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A Review of Airbnb in Nigeria

A Review of Airbnb in Nigeria

Airbnb, initially named AirBed & Breakfast, functions as an online platform facilitating lodging services and linking travelers with hosts in the area. The company’s founders began by transforming their apartment into a makeshift bed and breakfast, hosting guests on air mattresses. This unconventional approach originated from a necessity during a busy conference period when nearby hotels were fully booked. To accommodate the demand, they sold four spots in their apartment, offering breakfast and guiding guests through the local neighborhood.

 Established on August 1, 2008, in San Francisco, California, USA, Airbnb was founded by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk. By December 2017, the company had garnered substantial funding, totaling $4.4 billion. It is an esteemed member of the billion-dollar club, boasting a valuation of $31 billion.

Initially aiming to earn extra income due to financial constraints, the founders’ vision expanded significantly after the company’s launch. They shifted their focus to providing value through local perspectives and experiences, making it the core of their business. The website they developed offered short-term accommodations, breakfast, and a distinctive business networking opportunity for those facing challenges booking hotels in a competitive market.

As of now, Airbnb operates in over 34,000 cities and across 190 countries worldwide. Impressively, more than 140,000 people choose to stay at an Airbnb-listed location every day.

How Airbnb Operates

Airbnb functions as an online marketplace, facilitating connections between travelers and local hosts. Individuals can list their available spaces on the platform, earning additional rental income. This encompasses various short-term lodging options such as vacation rentals, apartment rentals, homestays, hotel beds, or rooms.

Through Airbnb, travelers gain opportunities to save money and engage with local communities. The platform offers property insurance for listed spaces, affordable lodging alternatives, streamlined booking processes, and a rating system for hosts and guests. With both a user-friendly app and web platform, Airbnb enhances the overall experience for users.

Hosts

Hosts on Airbnb are property owners seeking to generate income through rentals. They create listings for their spaces by adding property details, setting rent, check-in/check-out times, and more. Hosts can review guest feedback and social profiles before accepting or rejecting bookings. They establish “house rules” for guests to agree to before booking, allowing reservations to be canceled penalty-free if rules are violated post-booking. Hosts have control over nightly prices, aided by Airbnb’s pricing tools. Exceptional hosts stand out by providing memorable guest experiences. Success as an Airbnb host requires effective marketing, excellent customer service, a passion for one’s home, and a willingness to share it with others.

Guests

Guests on Airbnb are individuals who reserve listed spaces from local hosts. They can search for properties by applying filters based on rent, amenities, location, and other preferences. To secure a booking, guests make payments through the platform’s portal.

How Airbnb Works

Hosts provide property details on Airbnb, including pricing, amenities, etc. Airbnb arranges for a professional photographer to capture high-quality images of the property. Guests search for a property in their desired city, exploring options based on various features. Bookings are made through Airbnb, with guests paying the host’s specified amount plus transaction charges.

Upon approval, the guest stays at the residence, and Airbnb processes payment to the host after deducting its commission. Both host and guest can rate each other and share reviews, reflecting their overall experience.

Airbnb provides property owners with free listings, allowing guests to browse and choose from various options on the platform. The company’s revenue model involves earning a 10% commission from hosts on each booking and a 3% transaction fee from guests for confirmed bookings.

Initially gaining customers through a basic website, Airbnb has expanded to host 1.2 million listings. AirBnB attracts customers through diverse channels like social media, word of mouth, digital marketing (including internet ads), promotional offers, affiliate models, and referral programs.

Airbnb in Nigeria

Notably, Airbnb is experiencing significant growth in Africa, particularly with the fastest expansion observed in Nigeria. Nigeria ranks as the 5th largest market for Airbnb, showcasing remarkable growth in key locations such as Ibadan, Abuja, and various places in Lagos, including high-end accommodations like Lekki County Apartments, Mixta Apartments, Urban Shelter Apartments, Lekki Gardens Apartments, and more.

Feasibility Studies of Airbnb in Nigeria

Since 2014, Airbnb has operated in Nigeria, giving rise to hybrid hotels where individuals construct houses not designated for tenants or labeled as hotels but solely rent them through the Airbnb platform, maximizing earnings and circumventing taxes.

The potential for Airbnb to gain popularity is substantial, contingent on hosts delivering exceptional guest experiences

With a significant international guest market on Airbnb, focusing efforts there promises more favorable outcomes compared to targeting hesitant domestic clients reluctant to use bank cards. As a host, establishing a secure environment and consistently garnering positive reviews and ratings are pivotal in earning the trust of new guests.

Challenges of Airbnb in Nigeria

Airbnb could encounter specific challenges in the Nigerian market, outlined as follows:

Fear of Online Transactions: Overcoming reluctance to use debit cards for online transactions is a significant hurdle. Many potential users are hesitant to input card details for accessing non-hotel accommodations due to security concerns.

Trust Issues: A prevalent lack of trust among Nigerians in the accuracy of online transactions poses a substantial challenge. Many are skeptical that what is advertised online may not align with the actual conditions when they physically visit the location.

Security Concerns: Nigeria’s reputation for being unsafe, coupled with perceived inefficiencies in the police force, fosters a sense of distrust among the populace and tourists alike. This skepticism leads many individuals to opt for more conventional accommodations such as hotels.

Given the elevated crime rates in the country, the fear of hosting strangers through Airbnb persists, as individuals are hesitant to invite unknown guests into their homes. Reports of negative incidents between hosts and guests globally contribute to this apprehension. The lack of certainty about a guest’s true identity, which could potentially involve individuals with malicious intent, such as kidnappers, armed robbers, or fraudsters, further deters people from engaging with the service in Nigeria.

Spending Patterns: Nigeria is currently navigating a phase of limited internet monetization on a large scale. Despite the presence of e-commerce platforms like Konga and Jumia, significant evolution in internet-based spending is anticipated to take several years.

The hesitancy towards transactions that don’t offer immediate value poses a challenge. Unlike Uber, where payment occurs upon reaching the destination, the prospect of paying for accommodation in someone’s home creates a notable apprehension. The industrialization of trust, essential for such transactions, remains a broader industry challenge requiring collective efforts to address.

Low Brand Awareness: Despite its potential as a cost-effective and convenient alternative to hotels, Airbnb faces a significant challenge of low brand awareness in Nigeria. A considerable number of Nigerians are not aware of the service’s existence, with limited effective marketing programs in place to educate the public.

In comparison to Uber, where recognition is more widespread, Airbnb’s awareness is notably lower. Out of 100 individuals familiar with Uber, only 10 are aware of Airbnb’s presence, and barely 5 of those 10 know that Airbnb operates in Nigeria. To tap into the market, Airbnb needs to implement more robust marketing strategies, emphasizing its benefits, especially for family travel. Leveraging the international trust associated with the Airbnb brand could be a key factor in overcoming local trust issues.

Administrative Bottlenecks: While there is a notable level of awareness about the Airbnb brand, the requirement for hosts to have a US bank account poses a significant administrative hurdle, limiting the number of listings. Addressing this requirement and establishing local customer care services could be instrumental in mitigating these challenges. 

Exorbitant Pricing: Airbnb listings being in dollars, not in naira, raises concerns among Nigerians, giving the impression that the service is exclusively for the affluent. The devaluation of the Nigerian currency further compounds this issue. For instance, a $45 per night Airbnb listing translates to approximately N57,600, which is perceived as relatively high. This pricing misalignment contradicts Airbnb’s intended positioning as a more affordable option compared to hotels of similar standards. Adjusting pricing structures and considering the local economic context could enhance Airbnb’s competitiveness in the Nigerian market.

Limited Locations: Airbnb’s operations are currently confined to a few cities such as Lagos, Abuja, and Ibadan, with a focus on high-end areas like Lekki, Ikoyi, Magodo, and Victoria Island. This geographical restriction places a ceiling on the potential growth of the business.

Not Accessible for the Average Nigerian: The showcased images of well-furnished apartments on Airbnb’s website may give the impression that it is a business beyond the reach of the average Nigerian. The capital-intensive nature of furnishing apartments to meet required standards may deter individuals with average incomes from venturing into this business. Unlike Uber, where the affordability of cars enabled wider participation, Airbnb appears to have higher entry barriers.

Power Challenges: Nigeria’s persistent power issues pose a challenge for Airbnb hosts who need to operate their residences continuously. The considerable percentage of rental income spent on alternative power generation significantly impacts profits, making Airbnb less appealing to the average Nigerian. Addressing power-related concerns is crucial for improving the attractiveness of the platform in the local market.

Impact of Airbnb on the Nigerian Market

Airbnb provides individuals the opportunity to list spare rooms or entire apartments at self-established prices for potential global guests, presenting an appealing avenue for alternative income, especially in competitive housing markets. However, the platform’s rising popularity has sparked opposition, with concerns about housing affordability, illegal use of residences as hotels, unfair competition, and negative effects like noise or overcrowding. Many cities in Nigeria lack significant regulations for such platforms.

The impact of regulations follows basic economic theory: without negative externalities, regulations typically reduce house prices and rent by limiting the most efficient use of housing, particularly in tourist-attractive locations. However, the presence of substantial negative externalities may lead to the opposite effect, causing prices and rent to rise as regulation reduces negative external costs, subsequently increasing residential demand.

Cost-Benefit Analysis

In Nigeria, the current economic costs imposed by Airbnb seem to outweigh the benefits. While the introduction and expansion of Airbnb in cities like Lagos carry potential economic advantages, the costs to renters and local jurisdictions may surpass the benefits for travelers and property owners.

While Airbnb may claim to mitigate travel accommodation costs, this may not address the primary concerns of Nigerian families. The most significant documented benefit of Airbnb expansion is the augmented supply of travel accommodation, potentially making travel more affordable for visitors.

However, there is evidence indicating that the increased supply of short-term travel accommodation presents an economic challenge. The shift of properties from serving residents to catering to travelers’ needs contributes to a reduced housing supply, subsequently raising housing costs in the affected areas.

The cost incurred due to the inelastic demand for housing is tangible, as people’s need for a place to live doesn’t decrease significantly even with price hikes. Even minor shifts in housing supply, such as converting long-term rental properties into Airbnb units, can lead to notable price increases.

Contrary to common beliefs, the potential economic benefit of increased tourism supporting city economies appears smaller than often portrayed. Cities witnessing a growing supply of short-term Airbnb accommodations do not necessarily experience a substantial rise in traveler numbers. Instead, Airbnb accommodation seems to function as a near-complete substitute for other lodging options. Surveys indicate that a modest percentage, ranging from two to four percent, of Airbnb users claim they would not have taken their trip if Airbnb rentals were unavailable.

Airbnb aims to convey the perception that its hosts are typical households seeking supplementary income by renting out rooms or their entire residence. Certain cities offer optimal investment opportunities for both traditional rentals and sharing services like Airbnb.

Conclusion

The current trailblazers of Airbnb in Nigeria possess the potential to establish a formidable presence in the tourism and hospitality sectors, provided that rigorous standards, professionalism, and a commitment to customer service excellence are upheld. While initial hesitations about staying in a stranger’s home for holidays exist, Airbnb’s verification methods contribute to building customer trust over time.

It’s essential to acknowledge that corruption is a challenge in Nigeria, but it’s not exclusive to the country. Encouraging Nigerians to venture into the legitimate business of renting their homes for specific periods, instead of discouraging reviews, can foster exploration of new opportunities.

The success of Airbnb in Nigeria, akin to Uber, remains to be seen. Addressing key aspects such as perception management and effective marketing could propel this distinctive business model to unprecedented heights in Nigeria and across Africa.

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