1. Application of Enterprise Theory to Airbnb
Introduction
An enterprise can be defined as a group of different entities, that work together to deliver a
product or service in a highly integrated manner. The theory of an enterprise is based on
building the final product using the core competencies of different parts of a company or
different companies.
The contemporary enterprise framework defines three broad types of enterprises, based on the
permanence of relationships, namely:
 Virtual enterprises: A virtual enterprise is a temporary alliance of entities that share core
competencies, resources and skills in order to synergistically take advantage of business
opportunities (Camarinha-Matos, 1998).
 Extended enterprises: An extended enterprise is a more permanent collaboration of
companies or parts of a company working towards strategic objectives that are better
defined than in a virtual enterprise. The extended enterprise is built with a view to mid-
term or long-term benefits of creating a partnership with suppliers and other stake-
holders (Farrell, 2008)
 Vertically Integrated enterprises: A vertically integrated enterprise is a tightly knit group
of entities that almost act as a single corporate entity through owning its entire supply
chain, distribution or other means. (Baines, 2011).
This essay analyses the Airbnb platform (See Appendix) from the enterprise point of view.
Airbnb is a web and mobile based platform for people to rent and book accommodation across
the world (Brennan, 2011). The web and mobile platform connects hosts and travellers and
facilitates bookings without owning any property itself (Choudary, 2013).
The analysis will explore the case company from the following points of view, namely,
operational philosophy, core competencies, scope of relationship between stakeholders, and
the governance of the relationship between stakeholders. A conclusion is drawn from the
analysis at the end of this report as to the category of enterprise to which Airbnb belongs at
present.

2. Analysis
I. Operational Philosophy:
Airbnb is a web and mobile based business. Its software development team primarily follows a
start-up approach towards code deployment to the real-time platform. This involves
prototyping and immediate deployment to the platform, sometimes several times a day. A one-
click deployment system handles the deployment of incremental feature updates regularly. This
suggests an agile approach to software development. In the past the system was highly agile as
the code deployment would take place immediately upon completion without an intermediate
quality control process, thus resulting in bugs. These inefficiencies were later modified as with
growth, the operations in the company started tending towards lean thinking (Thomas, 2014).
This tendency toward lean thinking can be observed by taking the example of Airbnb starting a
professional photography service to support its renting platform. Based on a hypothesis that
better quality photographs would increase the number of bookings on the platform, the
company ‘built’ a prototypical photography concierge service that helped users update their
postings with high-quality photographs. Airbnb then ‘measured’ the transactions on property
with high quality pictures as opposed to those without. From this, they ‘learnt’ that the former
sold much higher than the latter. Based on these findings, Airbnb rolled out its photography
service at scale globally (Thomas, 2012).
Thus, today, Airbnb displays elements of both lean and agile thinking in its operational
philosophy, the hallmark of extended enterprises.
II. Core Competencies:
Airbnb has close to 1 million listings with a presence in 192 countries across the world. Being an
American enterprise, more than 75% of its transactions involve at least one party outside the
USA (Zadeh, 2012). This shows global coverage and acceptance of the platform along with a
large user-base. The product has thus undergone significant testing but is still far from a
standardized product due to constant feature updations and editions.
Recently, there has been an increasing legal cloud surrounding Airbnb with complaints of
unhygienic accommodations, burglaries and vandalism along with allegations of flouting real
estate laws in several jurisdictions (Arrington, 2011). Operating a relatively unregulated
platform with minimal quality control processes, difficulties can be foreseen in solving such
issues, thus posing a medium level of risk. Airbnb’s business model, when compared to the
traditional vacation renting market, has been understood by innovators around the world,
leading to a surge in similar ‘shared economy’ start-ups over the last five years such as Uber
and TaskRabbit, which work on the same model as Airbnb in other industries (Geron, 2013).

3. Airbnb’s assets are the accommodation listings on its platform. Most of the investment into the
enterprise has gone into increasing the number, coverage or utilization of the listings. On the
basis of demand for short-term housing globally, Airbnb can be deemed to have low to medium
asset specificity.
Thus, in terms of its core competencies, Airbnb possesses the characteristics of an extended
enterprise.
III. Scope of relationship between stakeholders:
Airbnb brings individual suppliers and consumers of particular rental properties together to
form a loosely connected relationship that encourages relations with each other based on a
single transaction and can extend to multiple transactions but do not place particular emphasis
on long-term relationships. This is more symbolic of the extended enterprise model. Another
prominent feature of the extended enterprise is that all members of the supply chain are
shown the same data in real time or near-real time (Rouse, 2007). All data relating to pricing
and other information on Airbnb, regarding listings, are shown real time in the exact same
manner to the property suppliers, thus satisfying the extended enterprise criteria.
On the other hand, the system of Airbnb, known as the ‘shared economy’ is such that suppliers
and consumers are interchangeable. In the case of Airbnb, the roles of supplier and consumer
are based on a particular property listing. A supplier of one property on the platform may be a
consumer of another property at another point in time. As the supplier and the consumer are
picked from the same set of users, one cannot exist without the other. This kind of tight
integration that can hypothetically exist as long as the platform exists is symbolic of a vertically
integrated enterprise.
Thus, in terms of the scope of relationships between stakeholders, Airbnb displays features of
both extended and vertically integrated enterprises.
IV. Governance of relationship between stakeholders:
The suppliers for Airbnb are the users of the platform who are willing to give out their property
for rent through the platform. The company is currently at a stage where they are expanding
abroad in order to increase the rental property listings on their platform from the current figure
of over 800,000, thus increasing their suppliers. As such, Airbnb has begun to strategise in its
expansion by limiting the growth of its international operations (Dickey, 2013) so that it “does
not attempt to fly before it can walk”. Additionally the company has also switched its
operations strategy to focus on current partner development by providing better guarantees to
the suppliers of properties through insurance and guarantee schemes. As a result of this, most
of the processes involving booking, refunds, guarantees and settlements revolve around the

4. needs of the suppliers of properties and decisions on such processes are made in conjunction
with the average opinion of the suppliers (See Appendix).
The focus of governance at Airbnb is on efficiency (Tang, 2015) in order to make the process of
uploading, searching for and booking a property easier and faster. The payment process for the
property is also online from bank-to-bank via a payment gateway, thus reducing the hassle of
physical transactions. The two-way rating system ensures that the search for safe and quality
renters and rentees are made easier.
Though all of the above are the signs of an extended enterprise, Airbnb’s governance model
also shows signs of being that of a vertically integrated enterprise such as the fact that all final
operational decisions have a single center of command and control within Airbnb. Additionally
in the layout of its software development teams, there is increasing hierarchical tendencies,
showing heightened corporatization for the platform.
Thus, with respect to its governance model, Airbnb tends to show all virtues of an extended
enterprise but also shows some features of a vertically integrated enterprise.
Conclusion
The analysis of the Airbnb platform has been from the following four points of view:
 Operational philosophy: A combination of lean and agile operating philosophies. These
are features of an extended enterprise.
 Core Competencies: Tested to a great extent, well understood by innovators, medium
asset specificity. These are features of an extended enterprise.
 Scope of relationship between stakeholders: All members of the supply chain are shown
the same data real time or near-real time and emphasis is not placed on long term
relationships. These are signs of an extended enterprise. On the other hand the
symbiotic nature of the relationship between suppliers and consumers is a feature of a
vertically integrated enterprise.
 Governance of relationship between stakeholders: Strategic sourcing and partner
development, implementation of co-owned processes and governance aiming for
efficiency are seen. All of the above are signs of an extended enterprise. On the other
hand, the single center of command and increased corporatization are signs of a
vertically integrated enterprise.
Thus, though it shows some signs of being a vertically integrated enterprise, based on the
analysis, the Airbnb platform is predominantly an extended enterprise.

5. References
Arrington, M. (2015). Airbnb Victim Speaks Again: Homeless, Scared And Angry. [online]
TechCrunch. Available at: http://techcrunch.com/2011/07/29/airbnb-victim-speaks-again-
homeless-scared-and-angry/ [Accessed 19 Mar. 2015].
Baines, T. (2011). Servitization within manufacturing: exploring the provision of advanced
services and their impact on vertical integration. [online] Aston University EPrints.
Available at: http://eprints.aston.ac.uk/17175/1/Servitization_within_manufacturing.pdf
[Accessed 19 Mar. 2015].
Brennan, M. (2011). The Most Amazing And Absurd Places For Rent. [online] Forbes. Available
at: http://www.forbes.com/sites/morganbrennan/2011/09/16/the-most-amazing-and-
absurd-places-for-rent/ [Accessed 19 Mar. 2015].
Camarinha Matos, L. (n.d.). [online] Available at:
http://www.uninova.pt/cam/ev/PROVEveconcept.pdf [Accessed 10 Mar. 2015].
Choudary, S. (2013). Becoming a Billion Dollar Startup. [online] The Next Web. Available at:
http://thenextweb.com/insider/2013/03/10/the-airbnb-advantage-how-to-avoid-
competition-and-become-a-multi-billion-dollar-startup/ [Accessed 19 Mar. 2015].
Dickey, M. (2013). Airbnb Is Shifting Its Strategy So It Doesn't Crash And Burn. [online] Business
Insider. Available at: http://www.businessinsider.com/airbnb-is-shifting-its-strategy-2013-
7?IR=T [Accessed 19 Mar. 2015].
Farrell, J. (2008). What is the Extended Enterprise? ~ A Management Consultant @ Large.
[online] Jpfarrell.blogspot.co.uk. Available at:
http://jpfarrell.blogspot.co.uk/2008/04/extended-enterprise.html [Accessed 19 Mar.
2015].
Geron, T. (2013). Airbnb And The Unstoppable Rise Of The Share Economy. [online] Forbes.
Available at: http://www.forbes.com/sites/tomiogeron/2013/01/23/airbnb-and-the-
unstoppable-rise-of-the-share-economy/ [Accessed 19 Mar. 2015].

6. Rouse, L. (2007). What is extended enterprise? - Definition from WhatIs.com. [online]
SearchCIO. Available at: http://searchcio.techtarget.com/definition/Extended-enterprise
[Accessed 19 Mar. 2015].
Tang, (2015). Uber and Airbnb are Cheaper, Faster, and Better (Two-Sided Market) Winners.
[online] UCLA Anderson Global Supply Chain Blog. Available at:
http://blogs.anderson.ucla.edu/global-supply-chain/2015/01/uber-and-airbnb-are-
cheaper-faster-and-better-two-sided-market-winners.html [Accessed 19 Mar. 2015].
Thomas, (2014). Engineering Management at Airbnb. [online] Readwrite.com. Available at:
http://readwrite.com/2014/06/05/airbnb-engineering-management-mike-curtis-interview
[Accessed 19 Mar. 2015].

7. Appendix:
An info graphic of Airbnb’s expansion thus far:
The Supplier-centric nature of the Airbnb Guarantee Scheme:
Initially a wave of sour deals on the Airbnb, including unclean and trashed properties led to
massive negative publicity along with lawsuits for Airbnb. Clearly, a section of the property
suppliers were becoming disillusioned with the lack of safety for their properties while using
the platform. In response, Airbnb started a guarantee scheme that effectively reimburses
$50,000 or the international equivalent based on prevailing property rates to a property owner
in case of theft or vandalism.
The scheme exists to this day and has resulted in suppliers becoming increasingly secure in
renting out their property via the platform. This is an example of how many key decisions in
Airbnb are made taking into consideration the average opinions and concerns of its suppliers.