  Air BnB’s growth has not been as staggering as Uber but still it has grown at an impressive rate. Its economic effects have been positive for the commoners who stared renting out their homes. Many found a new way to earn income and many found a respite from the burden of their home loans. On the other hand is the hotel industry and the monopoly of the large brands. Air BnB has also reduced the cost pressure on tourists. The effect is negative on the sellers’ side, for whom the pressure has increased with the arrival of Air BnB. Moreover, while economic activity has increased after the recession, the visitors are also looking for new and diverse options. If we check Air BnB in terms of the overall economic effect then it has been positive.  Some disruption has resulted in good economic value for that portion of the society that needed it most critically.

Social:

Society and social trends also have an important value in the context of business. Social forces always have had a deep impact on businesses. If you see Air BnB’s business in the context of social forces then society has been a positive force behind the growth of Air BnB. Social trends have changed a lot during the 21st century.  Apart from social media and globalization, several new trends have emerged that have directed the society in a new direction. Air BnB has spread into 191 nations and 34000 cities. While the company has not yet made any profits, it will start making profits from this year. Now society exists on both sides of Air BnB’s picture. One the one hand it is the buyer and on the other, it is the seller. So, it is on both the demand and the supply sides of the picture for Air BnB. Businesses must understand the value of society. The sharing economy has utilized this force skilfully. If you help the society, it helps you back.

Technology:

Technology is the biggest force of 21st century. While the real power still lies with people,  technology has emerged as a facilitator and given people access to some conveniences that  were never really possible. Social media is not just about connections and marketing, it has given rise to new marketplaces where you can get closer to your customers, engage them, build your reputation and rise faster. Forget social media, you know how effective a simple app from Uber is. While the Air BnB community is built on sharing, technology still holds an important space in the entire system. It began in 2008 when two designers hosted some guests looking for space.  To make sharing and connection easy, Air BnB verifies personal profiles and maintains a smart messaging system for communication between guests and hosts. Round the clock web based help and support is available for both the buyers and the sellers. You just need to visit Air BnB’s website and create an account and rest is as easy and seamless as you want. Technology has not just added pace but also some real value to business taking it years ahead. Making home sharing possible has become easy only because technology has spread at such a fast rate. Today, millions take advantage of the services made possible by Air BnB. Several have been able to repay their loans and several have found cheaper options for vacationing. Now, if you carefully check, the entire hospitality industry has benefited from technology and Air BnB is just the newest chapter in it. If technology has disrupted the existing norms, then it has helped us create better value taking us faster forward towards the future.  Somewhere Air BnB has been able to make a strong point and now you know that without technology it would never have been possible.

Environmental:

Environmental factors are not just about the brands that have an impact on the environment. Neither are environmental trends just a passing fad. Investing in environment can have great results for businesses. Such brands have not just earned great reputation but have also seen their business flourishing.  However, Air BnB has also published a report on its environmental impact. Around the world home sharing is having a positive impact on the environment. Air BnB has helped residents around the world easily share their homes and make the best use of the existing resources and a more environmentally sustainable way of travelling and vacationing. Home sharing leads to reduced energy and water usage, less greenhouse emissions and greater environmental awareness among both the wastes and visitors. Apart from it benefits have been noted in terms of waste reduction as well. Air BNB highlights that “its properties consume less energy than the hotels”.

In North America its properties consume 63% less energy and in Europe 78% less. The amount of energy Air BnB saved in 2013 was an equivalent of 19,000 homes in North America and 68,000 in Europe. The impact has been impressive in terms of greenhouse emissions reduction too. The amount of greenhouse emission reduced is an equivalent of 33000 cars taken off the roads in North America and 200,000 off the road in Europe. Focus on managed water usage and waste reduction management has also brought similar results.  Every pint of water and every watt of energy saved is good for the world. The Air BnB properties consume less water as compared to the general hotels and save water. The rate of savings is 12% in North America and 48% in Europe. Avoiding extra use of water leads to water savings and the amount Air BnB has been able to save is an equal of 270 Olympic sized pools in North America and 1100 in Europe. Compared to the hotels Air BnB has been able to save 32% more water in North America and around 28% in Europe. Data published by Air BnB also shows remarkable control in terms of sustainability awareness. In this way, Air BnB has been able to create an ecosystem that values green and has brought remarkable results in terms of environmental impact and awareness.

Legal:

Law has always tried to be unshakable. So, when new systems emerge law finds it difficult to digest them. Sharing economy has given rise to several legal hassles. It has shaken the existing business models and in return it has also earned some legal trouble. While Air BnB’s sharing model must have kept clear of legal trouble, at points it has still come in clash with law.  It is mainly the local housing laws and regulations that Air BNB has fallen foul of. Apart from it there are tax issues that can spell trouble for the Air BnB hosts. For example Newyork home owners and tenants cannot legally rent out their homes unless they are living there.  In several of the cities, tourist taxes are payable if you rent out holiday accommodation. Another major cause that Air BnB is attracting legal tussle is that it grabs an around 10% share from the hotel industry which is enough to shake many in the hotel business. In Barcelona, it was fined 30,000 Euros for the breach of local tourism laws.  In other cities like San Francisco, New Orleans, Malibu and other cities too, the brand has accumulated some legal heat. In Berlin too, short term renting has been made difficult by the legal authorities. Sharing economy has risen as a new power and it has made calculations complex for the legal authorities. While the situation has been hostile in some cities, in others it is a lot better. Amsterdam has passed a law that is more favorable for the Air BnB host. Apart from small taxes, there will not be any major burdens on Air BnB there. Sharing economy is having its impact and this might make the authorities bend. Its idea holds promise and therefore has gathered popular support. This should create more pressure on law and let it make changes that can prove favorable for the players in the sharing economy.

Sharing economy has risen as a new force and is another great news apart from the social media. It has created jobs for millions and also proved a critical support for those who are feeling the effect of recession. Imagine those thousands who are not skilled in this era of IT. It has created opportunities for them and as mentioned already Air BnB generated a revenue stream for those facing credit crunch and unable to pay their housing loans. In this way, sharing economy has proved good for the world economy. However, like most other businesses, it too has been impacted by political and legal forces. Social trends have proved favorable for it and technology is the most important factor that has fired Air BnB’s growth. This PESTEL analysis discusses how these forces have affected Air BnB.

Sources:

https://fortune.com/2017/02/15/airbnb-profits/
https://www.inc.com/linkedin/sramana-mitra/billion-dollar-unicorn-airbnb-continues-soar-sramana-mitra.html
https://www.airbnb.co.in/help/getting-started/how-it-works
https://www.theguardian.com/travel/2014/jul/08/airbnb-legal-troubles-what-are-the-issues

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.