September 8, 2023

Airbnb's Economic Moats

A Concise Articulation Of Airbnb's Primary Economic Moats

The following both articulates the primary moats that Airbnb possesses and conveys the thesis for the business concisely:

  1. Brand moat: For me, personally, I really don't know where else to book a stay. Of course, I could think of other ways to find a place to stay, but Airbnb is so embedded into my psyche that I think of it as synonymous with travel. I start my travel journey in the Airbnb app, and only when there is no supply do I turn to a hotel. That said, I've actually been considering highlighting Hilton (HLT) as an attractive business, as I've had very good experiences with Hilton. There's 8B humans on this earth. That number is growing. The number of earthly citizens achieving levels of income necessary to travel often continues to grow. It's a very abundant universe, and I believe Airbnb is a highly customer-centric business with a robust brand moat (i.e., customer loyalty). I believe Hilton operates with a similar mindset based on my experiences with the brand.
  2. Network Effects moat: Airbnb has robust network effects that are also reinforced by Airbnb's brand moat. That is, because I associate travel with Airbnb, I use the Airbnb platform to search for places to stay. Because I use the Airbnb platform to search for places to stay, hosts use the platform to list their places to stay. Because hosts use the platform to list their places to stay, I use the platform. Because this cycle repeats consistently, I continue to associate Airbnb with travel, and, as such, my identity association with Airbnb continues to build. "I, Louis, start my travel journey on Airbnb. That's just who I am." Notwithstanding the divorce rate in the U.S., humans generally tend to dislike change. They "become set in their ways." This natural human tendency is the ally of the high character business and associated consistent product.
  3. Embedding moat: Guests build their reputation on Airbnb. Hosts build their reputation on Airbnb. These both represent embedding moats, though, to be sure, it's stronger for the business owner (for the particularly exemplary hosts, they can be given the of "Superhost" on Airbnb, which comes with benefits, like added trust or the ability to charge a slightly higher price). Further, Airbnb hosts manage their listings through the Airbnb app, and this creates further embedding moat. Humans appreciate a simple UI/UX that they understand well, and they will simply stick with a good one if it works. "If it ain't broke, don't fix it," so to speak.
  4. Economies of Scale: Airbnb's scale has allowed it to experiment with and successfully launch products such as Aircover, as well as their recent Long Term Rentals product and platform. Without the scale begotten by the aforementioned network effects, Airbnb would likely not have been nearly as successful in launching its Aircover product.

As something of an aside, Airbnb now trades at one of its most attractive valuations in its history as a public company, which you may review below:


Thank you for reading, and, as always, please feel free to reach out to me via direct message on L.A. Stevens' X profile.

Authored by Louis Stevens

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