Brian Chesky and Joe Gebbia started the company in August 2008. Nathan Blecharczyk joined the group later and is listed as a co-founder. The company is private and is not required to release its revenues. However, in 2015, according to BizJournals.com, it was on track to generate $900 million in 2015 and was expecting an 89% increase for 2016.
Gebbia and Chesky were roommates in a loft in San Francisco. When they started hiring, they were working out of the loft. Chesky gave up his room and lived using the Airbnb service. They eventually acquired office space to move the company.
How the Company Started
Gebbia and Chesky were designers who couldn’t afford the rent in San Francisco, even though they were renting a loft.
There was a design conference coming to town and they knew space was going to be limited. Instead of posting on Craigslist, they decided to create software that could handle the transaction and were able to book three people to stay in their loft.
The price included breakfast. They used the feedback of people who stayed to make the service better. They had air mattresses where the guests would sleep and hence the name of the company, i.e., air bed and breakfast.
The original site was AirBedAndBreakfast.com (which now redirects to AirBnB.com.)
The company started with renting out rooms or shared spaces. The concept later expanded to include whole houses, boats, and many other forms of lodging. If you can think it, they will make it a part of the package.
Airbnb has received almost $3 billion in funding over its lifetime. Actor Ashton Kutcher is an investor in the company.
The company has expanded internationally and continues to do so. This helps with the company’s initiative to provide a well-rounded travel experience.
The company refers to the beginnings similar to how one would refer to a honeymoon in a marriage. Brian would spend a good portion of his day working with early hosts of the service. He was hands-on in that he was using the service to live for the first year.
So, he got to know the hosts very well. But, as the company grew, he got busier and this caused the hosts to get concerned. The volume of emails grew and it was tough to manage that growth. Since the company cares deeply about customer service, Chesky knew he had to ramp up his hiring.
In 2010, New York State passed a law that makes it illegal to rent out a Class-A residential property for less than 30-days. This could hurt the company if more states adopt this type of legislation.
In response to several complaints by hosts, the company has implemented an insurance program for hosts who experience vandalism theft by guests. The company does encourage hosts to take out their own insurance as the insurance by the company is secondary.
It is supposed to cover anything that is not resolved by the host, but it is unclear what that entails.
Why it Works
The company has made alternative lodging cheaper and available. When travellers head to a major city that is holding an event, it’s unlikely for rooms to be available. By using Airbnb, they have a list of alternative places that they can book directly online.
These are often cheaper than the standard hotels that are in the area. The concept has expanded out to smaller towns and villages and has also expanded its worldwide reach.
It gives average people the ability to earn a decent sum for their empty rooms, apartments, houses, etc. This can act as a secondary income or for some, it can even provide a substantial primary income. Guests will feel more comfortable using hosts whose reviews are good and are more experienced.
The company was the first to develop the concept of alternative lodging. As such, they should be able to ride the wave as an industry leader for a little while. There are competitors that are jumping in.
The company has set the stage to make hosts and guests feel at ease in transacting in this type of business. They have a rating system on their website, along with offering insurance to hosts.
These measures can help solidify the company’s lead, especially since they are the early adopters of them. It is much easier for hosts and guests to repeat their business when they have these factors in place. It will take time for competitors to develop these same measures.
The opportunity costs for Airbnb are low. In the hotel business, an empty room is a huge opportunity lost. For Airbnb, this is less the case as that cost is incumbent upon the host.
Airbnb has a refer-a-friend program where you can get up to $5,000 in travel credits. This can be earned both from a guest and host.
There are some qualifying factors but it is mostly that the transactions have to occur. It’s easy for anyone to refer people, which makes this a great program for college students (think Spring Break!)
Along the same lines as referrals, the company’s sales platform supports coupon codes. People can look for qualifying coupon codes and a discount will be applied automatically to the transaction. The company seems to allow coupon websites to publish these coupons as well, which can be a boost in revenue.
You may have seen recent television commercials that tell people not to go to a certain place, but to live there. In other words, for the amount of time you are staying in a location, you have a home and you are living there. It transcends the traditional vacation into one of a more personal nature.
Airbnb is using content to beef up its sales. They are currently releasing detailed guidebooks and can use their data and feedback from users as part of this content experience.
The company is appealing to Millennials, as this would be a group most accepting of this type of arrangement, i.e., allowing strangers to stay in their homes and staying in theirs.
Airbnb marketplace contains its own rating system by both hosts and guests. This helps to instil confidence in having strangers stay at hosts’ houses.
Lessons Learned By The Business
- The company needed to figure out what they wanted as a company. They did some analysis of various successful companies and tried to determine how those companies became a success. They determined after going through this exercise that they needed to find their own voice and way of doing business.
- Airbnb is not responsible for the experience of the guests or hosts. However, the company understands that if either party has a bad experience, it will reflect badly on the interface and company. It tries to mediate disputes on behalf of both parties. The company has a rating system that both sides can use and this helps to keep those parties on the level as much as possible.
- The company tries to match guests desires for different experiences, rather than just a place to stay. For instance, if a guest wanted to stay in an igloo, the company tries to accommodate that desire.
- The marketplace that Airbnb has created, contains valuable information about user preferences. It has the potential to use machine learning to find the best matches for guests and hosts.
How Other Businesses Can Learn From This
The sharing economy is here to stay. It’s going to be a matter of accepting that or fading from existence as a business.
The best approach for traditional businesses is to find ways to partner with companies of the sharing economy. This approach helps everyone, especially the consumer.