Analyzing network effects: a case study of Airbnb

About 83% of total market value which is created by the mainstream technology companies is driven by ‘network effects’. ‘Network effects’ means a product or a service will be more valuable as the increasing number of users. ‘Network effects’ has a greater power than we think. With the influence of network effect, business sales and marketing activities might be more efficient, but it may also facilitate more substantial barriers to competition among companies. There are many companies which have great network effects, such as Airbnb, Uber and Snapchat.

In the past 25 million bookings, Airbnb creates attractive accommodation options by providing an interesting approach to search and reserve houses which have local characteristics. Users can choose houses provided by 640,000 users in 34,000 cities. These rapidly expanding ‘social-sharing’ companies have a significant impact on the traditional hotel industry in the aspects of supply and demand.

b

c

Traditional hotels tend to control resources to maintain high prices, while Airbnb encourages more and more new landlords and travelers to join it to increase the Internet and social value by users to establish network effects.

The mutual effect between supply (hosts) and demand (guests) is an essential field of some peer-to-peer marketplaces like Airbnb. In other words, more hosts means more options for guests and more guests means more profit opportunities for hosts.

a

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