The makers of room-for-rent app Airbnb had in the past discovered that hosts’ ability to find the right price for their rental postings was a tricky proposition. To address the problem the company recently released a new automated pricing system called Aerosolve, which incorporates dynamic pricing, where rental prices change in response to market conditions.
Pricing algorithms for companies such as eBay are simple – the user picks from the displayed prices for similar items. Just as easily, ridesharing firms Uber and Lyft generally set prices from the top, though do use dynamic price setting in periods of high demand.
Airbnb has to incorporate factors like address, size, décor, time of rental, and so on, which is perhaps why it has taken over a year for the company to release its new dynamic system, which came out in June.
The Aerosolve system responds appropriately to these wide array of factors, dropping prices on rentals that have stayed vacant, or raising them in markets of high demand.
Aerosolve has improved hosts’ ability to price their listings more accurately, so that they get the most out of their rental. The key attributes about a host’s rental posting are the location, similarity, and recency.
Location data is based off mapping research that Airbnb commissioned, marking the boundaries to neighborhoods in top cities for the purposes of grouping similar listings.
Similarity includes factors like room count, structure type, and number of reviews. High review count turned out to be very important for those looking to book rentals, and users would pay a premium for these postings.
Recency accounts for the latest available pricing data for the posting, because travel is often highly seasonal.
All of these factors in the pricing model existed before Aerosolve, but they were static. Now the company posts a new pricing tip for hosts each day, based on the changes in these main factors as well as including hundreds of other attributes about a listing.
Hosts can then choose to go higher or lower than that price suggestion, but booking a room with Airbnb is now easier than ever.
While the new pricing scheme will benefit hosts it remains to be seen if the scheme will be embraced by consumers. Uber’s surge pricing receives constant backlash as a ‘surge price’ can result in a fare 100 times higher than the normal price.
Airbnb also faces competition from real hotels and their associated discount travel sites. As Airbnb rentals creep up in price to the level of a regular hotel, users may just opt for a hotel rather than an Airbnb.