🧹Airbnb is pulling a Blockbuster

Welcome to The Level Ups. Modern business news for the future business leader (explained in plain-Jane English).

Today:

• Airbnb is taking a major hit over its fees.

• Turns out: there's more to this story.

• Blockbuster ended up in hell for the same.

• What’s the move?

Let’s get into it.

Estimated reading time: 3 minutes & 10 seconds.

Airbnb is Taking Heat:

The online community is in an uproar over how far Airbnb has gone with its fees, chores and more.

Posts like this set it off:

Let’s be honest, it’s for good reason.

Airbnb has recently commented on the structure of its fees. In fairness, they do a good job of breaking it down. The standard fee explanation is also available.

Here’s a quick summary:

• Airbnb’s “host-only” fee is typically 14-16% directly from the host.

• Alternatively, Airbnb offers a “split fee” with hosts, that’s 3% of the per night amount.

Hosts can choose whether it’s a host-only or split fee. Most pick the split fee.

Then there are charges to the guest.

• Most guest service fees are under 14.2% of the booking subtotal (nightly rate + cleaning fee + additional guest fee, if applicable—excluding Airbnb fees and taxes). The host sets and charges this amount.

But Airbnb left out something critical. That guest service fee for things like cleaning; Airbnb takes a cut of that too. It’s 14.2%. If a host charges you $100 in cleaning fees, Airbnb also takes $14.20 from them.

For example: if a stay is $300 for three nights, then $60 for cleaning etc., under the split fee model:

• The guest pays $410.40.

• The host earns $349.20.

So they say. But Airbnb also takes 14.2% of the cleaning fee ($8.52). So the host actually earns $340.68. It doesn’t seem like much, but it adds up.

On the plus side, Airbnb doesn’t charge a payment processing fee, which is (pretty much) the only thing they don’t charge for. Still something.

What ends up happening? This:

Ok, but why’s it getting so bad?

Hosts charge more for cleaning fees while asking guests to do all the chores before leaving. I can’t comment on the chores (probably to save on cleaning fees), but I can address why the cleaning fees are so high.

Hosts can only charge one cleaning fee whether someone stays for one night or ten.

Also, Airbnb has evolved past staying in a single room for a night or two. Entire houses are being rented out for days at a time. Sometimes weeks. Cleaning those is a lot more work.

And since it’s a flat amount for any duration of stay, higher cleaning fees encourage people to stay longer.

People want to rent their space out for longer durations because it’s fewer headaches and more money (depending on the market). Plus, those Airbnb fees on services only hit once if it’s a longer stay.

It’s worth it for hosts but unregulated by Airbnb. Will that change? Time will tell.

But we do know that fees are a big risk to a business. Just ask Blockbuster.

Fees can be fatal:

Pretty much everyone knows Blockbuster's story.

They were once worth billions, and now they’re gone. Netflix took them out. Fees were one of the major reasons why Netflix won. There were others, but that’s the one we all recognize.

It’s frustrating to deal with fees and headaches when there are alternatives.

The thing with Airbnb: there is a clear alternative. Hotels. They cost more, but you don’t have to deal with fussy hosts or random fees.

Many people would make that trade. Maybe not during peak, most pandemic seasons, but on average.

Time will tell if there’s a clear winner.

What’s the move?

Companies that offer one price but then charge another are all in for complaints. It’s fine as long as demand is high (like demand for hotels and Airbnb now).

Whenever the market has cornered you into needing to do business this way, you know something’s wrong.

But not every business enjoys such high demand.

Convenience, speed, no surprises, no bs fees. Is your company offering all of these?

After taking a hit through pandemic years, I can’t blame Airbnb for operating with fees.

But, I expect people to continue getting tired of it and consider other options.

If the actual price was the list price, would people still consider an Airbnb over a hotel?

Probably not when a guy in Wales opened his Airbnb to see this.

Keep an eye on this. I'm expecting big announcements from Airbnb in the next 12 months.

Thanks for reading!

See you tomorrow,

Darwin