I've been waiting for some time to call out Airbnb, and I think this is the right time.
Firstly, the idea of short term residential rentals is not new. Long before Airbnb major cities, Paris, London, New York, and Toronto were dealing with the issues and the problems of short term / nightly residential rentals. In fact the latest condo boom in Toronto has been ascribed to international investors buying condos explicitly for this quasi-hotel rental market. Many cities have been passing local laws trying to prohibit this type of rental use for residences because they carry a whole host of problems. Some of those include -- emptying the downtown core of residences, artificially increasing housing costs for residents, removing the stability and security that comes from having permanent and community-invested residents, shorting cities on their hotel taxes, providing unlicensed locations for short term illicit activities, etc. So by increasing the market in these short term rentals, the communities will also feel the increase in the unfortunate side effects of these short term rental impacts. These are long term market problems that Airbnb will have to address.
Secondly, it's not a new idea because in the recent past, these rentals were managed by hotel brokers. So in that respect, Airbnb major idea is simply to replace the traditional broker that used to handle the short term rentals with a direct owner to renter model. Across the internet we see great success in online services removing brokerage inefficiencies to various markets, and for this they should be congratulated, but not overly so.
And finally, about their execution. Airbnb is not the market leader. In fact --http://www.vrbo.com/ is. This is what amazes me the most. Vrbo (I have no professional relationship or otherwise) regularly get better reviews in online discussion boards comparing the two services. Their price structure is much more competitive, their review structure is much more robust, in fact aside from Airbnb's more sophisticated visual design, Vrbo leads in many segment of this space.
So, to what do I think Airbnb's success comes from? I think it's Airbnb's marketing / hype / buzz that has been carefully choreographed to maximize their valuation. And to this, I congratulate Airbnb on their latest success, and to a dance well done.
This is pretty mild as "calling outs" go. I would summarize your first two points as "there is tremendous demand for this concept".
Your first point is that this basic concept has been so successful that governments have felt the need to regulate it to combat its adverse effects, which is a risk Airbnb is pretty well aware of. In fact, all of the adverse effects you list are true of hotels as well, except for "shorting cities on their hotel taxes". If municipalities eventually decide to force Airbnb to charge hotel taxes, that would diminish their appeal but probably not destroy the business. Hugely successful companies like Amazon are facing similar problems.
Your second point is essentially that the idea of providing an online marketplace to remove inefficiencies of brokerages is not a new one, and therefore Airbnb should not be "overly" congratulated. But we're not congratulating Airbnb for the novelty of the idea, but for building a business which is apparently worth a billion dollars. Many hugely successful startups have ideas which might be obvious.
As for your third point, there might be something legitimate there. I don't know anything about VRBO vs. AirBNB in terms of traction and customer satisfaction, but it appears from one of your other replies that your only evidence is anecdotal. My personal anecdotal evidence is that everyone I know has been very happy with using AirBNB.
Good points. Well stated. I clearly have overstated the VRBO vs. Airbnb customer satisfaction. I've changed it in my original post to reflect that correction.
I just did a quick compare and it looks like VRBO serves the high-end of the market exclusively, with stuff in Manhattan starting around $180/nt, whereas Airbnb starting at $80/nt. That in and of itself should tell you that probably people who only serve the high-end clientele are going to do better on average (e.g. in reviews), yet the market is much larger if you can serve both mid-to-low and high-end, and as far as I can tell Airbnb is doing both.
Which is to say, Airbnb says you have to have do due diligence yourself (which some people won't do, and will have bad experiences), whereas VRBO filters for you, but you will end up paying more on average.
That's to say, if asking which business model is better, I think you have to go 100% with Airbnb. Giving users more power makes them like you better in the long run, and even if there are more flakes, there will also be 10x more enthusiasts (potentially even celebrities which become investors/advisers). Customer enthusiasm isn't something you can immediately capture via looking at reviews, but I think the market is closer to the truth in its valuation then you are in your "call out."
So I agree that cities want to control who can rent what, and where, and that AirBNB is trying to disrupt this.
As you point out, there are negative consequences to this. These are serious, and I don't want to dispute any of them. But I do want to point out a positive consequence.
Recently I needed to stay for two weeks in Princeton, New Jersey for a mathematics conference. I learned to my horror that the only hotel within walking distance of the university is uber-fancy, and costs like $200 a night. If it wasn't for services like AirBNB (I used Craigslist, but would use AirBNB now), I would have had to pay $2800 for accomodation, or rent a car which I would have otherwise had no use for. (Or perhaps there are other options of which I am ignorant.)
Pardon my cynicism, but this is what I believe the people living in Princeton want. They enjoy the small town ambiance, even if it is vaguely faked, and presumably through their city council they push strong zoning regulations which make it impossible to build hotels, and therefore impractical to visit on business.
(N.B. None of this is even remotely unique to Princeton, but that is the one experience I have personally had which sticks out.)
There is a flip side to this (if I bought a $500K house perhaps I would want strict zoning too), but I still hate it. With AirBNB, rentals cost what the market will bear. AirBNB is bringing good old-fashioned free market capitalism where, IMHO, it belongs. I hope they are a wild success.
Re your first point, the only first hand knowledge/experience I have of this type market is from when my sister lived in Augusta Georgia. Every year for the Master's, some folks temporarily rent out their houses because the Master's (golf tournament) brings so many visitors to Augusta that the hotel market can't adequately serve it. It's a once a year event lasting about 2 weeks and the rest of the time the hotels are perfectly adequate to the needs of the city. The houses that are deemed the most desirable for this purpose are not those in the city core but those in walking distance of the golf course. The city is a madhouse during the Master's and traffic is insane (god help you if you need to make a left hand turn on the main drag that goes down to the golf course). Some residents rent out their house because you can temporarily get a premium price, enough to pay for you to go vacation elsewhere and not have to put up with this insanity. I have difficulty imagining another means to adequately meet the ridiculously high rental demand for this brief annual period.
I know it's an unusual situation, but it makes me wonder if it's really "all downside" so to speak. (And I had a goal of being a city planner at one time, so I am plenty familiar with the fact that out-of-town owners and the like can be very detrimental to a community.)
I think you miss the point if you rate the market leader by customer satisfaction rather than revenue or customer base. I just did a few searches of smaller US and UK cities, and found 5-40x as many listings on Airbnb as VRBO.
For example in my nearest city (Cambridge, UK, which is both highly techie and touristy), Airbnb returns 38 results, VRBO 0. I tried various US and European cities and got a common pattern.
Anecdotally there's a significant problem in the UK with some rural regions becoming significantly hotels for the wealthy. People like them so buy properties as second homes, maybe to live in a 5-10 days a month at maximum and sometimes far less.
The work available locally can't support the prices such customers are willing and able to pay, so the community becomes significantly weighted towards the old (who bought before the prices rose) and the absentee second home owner. This starts reducing the demand for local services (shops, schools, public transport) through a lower active population which makes the community less and less viable for full time living and....
'True markets' may optimise for supply and demand but they don't always for maximum societal good.
@ChuckFrank said that buying property for the purpose of short-term rentals is responsible for "artificially increasing housing costs for residents". I was just pointing out that the cost increase wasn't artificial; the property value was intrinsically worth more than the market rate before short-term rentals were common.
^ This post is a classic example of why it's so hard to be an entrepreneur. No matter what mountain you climb, there will always be people yelling that you don't deserve the success, or that anyone could have climbed that mountain, or that you should stop climbing mountains right now lest you "empty the downtown core". Always another brickbat.
That's just silly. You aren't going to get anywhere in life spouting "haters gonna hate" ad nauseum.
The comment has some very compelling points to consider. None of us, and nothing we create is so beyond constructive criticism that intelligent contrary opinions can be rejected outright.
You may have had a tough day, but god help us all if we start believing our own bullshit 24/7.
Finally, someone had the insight to call out this company! I mean they've only managed to build a billion dollar business by turning ordinary homeowners into businessmen, provided better accomodation to hundreds of thousands of travellers across the world, destabilised an established old industry with entrenched market leaders while taking on a myriad of social and local government issues.
Seriously, they don't deserve all this hype and buzz.
Obviously that's a strawman argument. If I'm mistaken about calling Airbnb to the table, address my points, as I will address yours.
1. They haven't build a billion dollar business, they are only valued at that. There's a bid difference.
2. Ordinary homeowners have and had many other options to rent their properties - Short term rental brokers and VRBO are just two of them. Craigslist in another one. Airbnb alone cannot take that as their success.
3. Perhaps they have provided better accommodations than their competitors. Do you have anything to support that?
4. The internet itself is destabilizing the entrenched markets.
5. And here's the reason I responded, because I am most interested in the work that they are doing to address the social and local government issues. Please provide something to support that. Google doesn't have anything..
"4. The internet itself is destabilizing the entrenched markets."
This one is a bit unfair, though I don't know about the rest. "The Internet (TM)" doesn't just destabilize industries in an abstract sense, it destabilizes them by a set of real companies that take market share from entrenched competition, and by allowing that entrenched competition to sometimes improve themselves in the new market (which doesn't happen as often as you'd think). It's not "The Internet (TM)" that gets credit, it's those companies.
Does Airbnb have yearly revenue of a billion dollar? According to the article 1.6 million nights have been booked through them, if they are a "billion dollar" business than average booking revenue will be $625.
Do you have good stats on the size of the market? I somehow thought http://www.homeaway.com was the leader here, and if you count in timeshare rentals, eBay being a close competitor, but I could be way off.
Finally, all my friends who rent space in their residences do so with VRBO. Across the board they say that after using and comparing both services, VRBO is a superior service than Airbnb for those wanting to have short term rentals in their house. So while this may not be representative, it sure seems informative.
very similar to charlie4real - cancelled my airbnb listing and keeping vrbo.com - basically same reasosn, site heavily skewed towards renters, no control over money, wrong kind of renters (short term, always asking for discounts, etc) They do have a market niche, just not applicable for my situation (renting vacation home 8 month out of 12)
Well to correct your point, CouchSurfing.org was the first one to do it back in I'd say 2005 or 2006. However, this was to help people on their travels find free places to stay. I used it quite frequently on my first world trip. AirBnB just put a business model on it and came out in 2008.
I support AirBnB 100% however I have not had good experiences with it in Los Angeles so far. Lots of spammers, strange anonymous people emailing me trying to either low-ball my offer or asking if they could throw a party or something at my spot. No thanks.
So, to what do I think Airbnb's success comes from? I think it's Airbnb's marketing / hype / buzz that has been carefully choreographed to maximize their valuation. And to this, I congratulate Airbnb on their latest success, and to a dance well done.
It's a fallacy to complain that Airbnb is a new idea or not. It doesn't matter if they are a new idea! It only matters how much business they are driving.
A little off topics, vrbo was bought by homeaway, which recently filed to go public. Their whole model was to acquire every competitor and sort of monopolize the vacation rental market. I'm guessing they've probably made an offer on airbnb, but probably too big for them now...
I think a lot of startups put too much weight on what an investor thinks of their idea. Airbnb is a prime example of carrying on in the face of rejection, even if people are saying "it's a stupid idea". I know a lot of founders who, after being told by many of the Valley's finest angels that their idea is no good, would just give up.
It just goes to show that you can create a $1 billion company, even if no one really gets it in the beginning, and in my eyes at least, they are actually justifying it (making a lot of money in a lot of different places).
I think there's something to be said about knowing when to fold, and not to view these nobody-believed-in-us-but-we-overcame edge cases as motivation to play a losing hand.
There will always be false negatives, ideas that are rejected by angels but which later become enormously successful. However, if the industry's finest angels are all passing, and you can literally find nobody to invest, it is probably a wise decision to give up. While angels are far from being 100% accurate in choosing what to invest in, overall they have to have some sense of what's a good idea in order to sustain themselves. If they're all passing, better off hitting the drawing board.
I can think of cases where startups have found no one to invest, and have ended up doing well. This is where something like YC can help, actually; we can tell people candidly whether we think it's the investors who are wrong, or the startup.
I have so much more data. I've been watching their trajectory for 4 months, while other investors (especially those that chose not to invest) may only have seen them for a few minutes at Demo Day.
Many investors view a company based on how much of a multiplier it can offer them on their investment. Is this a 2x money maker for me or a 10x? If I'm only interested in the 10x home runs then a 2x company may look like a bad idea to me.
You're assuming that you're more likely to be right than other investors.
There's an adjective for that kind of thinking, which I won't use because in context of hn it would be downvote suicide.
And yes, I know you're THE pg, but other investors, like Fred Wilson, John Doerr or Marc Andreessen are also THE investors.
The argument that I would find more persuasive would be that YC can help because it's willing to take more risks on "out there" ideas due to dramatically lower investment in any one startup and higher number of startups it funds.
> we can tell people candidly whether we think it's the investors who are wrong, or the startup.
If YC chooses to invest in an applicant, it probably offers great advice to the start-up. If it chooses not to, would you consider that rejection candid advice that the start-up is wrong?
Yet that candid advice didn't break through to someone like Fred Wilson. I wonder if more visionary ideas are harder for investors to truly recognize with their templates of "experience".
Ebay for Spaces is a very clever shorthand, but it seems just abstract enough to question without a concrete instance. Now, of course, it is one of those brilliant with hindsight instances that seem easy but require immense dedication.
I think it matters who tells you it's a stupid idea. If it's investors, you can safely ignore them; they aren't looking for what you're selling anyway. If it's potential customers, however, you probably have a problem.
In AirBnB's case, they had already validated the market. They had their first 3 customers before they even thought it could be a business. If people are willing to pay you money for your idea, it really doesn't matter what investors think.
Yes, it's quite inspiring to see how much it succeeded despite the overwhelming negative feedback. Just goes to show that judging the viability of ideas is hard, no matter how many experts there always seems to be in the TechCrunch/HN peanut gallery. I've really tried to train myself to answer "do you think this is a good idea?" with "I haven't a clue."
I don't think anyone can predict what's going to be big, and what isn't, and that's why bad VC/investor/coach advice is so pernicious.
Let's look at the progression: Google shows up, makes a big splash among the tech elite but attracts little attention in the popular market until their obscene IPO, and investors collectively say, "Damn, well, I don't want to miss out on the next Google!" Then there was Facebook, and again, investors collectively say, "Damn, well, I don't want to miss out on the next Facebook!" Now there's Airbnb, and investors are saying what now?
(I'm skipping over a ton of other big to almost-big examples in this progression; hopefully someone more knowledgeable will fill in some gaps, but I don't think it will diminish the point.)
The thing is, Facebook wasn't the next Google and Airbnb wasn't the next Facebook. None of the breakout hits have been entirely original ideas, nor would an early-stage pitch have been compelling to anyone with the ability to be a significant early investor. There were zero signals that would have worked as a strong early indicator of future success.
The more I observe this industry, the more it strikes me that any investor that's investing in the hopes of being part of The Next Big Thing is simply gambling. Just as in gambling, if you study the game and the rules carefully enough, you can tip the odds in your favor a bit, but there's still no such thing as a guaranteed win. When I hear people say, "We're looking for the next X," my eyes roll back into my head a bit.
Airbnb joins a long line of startups that became big in spite of initial rejection. In fact, it almost seems that a necessary - though not sufficient condition that your idea maybe the next big thing, is that it is initially rejected by everyone you pitch it to!
Totally agree. Ultimately the only test for your startup idea is market acceptance and resonance - and experience repeatedly shows that no amount of prior experience and knowledge helps in predicting correctly what the next big thing will be. After the fact, it is easy to look back and rationalize and attribute certain factors for all the big successes - but no matter how many times this happens, we always miss the next big thing. Market resonance is very hard to predict - since there are so many parameters for success.
The success of Airbnb and many others like it raises the interesting question - How many other billion dollar ideas, never got off the ground because investors thought they were awful ideas? We may never know. But it should give every entrepreneur something to think about and not be discouraged by rejections. Your idea does not need to be accepted by investors - only by the market! So if you really believe in your idea launch it and see if the market accepts it. If not tweak the parameters till it does. Build a minimum viable product and try to fail cheaply. If it works, investors will come running to you. A good way to look at it is that your startup is like an experiment and your product/service is the hypothesis you are testing. If it fails, your hypotheis is wrong - so change it and try again.
Taking it the other way around, most startups put too much weight on their valuation, which is a quantification of what investors think about their company. Of course assuming their primary goal is to really make a difference, instead of just selling out as soon as possible.
Fred Wilson was one of the VCs who passed on his opportunity to invest in Airbnb - his musings on that opportunity, and learning from it, are well worth a read - http://www.avc.com/a_vc/2011/03/airbnb.html
This might be a stupid question but what do you do after you secure such a large series of funding? Go on mass expansion? Would anyone mind telling me how startups typically use this kind of money (closing Series with 100+mil)?
* Direct sales efforts (identifying target markets, staffing sales teams to pursue them)
* Business model changes to ramp up customer acquisition at the expense of profitability
* Rollups of related companies and acquisition of complementary companies.
* International expansion
* Lobbying
And there's just always something to be said for having a war chest; in today's climate, if you can lock in a very long runway at favorable terms because it's obvious you have a great shot at financial success, why not? The saying goes, "when you're hitting your numbers, you're in charge; when you're not, your investors are in charge". Even with more outside investors, Airbnb probably isn't giving up control over their destiny.
Hiring as well. I remember that Twitter was about 25 people when I was looking for jobs in 2008, just as they'd closed their mammoth $50M+ round. They're now at 400+.
Reminds me a lot of when Groupon was looking to raise $1bil and everyone squawked. Aggressively hiring sales teams alone is an absolutely massive undertaking. Google doesn't (didn't?) understand that because they are under the notion that good technology can alleviate massive sales team. Thus why I feel they haven't been able to compete with Groupon's offering and rapid expansion. Even though Airbnb is not a 1-1 comparison to Groupon I think it still holds some relevance.
The overall point is that business is still conducted by people. Even in today's e-commerce era, people still want to be treated like a human beings by human beings - and us Americans are bloody expensive human beings.
"They're probably going to need the money for customer acquisition. AirBnB is in the highly competitive travel space, where it's very expensive to acquire customers. From Paris, AirBnB has the top Google ad for "vacation rental", which has to be a pretty expensive click. "
Techcrunch says, "On any given night in New York there are more people staying in homes via Airbnb than there are rooms in the biggest hotel in Manhattan." For comparison: Starwood Hotels (whose brand names include Westin, W, Sheraton, and others) has more than 20 hotels in New York (some quite large), and a market cap of about $11.3 billion.
FWIW, Airbnb's commissions are 9-15% of the rate (3% from the host, 6-12% from the guest) according to their hosting FAQ[1]; no idea how that compares to typical hotel profits on a room listing...
Airbnb does not have many expenses (afaik) besides payroll and low operating costs. Their profit is probably huge considering that. (Whereas a hotel must spend money on electricity for each guest, linens, toiletries, water, elevators, real estate, etc.)
The way I understand it, the biggest threat to Airbnb's model are local governments starting to clamp down on this kind of (usually unlicensed?) subletting. I'm curious how the high valuation factors this risk.
Of course, I suspect the high valuation means Airbnb is planning to expand to hotels and travel in general?
Isn't the point of Airbnb that you don't stay in a hotel?
Edit: By hotel, I mean generic hotels like Holiday Inn's. I'm just going by their mission statement: "We are a community marketplace for unique spaces".
When you look at them that way, a billion may be low.
I was confused when I first heard of them, I thought they were just planning to be what they are right now- spare private room rentals to travelers. But then they explicitly stated a desire to directly disrupt the moribund hotel industry by offering services that make hotel room pricing more dynamic. Hotels are dynamic now, you can almost always negotiate the rate lower, but the vast majority of people don't know that, or don't want to try. If airbnb can somehow automate a chunk of that process, there's money for every in the transaction. I think that's a hard problem, but solvable.
If they also move into subletting and temporary event space and so on... Big markets.
Airbnb is in a prime position to expand into the market of web-based PMS (I'm not kidding -- Property Management Systems) that are super expensive and still run on old MS-DOS machines in many hotels. Give hotels a web-based solution that interfaces with hotels.com and other sites (there's a rather involved protocol that you need to license, but the name escapes me) and you're in business.
Dunno, maybe that's the other one but as far as I know CouchSurfing is still alive and kicking (see: http://www.couchsurfing.org - they claim to have almost 3mln users), it's just that it isn't a commercial thing.
Couchsurfing and airbnb offer completely different services. Couchsurfing is free, and very focused on community building. It is definitely alive and kicking.
The difference is execution. Any skilled designer (and I'm not a designer but I can respect design) would've looked at airbnb.com in the past couple of months and realized: this is different. The way Facebook was different. All those key design decisions add up and you get enough of an edge over everything else that you redefine the whole sector by making the sector suddenly interesting.
Anyway, I'm biased. I stayed at an Airbnb place over this weekend and it worked great. It's bigger than EBay though, for my money. It's next generation lodging that is OOM more efficient and the flood gates are probably going to start overflooding (economy seems just right with enough consumer spending to support some trips, but enough of a groupon-appreciating eye, for more and more people, to avoid hotels where possible, etc.).
I sent in my resume to airbnb after deciding to try the site (while booking a place for the night before Bay to Breakers). I didn't actually stay at a place (until this past weekend) -- but I knew that whoever created that site was way ahead of everyone. I found the answer to one of their programming challenges on the interwebs and e-mailed about it (so haven't heard back -- I expect they are pretty swarmed with interest now too). And honestly, I'm at the point where I'm not that into working for a successful startup (would just confuse things for my side projects, etc.). But I am a very happy customer. And Brian Chesky is a new kind of entrepreneurial genius (his Startup School presentation still reverberates). Cheers.
For all the talk of bubbles, I think AirBnb is actually undervalued at $1billion. I want this noted. Before AirBnb space was being wasted. Now its being used. That is something of fundamental value. The dubious valuations are things like FourSquare, LinkedIn and GroupOn.
I'd like to know this as well (although $1 billion makes sense, they make a cut on every transaction, as opposed to Facebook which doesn't make a revenue on every customer)
Given that they probably sell at least some of their advertising CPM, every new customer probably does equal more revenue. How much, not sure, but it could be pretty high when you consider how many impressions an active user will make each day.
It will be interesting to see how AirBnB maintains the listing quality as it scales which I would argue is currently its main advantage over VRBO, HomeAway, Craigslist, et al. These types of sites tend to devolve into a homogeny of bland, "professional" listings, hence HomeAway's boring rollup strategy. What has made AirBnB somewhat unique and appealing has been the interesting listings and the care and personality of the property owners.
All things considered, this is definitely fantastic. I was watching the TechCrunch TV video of Ashton Kutcher earlier today about his surprise (at the time) investment of Air BNB. Looks like this guy really knows what he's doing when it comes to investing - skype, foursquare, not abnb. Pretty cool.
I'm curious how well Airbnb is doing outside of New York. New York's real-estate market is so out of whack it strikes me as fertile ground for p2p hotel rooms.
One example: I wonder how many people are renting out rent-controlled apartments on Airbnb at a huge profit, while the owner maintains the unit at a loss?
If I caught the details correctly, they state that they do as many rooms in the NYC region as the largest NYC hotel, which puts them at 2k+ rooms/night in NYC.
Then I believe they claim about 5k rooms/night total, which means that >40% of their global business is NYC.
Firstly, the idea of short term residential rentals is not new. Long before Airbnb major cities, Paris, London, New York, and Toronto were dealing with the issues and the problems of short term / nightly residential rentals. In fact the latest condo boom in Toronto has been ascribed to international investors buying condos explicitly for this quasi-hotel rental market. Many cities have been passing local laws trying to prohibit this type of rental use for residences because they carry a whole host of problems. Some of those include -- emptying the downtown core of residences, artificially increasing housing costs for residents, removing the stability and security that comes from having permanent and community-invested residents, shorting cities on their hotel taxes, providing unlicensed locations for short term illicit activities, etc. So by increasing the market in these short term rentals, the communities will also feel the increase in the unfortunate side effects of these short term rental impacts. These are long term market problems that Airbnb will have to address.
Secondly, it's not a new idea because in the recent past, these rentals were managed by hotel brokers. So in that respect, Airbnb major idea is simply to replace the traditional broker that used to handle the short term rentals with a direct owner to renter model. Across the internet we see great success in online services removing brokerage inefficiencies to various markets, and for this they should be congratulated, but not overly so.
And finally, about their execution. Airbnb is not the market leader. In fact --http://www.vrbo.com/ is. This is what amazes me the most. Vrbo (I have no professional relationship or otherwise) regularly get better reviews in online discussion boards comparing the two services. Their price structure is much more competitive, their review structure is much more robust, in fact aside from Airbnb's more sophisticated visual design, Vrbo leads in many segment of this space.
So, to what do I think Airbnb's success comes from? I think it's Airbnb's marketing / hype / buzz that has been carefully choreographed to maximize their valuation. And to this, I congratulate Airbnb on their latest success, and to a dance well done.