AIB Featured Business – Airbnb
If you’ve booked a holiday in the past five years, chances are that you’ve at least considered staying in an Airbnb rental. Perhaps the biggest disruptor of the property rental market in history, Airbnb facilitates a community sharing approach whereby people rent out their unused spaces as holiday rentals. Founded in 2007 in San Francisco, Airbnb now operates in 190 countries and more than 34,000 cities. As of August 2015, the company was worth approximately $US25 billion.
It’s a success story that has surprised even its founders. Brian Chesky, Nathan Blecharczyk and Joe Gebbia were friends in their mid-twenties when they first conceived of Airbnb. Chesky and Gabbia were newly-graduated design students, sharing an apartment on Grausch Street in San Francisco and struggling to make rent. Knowing that a design conference was coming up that would bring in visitors, they invested in some air mattresses and launched a website that offered space in their apartment to paying guests. They asked the convention to send out the word to attendees, approached other San Franciscans who might be willing to open their own homes, and then widened their net by contacting Craigslist (a US classifieds site) sub-letters. The media started to pick up on the phenomenon and potential hosts warmed to the legitimacy of the idea. In March 2008, Blecharcyzyk joined the venture, which was officially launched in August 2008 to coincide with the Democratic National Conference that swamped the city with people looking for short term billets.
But nothing runs smoothly all the time, and by the start of 2009, demand – and therefore revenue – was down to $200 a week in commissions. The trio switched tactics, focusing on making their listings seem stylish, safe and trustworthy. They travelled to existing hosts’ apartments with a professional photographer and took high quality photos. They improved the website design and streamlined the payment system. As momentum built, so did trust in a model which had initially given people pause. The word spread, people became increasingly comfortable with the idea of hosting strangers, and by the end of 2010 Airbnb had experienced an 800% growth in revenue.
Leveraging the huge growth in social media, the trio launched Social Connections in mid-2011, allowing users to more readily share their experiences with friends.
Like Uber, the ride sharing company that has disrupted the taxi industry, Airbnb has shifted power away from professional rental companies and into the hands of the people who own the property. Especially in expensive cities where people might struggle to make their rent, leasing out a portion of their property is an innovative way to monetise what can otherwise be a static asset. But disruptors are bound to run into roadblocks, and Airbnb is no exception.
A ‘moment of truth’ came in mid-2011, when a host came home to find everything in her apartment trashed or stolen, the first time such an experience had happened under the Airbnb system. Airbnb were unprepared and dealt with the situation badly, initially refusing to assist or even partially compensate the victim. After swift backlash across social media, they changed tack, promising to do “anything to make her life easier”. After a second occurrence with another host, Airbnb were in danger of losing the trust they’d worked so hard to build up. They responded by announcing a $50,000 guarantee to hosts to compensate for damages. By May 2012, they upped this to $US1M.
The company faced another, and potentially more fatal, challenge to their model in 2012, when a user was fined for letting guests stay in his New York apartment, a move which was found to breach New York’s short-term rental restrictions. Airbnb helped pay his legal expenses, but the challenge was only the first, with several other cities investigating Airbnb for violation of leasing or zoning laws. As Airbnb has developed, so too has its user base: instead of humble renters making a little extra money from sharing their space from time to time, there is a contingent of ‘mega hosts’ who generate a full time income renting multiple properties and running them as full-time Airbnb hotels. Airbnb runs a full-time legal team and public relations specialists to manage this ever-evolving area.
But at the end of the day, none of these controversies have had anything but a minor effect on the company’s success. Airbnb might be big – the three co-founders each made the Forbes Billionaires list in 2015, with the company valued at $25.5 billion – but their focus hasn’t wavered. In 2014, they hired DesignStudio to rebrand the company and focus on their core value: belonging. As James Greenfield, DesignStudio’s executive creative director, explained to The Guardian, the new logo, known as Bel, “delivers the idea of “belonging” in a form which can be drawn by anyone and recognised the world over”.
That idea of belonging the world over encapsulates the success of Airbnb, which operates in 190 countries across the world. As the sharing economy grows ever stronger, so it seems do the fortunes of three graduates who once had a simple idea.
This article was written by Tanya Ashworth-Keppel on behalf of the Australian Institute of Business. All opinions are that of the writer and do not necessarily reflect the opinion of AIB. The following sources were used to compile this article: Investopedia; Tech Crunch; Fast Company; The Guardian
Photo credit: DesignStudio/The Guardian.