60.1K

Verified Solution

Link Copied!

Please answer the 4 stidy questions at the bottom using the above case study.

Platform versus Pipeline Business Models: Are Airbnb and Marriott Right to Move into Each Other's Turf? Jochen Wirts To continue its fast growh, Airbnb diverted from its pure peer-to-peer (P2P) strategy and has been adding owned-room capacity. Meanwhile, Marriott has added P2P platform-sourced rooms to its marketing and distribution channels. The question the senior management of both companies need to address is what it takes for them to be successful in each other's turf. Tt has become fashionable to show tables of the market Ivaluations of supposed legacy companies like Marriott International (referred to here as pipeline businesses) and compare them to their peer-to-peer (P2P) platform business model counterparts such as Airbnb. Indeed, these auset-light platform businesses often approach or even exceed the market capitalization of their "old ceonomy" counterpars, although they often have no physical assets to speak of. Over the past 10 years, P2P platforms have enjoyed explosive growth. Consumers around the world have become familiar with the sharing economy and many are happy to use what it offers. such as the peer-provided accommodation on Airbob. Exhibit 1: For Airbnb, maintaining the pace of expansion meant going beyond the gig economy. 815 8821 822 O2023 by Jochen Wres AIRBNB'S MOVE INTO PIPELINE BUSINESSES To sustain its rapid growth, Airbnb acquired last-miniate hotel booking platform HotelTonight, which enabled it to offer Hotel Tonight's independent and boutique hotel offeringr directly on the Airbab platorm. Thanks to the acquisition, instead of having to work individually and directly with boutique hotels and bed and brakfast owners to list their propertits, Airbnb could integrate a large amount of hotel inven tory onto the Airbnb platform at a lower cost. This was achieved through technology integration at the back-end between HotelTonight and Airbob. Offering these hotels and vacation rentals on one platform allowed Airbob to enjoy marketing-related synergies associated with crots-selling. In particular, Airbnb found thut guests who first booked a hotel on Airbonb were highly likely to return and also book peerprovided rooms in the future. Furthermore, Airbnb started pipelinelike produce innovation with an emphasis on standardiaing products. For eample, it launched Airbob Plus, which listed qualigy-inspected homes that indude everyday esientials. While these homes commanded a price premium over regular Airbab listings. they offered the traveler more hotel-like consistency with a specified minimum level of comfort, amenitio, and design. Airbnb Luxe was another sub-brand that offered "catraordinary homet with five-star everything "These homes had to adhere to over 300 brand standards, inclading deaign features wh as high-vaulied ceilings, attractive art, and dosets with matching hanges, thus enabling Airbnb to develop branded accommodation services that are closer in nature to their pipeline competiton. Airbob also experimented with but later aboned an apartment-hotel hybrid conctpe offering, 200 lusury suites lecatod at Now Yorks 75 Rockeffller Plasa, which would have moved Airbib even claser to its pipeline-like hotel competitoss. MARRIOTT'S MOVE INTO THE P2P PLATFORM BUSINESS MODEL The rapid scaling of P2P platforms posed stratogic threats to the traditional incumbents. These pipeline busincase wete at risk of being distupeed and were forced to rethink their business models. Indeed, nearly every cuccutve in a pipeline busines would have had numenous discussions about whether and how their butiness should become a platform. Marriots International was ne exception. Homes \& Villas by Marrioct Inernatooal marked Mar riott's encry into the P2P bome sharing manket. Homes 8 Vilas connected individuals who wanted to rent out their homes (i.e., peer-ptovided asets) with puest looking for short-term home rental. Under this model, an individual homeownet pald a commision to a third-party property managersent company (e.g., Turnkey) to manage their listing (s) on the platform. Everythiog from pricing and dis: tribution to customer service was handled by the property management company. Thar is, unlike an Airbonb listing. homeownen could not list their peoperties directly, which tesulted in professionaliaed P2P home-sharing and enhanced convenicnce for homeowner. The property managemient company was not rearicted to listing exdusively on Homes \& Villis but could also offer Exhibit 2 : The enormous success of the sharing econemy led Marriots to develop its own platerm. the ame properry on ocher plaforms. It is noteworthy that individual homeownes did not pay the property management companic beyond what they typically would have for linting on ether P2P platforma. Thus, Home \& Villar offered boeh management companies and homeownern, the ky playen in this ecosytem, superiot value shile ensurieg higher qualiry andandi compared to other P2P platforms. Working with a select group of properry management companies offered Marriets a number of advantages. Fint, this strategy added quality contrel ef listings and uervice levelc. For cample, it esublished strict quality standards for any property being added (Le, evrry home had to indude bigh-upeed Wh-Fi, premium linens and amenities, and family-friendly amenities) - a contrast to the propertio listed without qualing preteuiates on Airbeb and other plutforms. Intereatingly, the astuted ality of listing allownd Homes \& Villas to leverage Marrlotr's brand equity. It adopeed an endorned branding approach whereby the signature "by Marriot Loternational" was added to Homes & Villas. Furthermote, working with property management companies allowed Homes \& Villas to achieve higher average rateh, as peofesional properry management compaales tended to outperform amateur bots (i.e, individuals) in terms of pricing and eccupancy rates. Providing thin added vilae increased costa but also had revenue bencfies theough greatet guest williegness to pay. supported by the added qualing awarance and profesicosl. ised service as well as the higher occupancy rates. This led to Kigher commission tevenues. Finally, unlike the multi-sided revenve modals for most bome-hariag cempanies as in Airbab's case. Marriott only charged property manugets a platform fee and did not charge guets. This approach not oely made the platom more attras: tive to ita guests, but the pricing model was also aligned with what Marriorri existing customer base was familur with and therefore caval crow-se/ pe. One of Mamietri of jectives was to keep loyal castens. en within the Marriont ecosysem, wis allowed is loyaly program member to robeem their poines for Hoene \& Villes itays. Thus, its guests could collect points from when the suyed in Marriotr' hotels during their baines omel and then redecm them en personal itay en the lowet-price point Home \& Villis' listings. Furthermore, the added platform war aset light, allowerd rapid waling and could accomsodace mudi bigher auset heterogentify compured to its evising hosel room inventory while seill ensuring qualiry, As noch, creaties a pluform wich pect-providnd aucts with eperationa managed via thind pary allowed Marrieas to achieve marketing etlated, volume baed, and aset-relaied pquergies. ARE AIRBNB'S AND MARRIOTT'S STRATEGIES SOUND? The general view is that platforms ate sorochow in the-winnettakes-it-all markets and therefore justify enormous valuations, epecially when compared with their pipeline countetparts. However, are leading platorms truly protected from competition, do they have pricing power, and can they generate high contributions over long periods of time as implied by their high valuations? Are dicy risking dicit high valuations if they add controlled capacity and related costs? On the part of the pipeline businesses, what will it talce to successfully enter the turf of their P2P sharisig platform competitors? These aet the questions Airbnb's and Marriotr's top management need to address to charter their growh suaregies in the sharing economy. STUDY QUESTIONS 1. How does Airbob's originally pure P2P platform business model differ from Marriotis tradicional pipeline modd in terms of its economics, operations, and marketing and distribution? 2. Why would it make sense for Airbnb to move into owning of controlling room capaciry rather than relying entirely on peer-provided capacity even though it comes with a higher cost base? 3. Dos Airtinb have nerwork effects that protect it from compctition' How clie can Airbob build customer loyalty? 4. What are Martiotri key challenges of adding peerprovided room capacity to their marketing, diatribution, and operations sytems

Answer & Explanation Solved by verified expert

See Answer