How iconic business models emerge – the case of Airbnb

Think Amazon and you immediately think of online retail. Think eBay and online auctions instantly spring to mind. Think Airbnb, a relatively young company, and similarly one instinctively thinks of a particular type of business model. This is the power of iconic brands. We see how innovative business models created or honed by such companies can change how consumers think about market categories.

Research conducted at Cass Business School, City University London, has set out to answer the question "How do innovative business models become iconic business models?", or, in other words "How do innovative business models become prototypes for a new category of firm?"

For this study the researchers focused on Airbnb. Formed in 2008, it is an online market platform that enables individuals to rent rooms, flats, even houses directly to travellers. Its business model disrupted the travel /hospitality industry and quickly became an icon for the sharing (or peer-to-peer) economy. How did this happen? So far there has been limited understanding of these processes, something which this research seeks to redress.

Conceptualising iconic business models as prototypes, the study identifies the processes via which Airbnb's business model became iconic business. Utilising a common approach to market category emergence research, media coverage of Airbnb was analysed from the period of its creation in 2008 to 2013, with a focus on six mainstream business media publications.

This study showed that there were three phases to the process whereby Airbnb became to be regarded as an iconic business, a prototype for organisations operating in the sharing economy.

At first, in the absence of the language to describe the innovative business model, the media associated Airbnb model with existing models and market categories and used analogies with other iconic business models at the time, such as eBay.

Second, because Airbnb did not fall neatly into existing categories the media developed a more elaborate understanding of its business model.

The third and final phase saw the media recognise Airbnb's business model as the groundbreaking exemplar of a new type of organisation.

Once the media recognised Airbnb's business model as iconic, it ceased associating the model with the firm's actions, so the business model effectively took on a life of its own, and started to function as a prototype for a new category of organisation - those operating in the sharing economy.

This paper contributes to business model research in three areas:

A greater understanding of what iconic business models are and how they emerge

Despite there being many notable examples of innovative business models becoming iconic for their industry (think eBay or McDonald's) there has been minimal study of the phenomenon. This study offers a more elaborated definition of the iconic business model, a way of creating and capturing value which is imitated across industries and is considered a prototype for a certain type of firm. We see that the iconic business model not only brings a new firm into being, it also engenders a whole new category of firm, being those that imitate it.

A refined understanding of the role of analogical reasoning in business model innovation

This study focuses on the process which led the media to acknowledge a business model as iconic and a prototypical exemplar. It finds that when a business model is launched it is initially understood via analogies i.e. the media attempts to define it in terms of existing categories. However, as the business model becomes iconic they themselves become the source for the analogous defining of other firms.

Considering business models as an alternative basis for firm classification

The research shows how an iconic business model that exemplifies a new type of organisation also serves as a basis for a new firm classification. It is commonly held that a new market category exists when organisations launch two or more products or services that are perceived as the same or similar in satisfying market demand. However, this study suggests that industry grouping is not the only basis of firm classification, and that innovative business models can reshape the way the media classifies firms, leading to the emergence of a new category of firm - those operating in the sharing economy.

This research provides a valuable insight into how companies come to be recognised as prototypical exemplars for a category of firm. It should appeal to those interested in business models, market categorisation, and "peer-to-peer" organisations such as Airbnb, which are becoming ever more familiar and important.

A draft version of the research paper is available to read at the link below.