“There were only 4 cups and there were 6 of us”
– a scathing Airbnb review from a disgruntled guest in 2015
This week I am going to be giving my presentation on Airbnb, so wanted this post to give you all a little background on the leading home-sharing platform in advance!
A few quick facts:
- There are Airbnb listings in 65,000 cities in 192 countries
- 4 million listings worldwide
- 50,000 bookings per night
- 260 million+ arrivals all-time
- $93 million in profit in 2017 on $2.6 billion in revenue
- Most recently valued at $31 billion
- The current management team includes the three co-founders: Brian Chesky (CEO), Joe Gebbia (CPO), and Nathan Blecharczyk (CTO)
In 2007, Joe Gebbia convinced Brian Chesky to move from Los Angeles to San Francisco to start a company together. The two were former classmates at the Rhode Island School of Design (RISD), where they both pursued smaller-scale entrepreneurial pursuits. Desperately seeking a way to make rent, the two took advantage of a housing crisis that was due to an upcoming Design Conference in the city. Despite both having backgrounds in design rather than technology or hospitality, Chesky and Gebbia launched the first version of the “AirBed & Breakfast” site, resulting in the first 3 guests ever, sleeping on airbeds in their apartment. $900 and 3 new friends later, Gebbia and Chesky decided to pursue this new venture.
Not long after, Gebbia’s old roommate and computer scientist, Nate Blecharczyk, joined the team. The second version of the site was launched for the South by Southwest tech Conference, which resulted in 6 home listings and 2 guest stays…one of which was Brian Chesky.
Third time’s a charm?
For the third launch of the site, they leveraged the 2008 presidential election and surrounding press. The housing crisis in Denver, CO leading up to Obama’s speech at the Democratic National Convention opened up a window for Airbnb publicity. In just 4 weeks, the listings increased from 0 to 800 homes.
Despite this new success, the founders couldn’t secure any investors. $20,000 in credit card debt, they came up with the idea to create and distribute collector’s item Obama and McCain themed cereal boxes, which miraculously brought them out of the hole.
At this point, the only option if they wanted to continue to pursue Airbnb was to apply for Y Combinator (YC), a business accelerator in Mountain View, CA, led by Paul Graham. Impressed by the way the company was creatively funded by breakfast cereal, Graham offered a standard 6% of common stock in exchange for $20,000 and participation in the upcoming term. Now fully committed to Airbnb, Gebbia, Chesky, and Blecharczyk were able to leverage Graham’s expertise and financial connections, ultimately resulting in closing a deal with Sequoia Capital for their first round of funding.
My mom always said not to talk to strangers…
According to Gebbia, the first thing Paul Graham said during their YC interview was “you mean people actually use this? That’s weird.” The concept of trusting strangers with your home seemed unsafe, making it difficult to get funded and establish a loyal customer base. But perseverance paid off and Airbnb experienced tremendous network effects. As guests are typically travelers, the platform was able to gain traction in markets all over the world with little to no added costs. The more stays at a location, the more value is added with each review and experience.
A common concern surrounding the Airbnb platform is guests damaging host property. To subdue these concerns, Airbnb offers Host Protection Insurance. In over 15 countries, this includes protection against liability claims up to $1 million per stay.
Design improvements inspired by customer interaction
Gebbia described interacting directly with customers as “enlightened empathy.” Spending time with hosts and guests gave the executives the opportunity to “see the world in the way they see it.” Here are just a few examples of improvements that resulted from this method:
- In Brian’s first Airbnb stay during the second launch of the product, he realized payment was awkward and impersonal, so decided to make all transactions online.
- After being urged by Paul Graham, the founders visited their largest market in New York to speak directly with early adopters. They learned that people didn’t know how to take appealing photos of their homes. So now in many cities around the world, Airbnb offers a complimentary professional photo service to make advertising your home easier.
- In an effort to ensure credible and unbiased reviews, Airbnb does not release reviews until both the guest and host have submitted one.
Originally solely focused on the idea of bringing 2 people together for mutual benefit, it wasn’t long before the company started to run into legal issues and suits. Initially, Airbnb listings were not subject to regulations, taxes, or permits, which made a quick enemy out of the hotel industry.
Something else the founders didn’t consider from the onset was hosts taking advantage of the system. Some landlords have gone so far as to evict tenants because profits were greater with short-term rentals. In 2014, Airbnb top 40 New York hosts reportedly grossed over $35 million combined. It was the minority that took advantage of the system that gave Airbnb a bad rep.
Belinda Johnson, an early hire as Chief Business Affairs and Legal Officer, advised Chesky to partner with cities to avoid legal conflict. This resulted in agreements with 200 cities around the world. But they weren’t so lucky everywhere, especially in cities with housing constraints, such as San Fransisco and New York. I will address more specifics on these issues in my presentation on Wednesday.
There are many indirect competitors to the Airbnb platform. Some examples aside from the hotel industry include Tripping.com, Booking.com, Trivago, and Expedia. These platforms offer a broader scope of listings with very different business plans; some even put Airbnb listings on their site. There are a few more direct competitors in the market, however, so here are a few I would like to highlight:
- HomeAway is a well-funded competitor of Airbnb, with over 1 million vacation rentals worldwide. It runs numerous brands (such as VRBO, Vacationrentals.com, and BedandBreakfast.com to name a few). Unlike Airbnb, travelers likely won’t interact with hosts or owners of the property.
- Homestay focuses exclusively on hosted housing (hosts will always be present when guests are there). Prices are generally a little lower than Airbnb.
- CryptoBnb is an online home-sharing platform where you pay using digital currency that leverages Blockchain technology. Use of a decentralized ledger to facilitate secure online interactions gives hosts a more secure way to verify the identity of guests and makes it harder to leave fake reviews. The platform can automate processes like compliance checks and record keeping, so this means they can charge less (while Airbnb charges a 5-15% service fee to guests and 3% to hosts, Cryptobnb will charge a total of 2-3%).
Questions I still have
- Will Airbnb ever look toward taking more control over the travel experience? I.e. a flight service, where pilots with private planes can be contracted to take guests to their destinations.
- What factors go into ranking the Experiences on the user interface? Does Airbnb leverage data from outside sources to personalize the recommendations?
- Will Airbnb look into decentralized ledger payment platforms/options in the future, similar to competitor Cryptobnb?