MGF5600 INDIVIDUAL PAPER
MGF5600 INDIVIDUAL PAPER
You are required to write a report on one of the following innovative firms:
- TikTok, also called Douyin in China
The report will answer: What will it take for this innovator to succeed?
- You will select either TikTok (outside China) or Douyin (within China) as the innovator.
- You should establish what it will take for the innovator to succeed in the future. Should the innovator continue what it is doing? Or is that insufficient? The report will not be an account of what has made the innovator successful in the past. The innovator’s historical activities and performance is relevant only insofar as it informs what should be done going forward?
- You can use another innovator if you choose. But you will need my permission and I will only readings and resources on the innovator.
OUTLINE OF REPORT.
Your objective is to convince us that you know what it will take for the innovation that you are studying to be successful with succinct and clear reasons ‘why’ and actions ‘how’. You will use the business model canvas as an analytical framework to establish the why and the how. NOTE: THE OBJECTIVE IS NOT TO DESCRIBE THE CURRENT INNOVATION.
The following presents a general outline and then applies to the innovation “Go-Jek.” Please note that these notes are only illustrative, and not intended to represent best content or practice.
GENERAL OUTLINE: YOU MUST ADDRESS EACH OF THESE ISSUES
- You must start with a brief outline of the innovation. Because the innovation is well known, don’t spend more than a paragraph on this.
- The governing idea: What are the core factors that will explain the prospective success of the innovation; and these factors must be linked to the business model canvas. You must invoke the value proposition and customer segment in these conclusions.
- You must then turn to the value proposition and the customer segment that the value proposition targets. In this section, you must substantiate the basis for the proposed value proposition and target customer. You must include an analytical framework for the value proposition (e.g. the value proposition canvas or the value line approach) and substantiate the customer segment. The framework must seek to clarify the next best/most competitive customer solution/offering. It must also seek to quantify how much value accrues to the customer per dimension of value.
- You must then clarify the way the value proposition will be delivered through the channels for delivery and the way the customer relationship will be built.
- You must identify at least three core activities, capabilities or resources required to successfully deliver the value proposition, including leadership and management.
- You must be clear about the relationships that will need to be established with key suppliers of capital, customers or those who control essential resources and capabilities (e.g. Spotify’s relationship with providers of music).
- You must state a logic and point of view about what it will take for the innovation to generate significant cash flow. This should focus on managing the costs of operation and obtaining sufficient customers and revenues to offset the costs. For instance what are the core costs of operation at TikTok, how many customers and what revenue/customer would be required to offset those costs.
Failure to address each of the issues above results in points deducted from the report. Where possible you should substantiate your claims by reference to sources that you’re using and those sources will generally be industry and market intelligence rather than academic articles and frameworks (i.e. we know where the business model canvas framework comes from but we don’t know where you’re getting data from regarding the value proposition). When you present results and conclusions, do not use generic headings (e.g. introduction, conclusion) but use more descriptive titles (like below) that move this from an academic project to statements that are commercially/socially vital.
ILLUSTRATIVE CASE STUDY: GO-JEK
GO-JEK (this is NOT an analysis but a series of fabricated, illustrative and hypothetical statements to guide what the report could look like).
- Gojek https://www.go-jek.com/ is an Uber-Type Service for Motorbike Transportation in Indonesia and Beyond
- Gojek is owned and controlled by XYZ, and largely driven by founder Nadiem.
- Gojek has three main customer segments: riders and drivers moving across urban destinations and businesses wanting to move parcels and goods.
- Gojek is first mover in this business but faces competition from XYZ.
- Gojek is limited (or not) to motorbikes although it has plans to expand beyond this.
- We’ll study what it will take for Gojek to be successful in Indonesia but not elsewhere. MGF5600 INDIVIDUAL PAPER
- Gojek will succeed by providing a convenient and reliable ride sharing service to working people and small businesses in busy Asian cities with a low cost model but the larger opportunity for the business is Go-Food and Go-Pay.
- Value Proposition Saves Time and Increases Productivty through Application to Working People With Income Above XYZ.
- Virtually all working Indonesians have smartphones and can freely access the application.
- Working people value convenience conferred by application (anytime, anywhere pickup) and will pay XYZ for this.
- Working people value reliability (on-time service, quality vehicles, reliable driving, assured pricing) and will pay XYZ for this.
- Working people will pay extra for reliability and convenience. Here analyze cost of service relative to next best competitor, traditional ojek.
- Prime markets for gojek in Indonesia are Jakarta, Surabay, Medan …. Anywhere with population above XYZ.
- Poorer people will tend to prefer cost advantage and flexible negotiations of traditional ojek. Sweet spot for ojek is working people making more than XYZ.
- Largest threat to the value proposition is emergence of competitors with low barriers to entry although installed base and good delivery will limit attrition to other
- Value line analysis captures these features.
- Customer Relationships will be Built with Loyalty Programs and Knowledge Flowing From Application
- For Gojek to Realize its Potential, Business Must have One-Click Application, Honest and Reliable Drivers and Willingness to Build Trust when things go wrong.
- In Indonesia, Relationships with Layers of Government and Muslim Communities are Paramount to Gain Local Support.
- Gojek has Minimal Fixed Costs and can be Profitable with Userbase of XX Millions.
- Gojek will face stiff competition for Gofood and Gopay to be successful.
GRADING SHEET FOR REPORT (EACH ITEM WILL CARRY EQUAL WEIGHT)
- The executive summary was clear (recommendations for how innovation will be successful). Remember less than 6 points, executive summary is not table of contents – it is the synthesis of your conclusions.
- The report drew insights from the value proposition with an analytical framework (including competitors)
- The report drew insights about the customer segment with supporting data and why this supports the executive summary
- The report drew insights about how to best manage customer channels and relationships and why this supports the executive summary MGF5600 INDIVIDUAL PAPER
- The report drew insights about essential activities and resources and why this supports the executive summary
- The report drew insights about which partners and key relationships are required and why this supports the executive summary
- The report was clear about the implications of the costs and why this supports the executive summary
- The report was clear about the implications of the revenues and why this supports the executive summary
- The report was well researched and synthesized why the analysis led to the conclusions/executive summary.
- The report otherwise followed guidelines specified in unit guide (e.g. 10 pages, use of Appendices, clear English checked with Grammarly, easy to follow).
Airbnb is a fast growing business in hospitality and tourism industry. It involves online accommodation rental marketplace, that gives the hosts an opportunity to rent out their rooms or property to guests. The idea behind Airbnb is that it matches the local people who have an additional room or sometimes the entire home to rent to guests who are visiting the area. Hosts who are using the Airbnb platform get an opportunity to advertise their rental rooms or homes to millions of prospective guests worldwide who would want to visit the area. The value proposition of Airbnb is different for each segment. Here, this has been discussed considering the host and the guest. The biggest value proposition for hosts is the ability to make money and generate revenue through the platform. For the guest, the biggest value proposition that Airbnb has for them is saving money on rent. Airbnb must foster a partnership with the travel sector, the hotel industry, and local markets. the company’s capabilities can be identified as; good leadership, fair pricing, provision of variety that guests can choose from, offering the best experience to guests, it is a public company, and profits margins allow the company to invest in operations and marketing. Airbnb makes money by charging both hosts and guests for using its platform, customer support, and payment processing. Airbnb recognizes revenue at the time of check-in to account for the cancellations. On the other hand, the company charges the hosts a flat service fee of 3% of the booking subtotals. MGF5600 INDIVIDUAL PAPER
Introduction and Outline of Airbnb
Airbnb is a fast-growing business in the hospitality and tourism industry. It involves an online accommodation rental marketplace allowing hosts to rent their rooms or property to guests. While the company is headquartered in San Francisco, the U.S., in 2011, it started its international expansion mission, and its first international office outside the U.S. was established in Hamburg, Germany (Krouk and Almeida, 2021). Airbnb started 2008 as a privately owned business and went public in 2020. Whereas the company does not directly generate income from ownership of properties, its revenue is generated from service fees to both the hosts and guests. According to the 2022 financial reporting, the company’s global revenue was standing at U.S. Dollars 8.4 billion (Airbnb.org, 2023). Airbnb, as a company, targets travelers who are in search of alternative lodging options over traditional hotels. Specifically, these travelers are always looking for a more localized experience. As some reports have indicated, many Airbnb tourists always want to live like the locals while enjoying the local experiences. Airbnb has several advantages or capabilities which gives it a better standing compared to its rivals in the market. These, however, will be discussed in the following sections of this report (Guttentag, 2019). This write-up outlines what will take Airbnb to be a successful accommodation renting business globally and lead the rest of its rivals in the competitive market.
Governing idea of Airbnb
As the introduction mentions, Airbnb has revolutionized the hotel and hospitality industry. As evidence reveals, before 2008, when Airbnb was first launched, travelers would typically walk into a hotel or motel to book a room whenever they visited another town or even a different country. However, with the Airbnb, this has since changed. The idea behind Airbnb is that it matches the local people who have an additional room or sometimes the entire home to rent to guests visiting the area (Mikhalkina and Cabantous, 2015). Hosts using the Airbnb platform get an opportunity to advertise their rental rooms or homes to millions of prospective guests worldwide who would want to visit the area. While the Airbnb platform allows hosts to advertise their rental rooms and homes to potential guests, the guests, on the other hand, are assured of convenient payment options and offer support when needed (Mikhalkina and Cabantous, 2015). Such guests also get a kitchen to save them on dining out since this is usually considered cheaper than what the hotels charge. MGF5600 INDIVIDUAL PAPER.
Value Proposition of Airbnb
The value proposition of Airbnb is different for each segment. Here, this has been discussed considering the host and the guest. To begin with, for the host, the most significant value proposition is the ability to make money and generate revenue through the platform (Zhu, Lin, and Cheng, 2020; Mussi, 2017). Moreover, there are additional benefits of doing so comfortably and safely while enjoying total control of bookings and insurance against accidents and damages. The host can also check the profile of those requesting to book and can decide to accept or cancel the request. While these are happening, the host also has full-day support given through email, phone and chat with Airbnb. MGF5600 INDIVIDUAL PAPER.
For the guest, the most significant value proposition that Airbnb must have for them is saving money on rent (Mussi, 2017). Moreover, traveler should have the convenience of choosing a place to rent according to their preferences merely by the use of a device and without any need to negotiate with anyone. Moreover, the potential guest or traveler can evaluate the owner’s profile and can exchange experiences with them during their stay. The guest also has payment security that Airbnb intermediates. MGF5600 INDIVIDUAL PAPER.
It is true that Airbnb has and will continue to provide comfort to millions of travelers worldwide. To brighten the future of Airbnb as a company, it is important to reevaluate what was going on in the minds of the founders in San Francisco while conceptualizing the idea and product. An in-depth evaluation reveals that two insights were illuminating and conspicuous.
First and foremost, Airbnb could have been formulated against a lack of trust. Airbnb, to continue being at the forefront as the most preferred platform to link hosts and guests, should major the most on its strength of being able to guarantee quality and safety. This will help a great deal to solve information asymmetry (Teubner, Hawlitschek, and Dann, 2017). Similarly, Airbnb provides the room to review hosts and guests, which is expected to continue to mitigate against guest damages and poor host services. In this regard, Airbnb will not only allow for holistic product development and growth but will also establish an environment that will necessitate the elimination of prospective risks to the success of the product and brand.
Secondly, among the features available in Airbnb is the feature of “local activities”, which a guest can participate in while visiting a new city or locality (Teubner, Hawlitschek, and Dann, 2017). As mentioned earlier, the majority of guests choose Airbnb because they want a local experience, and this, therefore, means that they would also want to have an experience of local activities (Reinhold, and Dolnicar, 2018). Airbnb can build on this gain further and analyze from different angles, as it will help to gain ideas on how to expand the product further.
Figure 1 below illustrates the value proposition of Airbnb. It illustrates how Airbnb contributes to both the guest and the host, and six key aspects have been looked into: gains, customer jobs, pains, pain relievers, products and services, and gain creators.
Fig. 1: Value proposition of Airbnb. Adopted from (Chua, Chiu, and Bool, 2019).
To continue prospering, Airbnb must foster a mutual relationship with other sectors or subsectors. These include the travel sector, the hotel industry, and local markets (Bashir and Verma, 2016).
To begin with, Airbnb has made travel quite possible for most travelers, mainly by providing alternative means to get accommodation that costs less than traditional motels, hotels, and lodgings. Moreover, Airbnb has also provided an opportunity for local house owners in the destination cities to earn income by simply renting out their available space or homes to travelers (Bashir and Verma, 2016). While this is a positive thing, there is an increased demand going into the future rule to regulate rental activities due to customer behavior and sometimes, as studies reveal, a financial threat to the local travel-related businesses in the.MGF5600 INDIVIDUAL PAPER.
The second prospective sector for partnership with Airbnb is the hotel industry. While it can be imagined to be a positive partnership, many have worried about the financial disruption that Airbnb has caused to this sector of the economy. Considering the disruptions caused, Airbnb has reduced bookings at hotels and motels, resulting in low revenue (Boswijk, 2017). To compete, some hotels have resorted to means such as cutting room rates and offering more amenities. It is with no shock that some hotels have also started listing their rooms on Airbnb (Boswijk, 2017). This disruption is working to the advantage of Airbnb as it will continue to capture a broader market and lead in the competition for customers. MGF5600 INDIVIDUAL PAPER.
The third subsector that Airbnb has disrupted is the local market. With the mushrooming of Airbnb rentals, tourism income has been brought to the local shops and restaurants in some previously forgotten neighborhoods (Abrahao et al., 2017). While this seems reasonable for the local economy, critics have also contended that this could bring the downside of tourism: rowdiness and more noise. In this light, some studies have indicated that some municipalities have limited or even banned Airbnb rentals. Moreover, some cities have also complained about the spiraling of rental prices (Guttentag, 2015). To have a good standing in the market while looking to the future, the company needs to regulate the pricing of Airbnb rentals and blacklist guests and hosts who go against the regulations.
Core Capabilities of Airbnb
To critically evaluate the core capabilities of the company, the company’s SWOT has been considered. Figure 2 below highlights the SWOT analysis of Airbnb.
Figure 2: SWOT analysis of Airbnb. Adopted from Mikhalkina and Cabantous (2015)
From the SWOT, the company’s capabilities can be identified as; good leadership, fair pricing, provision of variety that guests can choose from, offering the best experience to guests, it is a public company, and profits margins allow the company to invest in operations and marketing. While staring at the uncertain future, these capabilities can help the company beat competition, generate more revenue, and reach out to more prospective customers globally.
Airbnb Business Model and Target Customers
The company’s business model is an actual example of the sharing economy, and it is so real that the company considers itself a community that is built on sharing (Cui, Li, and Zhang, 2020). This kind of model is found in the sharing economy industry, which allows people to add value to their assets that lie idle or which have been underused. Figure 3 below highlights Airbnb business model canvas. Looking at the company’s customer segments and relation, it is evident that Airbnb has two main segments; the hosts and guests (Cui, Li, and Zhang, 2020). These two groups define Airbnb’s business model. MGF5600 INDIVIDUAL PAPER.
Figure 3: Airbnb Business Model Canvas (Eisape, 2019)
The hosts, as a group in the targeted customers, refer to the individuals who have spaces available for rent and would want to make money out of that. On either the App or the website, the hosts can include their properties under certain conditions, which include check-in and check-out times, available period, and any other regulation or rule (Eisape, 2019). Hosts can accept or reject the requested reservations and rate the guests later.
On the other hand, guests are also an essential company segment. These are the individuals who are searching for a place to stay. Guests can search for accommodation by location, price, and property type, among other filters in the App (Mikhalkina, and Cabantous, 2015). The guests book and pay through Airbnb.
Considering customer relations, the company has ensured there is trust in transactions through the marketplace, and there is reliable communication between the two segments to foster reputation, protection of data and private information, a user-friendly platform, full-time customer service support, and personalized recommendations through the App (Edelman, B.G. and Luca, M., 2014; Cui, Li, and Zhang, 2020). The company should invest more in these capabilities to continue succeeding in a market witnessing new entrants with more competitive products and brands. Airbnb aspires to remain relevant and more innovative in the ever-changing business arena. This can only be achieved by always being on top of others concerning the nature and scope of innovation it pursues. MGF5600 INDIVIDUAL PAPER
When it comes to making money, Airbnb does it by charging both the hosts and guests for using its platform, payment processing, and customer support. According to Airbnb reports, the company charges guests a percentage of the booking value (Airbnb, 2023). Typically, the company charges 14% of the booking subtotal (Airbnb, 2023).
Airbnb makes money by charging both hosts and guests for using its platform, customer support, and payment processing. Airbnb recognizes revenue at the time of check-in to account for the cancellations. On the other hand, the company charges the hosts a flat service fee of 3% of the booking subtotals (Airbnb.org. 2023). For example, if the host charges a guest $300 for a three-night stay and an additional $60 for cleaning, the subtotal is $360. 3% of the subtotal is $10.80, deducted from the host’s earnings as part of the host service fee. 14% of $360 is $50.40, and this Airbnb charges the guests, which is added to the total amount they pay. For example, the host would earn $349.20 while the guest would pay $410.40. Here, Airbnb would make $61.20, and this is what contributes to the company’s over $5.99 billion yearly revenue. Out of this revenue, Airbnb uses 19% for payment processing charges of processing data, 14% is used in operations support, 19.5% is used in sales and marketing, 23.5% in product development, and 16% in other business operations (Goel, 2022).
Airbnb has already been mentioned as one of the fastest-growing niches in the hospitality industry. To continue being relevant in the ever-changing business arena, the company must invest heavily in innovation. There is a need to redefine the business model to encompass both the hosts and guests as the critical business supporters. The company must invest heavily in marketing and penetrating new markets to enlarge its revenue base. However, one of the challenges that has come out is that the company needs a clear legal framework, which can plunge it into despair. There should be regulations that help to filter who can host or become a guest on Airbnb.
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Boswijk, A., 2017. Transforming business value through digitalized networks: A case study on the value drivers of Airbnb. Journal of Creating Value, 3(1), pp.104-114. MGF5600 INDIVIDUAL PAPER
Chua, E.L., Chiu, J.L. and Bool, N.C., 2019. Sharing economy: An analysis of Airbnb business model and the factors that influence consumer adoption. Review of Integrative Business and Economics Research, 8, p.19.
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