Unfulfilled promises in the Sharing Economy? Exploring the value proposition of Airbnb in Barcelona

Social actors in the sharing economy share their means of transportation, workspaces, and even homes with strangers from all over the world. In the sharing economy, the traditional aspiration of ownership is increasingly being superseded by the notion of access. This radical departure from traditional ways of conducting business is disrupting industries and well-established business models across the globe. However, the dark side of the sharing economy has also led to numerous headlines about issues such as the lack of safety standards and weak labor regulations, racial discrimination and tourist overcrowding in popular areas. Thus, an important question remains: Are the auspicious promises of the sharing economy really being fulfilled?

In a forthcoming paper, the Cities in Motion team has attempted to answer this question by examining the sharing economy through the lens of the business models literature, and we use the space-sharing platform Airbnb in Barcelona as our empirical setting. Airbnb has more than 1.5 million listed properties, a presence in over 190 countries and 34,000 cities, and has significantly changed how many people travel. However, is Airbnb delivering what it promises in its value proposition? What is the potential negative impact of not fulfilling its value proposition?

Value proposition for guests: An Improved Tourism Experience

Space-sharing platforms such as Airbnb are a major disruption to the traditional tourism model of staying in anonymous hotel rooms. In addition to their different consumption preferences, younger individuals are increasingly looking for an authentic travel experience. By providing the opportunity to stay with locals, Airbnb may deliver a value proposition by offering tourists a more authentic experience in a city compared to simply staying in a hotel room.

According to our analysis of the review system (both the quantitative system and the sentiment analysis applied to review comments), Airbnb seems to deliver a good experience to its guests, thus delivering its value proposition of an enhanced touristic experience.

Value proposition for hosts: Additional Income

Airbnb hosts may substantially benefit from participating in the platform. Airbnb claims to offer everyone the chance to generate additional income to make ends meet. This is especially true for low-income residents. Despite the obvious incentive of generating economic value, the question remains as to whether Airbnb hosts use the platform as a complementary or as a primary source of income.

In the forthcoming paper, we argue that the Airbnb market is partly characterized by commercialization. In the case of Barcelona, we show – using various measures – that only a few individuals, likely real estate businesses, control a significant number of listings in the city. Moreover, based on our statistical analysis, we demonstrated that the popularity of a neighborhood (proxied by tourist attractions, twitter density, and proximity to the beach) appears to have the strongest correlation with Airbnb density in Barcelona. This could explain the possible situation in which foreign owners attempt to maximize their investments by buying apartments in touristic areas. Moreover, factors such as an increase in foreign-held property and a decrease in local population are related to an increase in the density of Airbnb listings in Barcelona.

So while for a portion of hosts the value proposition of Airbnb is satisfied, for other listings the platform is just an efficient channel of commercialization of tourist apartments, most of them non-licensing and avoiding taxes,  hidden below a screen of “sharing assets to complement rents”.

Value proposition for the city: Widespread Economic Benefits from Tourism

Airbnb’s value proposition for cities pertains to potential economic promises to neighborhoods that do not typically benefit from tourism. Barriers to entry on Airbnb’s platform are relatively low. Individuals who have a spare room available or wish to rent out their entire apartment simply need to create a free user account and post their listing on the website. In theory, this allows users from all over the city, regardless of their neighborhood, to participate in and benefit from Airbnb. Failing to deliver this value proposition will generate increased pressure on already popular tourist hotspots.

airbnb_barcelona_location

We used various measures to argue that Airbnb leads to an intensification of existing tourism hotspots in Barcelona, making the business appear to be less of a sharing economy platform and more of a digital short-term accommodation market, which is why some critics describe it as a form of “platform capitalism.” Obviously, this has serious implications from an urban development perspective.

Concluding

To varying degrees, Airbnb’s value propositions for the city, its hosts, and guests diverge from the facts. Two implications are important:

First, as a business model Airbnb, as well as many other business in the sharing economy, is a platform business model that connects hosts and guests creating a two-side market. However, in the context of a city, the impact to other stakeholders (the city and citizens) is so great that in the analysis one should consider the value proposition delivered to the three parties; furthermore, given that most of negative externalities affect this third party, Airbnb should not be considered only as a technology company facilitating the creation of a market; in this role it creates negative externalities that should be the object of policy consideration something we deal with below.

As a second implication, our analysis of these three value propositions highlights the relevance of segmentation. Single rooms and short period rentals of full apartments can be clearly associated and therefore regulated as “sharing economy”, while the rest should be the subject of “licensed” tourist apartment that cannot hide their real activity behind the “sharing concept”.

In the open debate we see in the press this segmentation is used for both sides of the debate in a very different way. Airbnb defends itself as if everything in the portal was sharing economy; On the contrary, City of Barcelona assumes that almost everything in the portal are touristic apartments. And of course they disagree in the regulations and actions to be taken. Therefore, we think that any “solution” will have to start from such segmentation and we strongly believe that the platform has the information to clearly separate, with little difficulties both segments. We also show that there are enough indicators to be able to define this separation without much difficulties.

Once separated, policies and regulations can be applied to both segments in a distinguished way. The sharing economy fairly needs a different regulation as the platform claims and demands, but applied to the relatively small segment of real sharing. Regulations can facilitate this business and legitimate it asking the platform to help in tourist tax and even vat tax collection making it easier for particulars to rent rooms of temporally a flat and really get additional income from the expensive assets in the city. On the other side, tourist apartments need a different type of control and regulation that helps control possible gentrification, excess of tourists and degradation of the same neighborhoods that make Barcelona such a special place.

About Carlos Carrasco

Carlos Carrasco Farré is a researcher at IESE Business School. Previously, he carried out a Msc in Public and Social Policy at Pompeu Fabra University and Johns Hopkins University. Additionally, he studied urban policy at The Johns Hopkins University, public finance at the London School of Economics & Political Science (LSE) and government performance at Harvard University (Harvard Kennedy School of Government). He has worked in public sector consulting, in the Barcelona Provincial Council (Economic Development Area) and as Chief Data Scientist in Eixos.cat, a company dedicated to the creation of urban economic observatories based on Open Data and Smart Geo. He has also contributed to various academic and non-academic publications and books on economics, management and urban strategy.

About Joan Enric Ricart

Joan E. Ricart, Fellow of the SMS and EURAM, is the Carl Schrøder Professor of Strategic Management and Chairman of the Strategic Management Department at the IESE Business School, University of Navarra. In this school he has been Director of the Doctoral Program (1995-2006), Associate Dean for Research (2001-2006), and Associate Director for Faculty and Research (2006-2014). He is also Vice-president of the Iberoamerican Academy of Management. He was the Founding president of the European Academy of Management (EURAM) and President of the Strategic Management Society (SMS). He was the academic director of the EIASM and member of the research committee of the EFMD. Joan E. Ricart holds a Ph.D in Managerial Economics, Northwestern University; Ph.D. in Industrial Engineering, Universitat Politècnica de Catalunya; and Ph.D. in Economics and Business Administration, Universitat Autònoma de Barcelona. He has published several books and articles in leading journals. He is Director of the Center for Globalization and Strategy, co-academic director of IESE Cities in Motion and academic director of the UN center of excellence of PPP for Cities. He is also a member of the Advisory Board of the Future of Urban Development and Service Initiative of the World Economic Forum. His current work focuses on cities, business models, and general management.

About Pascual Berrone

Pascual Berrone (BA, B.Sc., Ph.D.) is associate professor of strategic management and holder of the Schneider Electric Sustainability and Business Strategy Chair at IESE Business School. He is a multi-award-winning researcher whose work on sustainable innovation, corporate governance, CSR and Smart Cities has been published in over a dozen international journals. Among his awards, it is worth mentioned the IBM Faculty Award, which recognizes Berrone’s work in researching and teaching strategies for cities and urban development. Professor Berrone is associate editor of the research journal Organization & Environment and founder of the “Strategic Madrid Group,” an initiative that gathers world-class scholars and practitioners to focus on strategic issues. He is also the academic co-director of the research platform IESE Cities in Motion and academic director of the International Center for Competitiveness (ICC) at IESE.

7 thoughts on “Unfulfilled promises in the Sharing Economy? Exploring the value proposition of Airbnb in Barcelona

  1. Great article. It would be interesting to see your conclusions on other “collaborative-economy” models, such a cabs (Uber) and food-delivery (Glovo and likes), and its implications on the labour market.

  2. It seems “cool” – the “sharing economy”. One of the stakeholders not identified and indeed the real “hosts” are the miserable neighbours who have to endure new “guests” every few days who insist on partying 24/7. Once you’ve called the police 2 or 3 times to silence the mob you start to become the collateral damage of a “sharing” economy.

  3. I agree, in Seattle we have a similar problem.
    The city sees a big difference if owners live on the property.
    Onsite Owners are sensitive to, and respond to, neighbor feedback.
    They can better nurture neighbor relations.

    Absentee landlords make neighbors appear “transactional”.
    Owners don’t get feedback because they are not around.
    Feedback never feeds relationship, it just feeds frustration.

    An old friend and student of yours,
    Jim Yragui

  4. First of all, hello to everyone! I agree with Ramiro in that it would be very interesting tell about other “sharing-economy” like “Uber” specially, and its implications on the rest of market.

  5. really marvellous article regarding the promises in the sharing economy .. Really this blog and the article impressed me in tackling many situations.. And the campus is awesome

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