Essay on Why Alibaba Would Want to Purchase Airbnb

Alibaba and Airbnb are two companies that represent a new trend in the type of businesses that investors prefer. The valuations of these two companies are very high. Leaders of the more traditional companies often wonder why these kinds of businesses merit such high valuation. Some of the similarities between Alibaba and Airbnb include the making of more profits, faster growth, have lower marginal costs and have a higher return on assets (Demos, 2015).

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Alibaba would want to purchase Airbnb because it is a company that has the same working mechanisms as Alibaba. The two companies are interface owners. To explain this further, Alibaba and Airbnb have indescribably thin layers that sit at the highest end of a vast supply system (UBER. AIRBNB. ALIBABA, 2015). The two companies incur the lowest costs and are in a position that they can interface with a huge number of individuals. That is where the money is. Primack (2016) notes that some other companies such as The New York Times have to deal with various issues so that they can get their end product to consumers. The relationships that people currently value are not the relationships between consumers and the service providers (Alstyne, Parker & Choudary, 2016).

Alibaba comprehends that it is the interface layer that all the value and profit is. A company like Alibaba would also want to purchase Airbnb so as to make sure that it caters for future competition. According to Spence (2016), the business model of Alibaba and Airbnb are similar. These two companies are both asset builders. These two companies develop, build and lease physical assets and sell physical things. Additionally, Alibaba and Airbnb create a network of peers in which the participants interact and share in the value creation (Evan & Schmalensee, 2016). The combination of Alibaba and Airbnb would mean that both companies can operate on their own platform (Rao & Nusca, 2015). Alibaba would continue selling products online while Airbnb would provide reviews and best hotels available to customers.

One of the key reasons why Airbnb would want to sell to Alibaba is because of the big battles for customer interface. Recently, companies such as Facebook, twitter, and snap chat seem to be embroiled in a nonstop battle in the bid to be ahead of each other (Libert, Wind, & Beck, 2014). Some companies such as twitter may have begun as a microblogging platform, but currently, it is aiming to exploit its audience by distributing television content. Airbnb as a company may be suited in its area of specialty, and that is the provision of accommodation.

In any business that involves huge profits, business relationships do not stay stable. There is an increasing competition as some of these existing interfaces extend beyond their normal territory as they try to win more territory.

The other aspect as to why Airbnb would want to sell to Alibaba is the increased speculation about its economic impacts. The main issue is that if Airbnb can let people to let their own property in the short term, what then prevents the company from renting long term. The impact that this would have is that it would reduce the supply of rented property (Schaefer, 2014). The uncertainty in market developments bodes well with Airbnb to sell to Alibaba. This is because it would ensure that Alibaba does not juggle to its territory and that Alibaba would also avert the fact that Airbnb may want to interfere with its territory (PR, 2016).

References

Evans, D. S., & Schmalensee, R. (2016). Matchmakers: The New Economics of Multisided Platforms. Harvard Business School Cases, 1.

Schaefer, S. (2014). The IPO Class Of 2015: After Alibaba, Is Uber The Next Blockbuster?. Forbes.Com, 21.

PR, N. (2016, April 18). Monetizing B2B2X Partner Relationships: It%s Complex and It%s Not for Everyone. PR Newswire US.

Rao, L., & Nusca, A. (2015). A BILLION-DOLLAR STARTUP EARNS ITS STRIPES. Fortune, 172(2), 43-44.

Libert, B., Wind, Y. (., & Beck, M. (2014). What Airbnb, Uber, and Alibaba Have in Common. Harvard Business Review Digital Articles, 2-7.

Demos, R. T. (2015, September 11). Tech Firms Are Notably Scarce in IPO Market. Wall Street Journal (Online). p. 1.

UBER. AIRBNB. ALIBABA. HOW TO FACE THE THREAT FROM DIGITAL DISRUPTORS. (2015). CFO Innovation Asia, 3.

Spence, M. (2016). Share and Share Alike. Hoover Digest: Research & Opinion On Public Policy, (2), 22-26.

Alstyne, M. V., Parker, G. G., & Choudary, S. P. (2016). Pipelines, Platforms, and the New Rules of Strategy. Harvard Business Review, 94(4), 54-62.

Primack, D. (2016). GGV Capital Raises $1.25 Billion for U.S. and Chinese Startups. Fortune.Com, 1