Case Study 2: The Entrepreneurial Journey of Airbnb Airbnb started in 2007 when Joe Gebbia and Brian Chesky were struggling to pay their rent. They had the idea of renting out three airbeds on their living-room floor, and cooking breakfast
Case Study N°1 Disruptive Innovation of the Automotive Industry
Janesville, December 23, 2008, and the last Chevrolet came off the production line in the oldest of all General Motors (GM) production plants. With the plant having originally opened in 1923, a town had grown around its geography, its rhythms, and its jobs. Now, as the great recession of 2008 took hold, Janesville, a town two hours northwest of Chicago, found itself on the cliff-edge of decline.
The automotive sector has always been emblematic of a nation’s success, or a nation’s failure. The great Japanese expansion of the 1970s and 1980s announced Toyota, Nissan, Mitsubishi, and Mazda to US and European markets. The weakest among the American and European incumbent carmakers were quickly weeded out: the UK motor industry lost spectacularly, as firms like British Leyland failed, but right across the globe consolidation and scale became constant phenomena among all those that survived. There was a race to build scale, to modernize, and sometimes to protect markets by legislation or legal ruse.
Through these times, from the birth of the Janesville plant, through the Japanese invasion and beyond, petrol and diesel continued. The technology itself remained constant─there was an internal combustion engine, a gearbox of some sort, and a driver. The engine and the gearbox were subject to constant evolution, so they became better by whichever latest metric was applied. The driver stayed more or less the same, just subject to a few more laws and a few more technologies of road safety.
Today it is different. In 2017, Tesla surpassed GM to become the most valuable carmaker in the US. At that time, April 2017, Tesla was 13 years old and controlled 0.2% of the US market. GM, by contrast, was 108 years old and controlled 17.3% of the market. By 2021 and 2022, Tesla was repeatedly reported as the world’s most valuable car maker, ahead of much bigger firms like Toyota, BYD, and Volkswagen. Tesla’s market valuation can be explained by the battery power of the Tesla car, plus its Autopilot Artificial Intelligence autonomous driving technology. To the markets, these technological achievements potentially change the plane of competition. Tesla’s share price, therefore, reflects potential future performance as a carmaker, but also fundamentally as a provider of autonomous or semi-autonomous mobility through advanced software with network effects. Hence, its high valuation straddled the automotive and technology sectors.
In summer 2013, Uber CEO Travis Kalanick visited Google, where he had the opportunity to ride in a fully autonomous car. Later he told David Krane, a partner in Google Ventures, “The minute your car becomes real, I can take the dude out of the front seat.” In September 2016, The Economist heralded the still privately funded Uber under the headline, “From Zero to Seventy (Billion).” Again, investors have been pricing in the future. Uber represents the potential of flexible mobility and pricing. Vehicles, people and goods can be managed through its algorithms. The potential value of taxi markets increases through the deregulation wrought by Uber’s platform, but just as important, the potential patterns of mobility themselves could be changed and enlarged.
Controversy accompanies Uber, but even as it met opposition in different cities for affecting incumbent taxi firms and the working conditions of drivers, there was a more radical prospect in view. One day, not too distant, there might not be any drivers at all. If pioneers like Waymo, Cruise, and Tesla succeed, one day vehicles will become autonomous.
Questions for Discussion
- Describe changes in the automotive sector using the concept of disruptive innovation. Contrast these with earlier changes in the automotive sector (e.g., 1970s, 1980s).
- How can a traditional carmaker (internal combustion plus drivers) react to the changes of 2017 and beyond? Describe the business model such a carmaker should adopt.
- What should Tesla’s strategy be to further develop its value through its share price?
- What might be the effects of alternative powertrains and platforms on the car ownership model of consumers?
- Using your own research, are there any threats to the electric car-market?
Case Study 2: The Entrepreneurial Journey of Airbnb
Airbnb started in 2007 when Joe Gebbia and Brian Chesky were struggling to pay their rent. They had the idea of renting out three airbeds on their living-room floor, and cooking breakfast for participants of a design conference in San Francisco, as the city’s hotels were fully booked. So, they created a website and named it “airbedandbreakfast.com.” This successful experience was the trigger for the development of a new business model: building a platform for renting space. From that moment, they focused their business on conferences and festivals, inviting local people to list their spare rooms and to have guests reserve them.
In summer 2008, Barack Obama was to speak in Denver at the Democratic National Convention, Again, there was a shortage of hotel rooms. In addition to offering rooms, Gebbia and Chesky acquired bulk quantities of cereal and packaged boxes branded as ‘Obama’s O’s’ cereal. They sold boxes at $40 each and earned more than $30,000. In early 2009 they received $20,000 of funding from Paul Graham, the co-founder of Y Combinator (a startup-mentoring program), which led to a further $600,000 from venture capitalists.
The team also realized they had to handle payments, and charged up to 15% of the booking. In November 2010 they raised another $7.2 million from venture sources. In May 2011 the actor Ashton Kutcher invested a significant amount, and sat on the board as an advisor. In July 2011 the company received an additional $112 million in venture funding and was valued at $1.3 billion. In 2021, Statista reported the value of the firm as $113 billion.
Airbnb’s founders argue that part of their success has been because of good timing. They created a company based on the sharing economy, developing a good example of a new digital trend widely accepted and adopted by the market. They took an intelligent, design-focused idea intended to overcome the problems they encountered, and then they invented systems and protocols to enhance the level of trust shared among participants in bookings (e.g., reviews, histories, identity verification).
Questions for Discussion
- Identify the main reasons or factors positively influencing the scalability of Airbnb’s business model.
- Analyze the different phases of the Airbnb funding process. What types of funds were used at each specific stage of the entrepreneurial journey?
- What are the key innovative elements of Airbnb’s business model?
- What are the key entrepreneurial skills shown by Gebbia and Chesky to support the development of Airbnb’s entrepreneurial journey?
