Airbnb: An affordable vacation stay that turned into an empire
Airbnb seems to have become a better, alternative, and more affordable option to hotels. In particular, this has become the norm for various demographics — meaning not just for young people who may have found it difficult to travel more freely before. From my observation, people seem to travel more often now (thanks to Airbnb). Airbnb may now be very profitable, but its story goes way back as to how and why it started — not only did this venture take time, but it also took plenty of trial and error until it became what it is today.
In 2007, Airbnb was founded by Brian Chesky and Joe Gebbia. Chesky and Gebbia met while studying at the Rhode Island School of Design. Eventually, they both relocated to San Francisco, California. Although the two shared an apartment there, they still struggled to pay their rent. In retrospect, this started out as an accident — “While brainstorming ideas to earn more money, they came up with the idea to rent out the three airbeds they had available” (Chatterjee 1). During this time, San Francisco had a design conference coming up, but the nearby hotels were all sold out by then. So, they decided to set up a quick website and advertise their offer — “an overnight stay on an airbed in their apartment, along with breakfast in the morning” (Chatterjee 1). Various people became interested in their apartment airbeds, so Chesky and Gebbia decided to grow their small business idea — at that moment, Airbnb was born. In addition, engineer Nathan Blecharcyzk eventually joined as the third co-founder.
By 2014, Airbnb had grown into a business spanning across sixteen countries — and was valued at ten billion dollars. However, earlier that year, Airbnb’s business model had hit a major road bump — “At the request of the State of New York attorney general, Airbnb was forced to hand over anonymous listing information of hosts who rented out apartments in New York City” (Chatterjee 1). The attorney general was concerned if some of the hosts had “violated a New York law that prohibited any private rentals under 30 days where the host was not present” (Chatterjee 1). Because of this, some of New York’s hosts pulled their listings.
Airbnb initially made the shift to focusing on conferences and, later on, other events. In particular, the first major conference they chose to focus on was 2008’s South by Southwest conference and festival held in Austin, Texas — which is one of the United States’s biggest events organized every year during Spring Break. One of the best actions Airbnb conducted was executing an online public relations campaign — because that is what helped it garner more interest, and gain further recognition.
As a result, Airbnb “was able to get about 40 people to list their spaces for South by Southwest” (Chatterjee 2). Meanwhile, the company was also in the midst of favoring hosts who would be present when the guests rented the space. Regardless, this actually turned out to be a clever move — because Airbnb was moving into the right direction, even with trial and error.
In retrospect, South by Southwest was somewhat of Airbnb’s first “experiment.” Specifically, it was used as a tool for understanding its customers. More importantly, South by Southwest tested out Airbnb from the perspective of a traveler. In particular, rather than participate as a host, Chesky participated as a renter. However, during his stay in Austin, Chesky realized why this business model was flawed, and not working for Airbnb customers. There would come at a point in time where the hosts would become anxious — “and asked Chesky when he was going to pay them their fee for hosting him” (Chatterjee 2). Not only was this process flawed, but it was also incredibly awkward and uncomfortable for both the hosts, and the renters. Instead, “Airbnb quickly decided to begin facilitating the exchange of money by charging renters upfront, taking a small transaction fee, and then depositing the remaining money to the host’s account” (Chatterjee 2).
The more Chesky reached out and spoke to his customers, the more he was able to learn about Airbnb’s market. For example, the founders noticed that their lodging offerings were attracting a wider demographic, and not just young travelers. Airbnb also worked hard to increase “the quality of the experience from both the host’s and the renter’s perspective. Having renters as hosts reduced some of these risks” (Chatterjee 2). Eventually, Airbnb shifted its attention towards New York City, because that is where some of the renters-turned-hosts came from.
After South by Southwest, came various other “experiments” — the 2008 Political Conventions, Y Combinator, New York City, and social media. In terms of the political conventions, Airbnb promoted itself “by creating promotional cereals that featured two different box designs — Obama O’s for Barack Obama, the 2008 Democrat presidential nominee, and Cap’n McCains for John McCain, the 2008 Republican presidential nominee” (Chatterjee 3). Eventually, these boxes made about $30,000 in revenues. In turn, this drew a great deal of press to the company, which then attracted the attention of Y Combinator’s Paul Graham — a crucial move for the growing company. Y Combinator, an investment fund and start-up advisory based in Silicon Valley, “invested small amounts of money into very early-stage (generally pre-launch) companies” (Chatterjee 3). There were various reasons as to why Y Combinator chose to bet on Airbnb’s future — but the key reason “was the tenacity of its founders, particularly when the Y Combinator partners learned of Airbnb’s cereal campaign” (Chatterjee 3). Due to the high prices of hotels in New York City, Airbnb had garnered the most business there — due to its growth there, it needed to further discover its primary market. Eventually, after several trips and visits, Airbnb’s New York customer base increased. In addition, at that point, Airbnb began using social in a much more innovative fashion. After Y Combinator, Airbnb had generated enough revenue to cover its expenses — “In May 2009, Airbnb raised an additional $600,000 in financing to continue expanding” (Chatterjee 5). By spring 2014, the company’s “platform had 10 million guests and 550,000 properties listed worldwide” (Chatterjee 5). Now, all Airbnb needed to do was meet investors’ expectations.
From an industrial standpoint, Airbnb became a pioneer in the market of renting out spare rooms and other private hotel alternatives. In the early 2000s, the vacation rental market had initially started when people were posting rooms on Craigslist. However, those were long-term rentals; not short-term or vacation rentals, which were very few and far in between then. “Once it had established itself, Airbnb pursued growth through second-home and vacation rentals, as well as people renting their own home while they were away on vacation” (Chatterjee 5). As a result, this turned into another $100 billion global market.
In terms of competition, Airbnb found itself competing with other companies in three forms — copycats, vacation rentals, and one-stop vacation services. Although over 500 imitator sites were identified, some of these companies actually applied deceptive marketing practices, and others went as far as to copy listings from Airbnb, and then post them on their website. Airbnb may have had competition from heavily funded American sites — but rather than an airbed or pull-out accommodation, those companies catered more to vacation home rentals. And, as for one-stop vacation services, these sites were mainly targeting travelers looking to book a hotel room — which wasn’t the unique type of experience Airbnb was providing. In response, “Airbnb took a four-pronged approach to combat companies entering its market segment” (Chatterjee 7) — to address customer and host concerns, foster engagement between stakeholders, help customers find their preferred rentals fast, and expose imitator sites.
In conclusion, Airbnb will likely continue to make tremendous progress for years to come. For example, Chesky stated he imagines there will be thousands of boats for Airbnb. Currently, and according to Chesky, Airbnb has 78 boats, and that number is growing quickly. Airbnb will also probably still face some legal issues and controversy, but that doesn’t mean it will go out of business — it just needs to continue being a company that cares about its customers. And, it really does and always will.
