The story of Airbnb starts like that of many other successful startups. Two young, broke urbanites look for creative ways to save a little money. Brian Chesky and Joe Gebbia moved to San Francisco in October 2007, and realized they needed a little help paying their rent. During the Industrial Design Conference, they hosted three visitors who did not want to pay for inflated hotel prices, by offering an air mattress and a home-cooked breakfast in the morning to each guest.
Original lodging space for one guest in duo’s San Francisco loft
First Airbnb guest, Amol, enjoys hospitality and accommodation for just $80
A lightbulb goes off. How could they scale this? They immediately brought in their ex-roommate and engineering whiz, Nathan Blecharczyk, and established Airbnb.com in the summer of 2008. Today, the company is valued at over $24B and has had over 11 million travelers enjoy stays all over the world.
Airbnb is an online marketplace that provides unique value to two sets of users:
- Offers a trusted, easy-to-use platform to list their available space and earn extra income
- Provides insurance for listed properties
- Provides a safe platform to find cheap, comfortable alternatives to hotels
- Also provide alternatives to grungy, potentially dangerous hostels
- Provides unique opportunity to interact with locals
- Connects buyer and supplier that would otherwise not have found each other
- Rating/review system provides transparency on both sides
The company earns revenue from two different sources: They charge commission to hosts at 10% of every booking. And they charge a 3% “transaction fee” to travelers for every confirmed booking. Through these two channels, Airbnb projects $900M in revenue for 2015. The brilliance of their strategy is how they have managed to successfully provide the above values to travelers and hosts while monetizing this with a lean operating model that offloads the risks and intensive capital requirements of actually owning physical properties.
Airbnb’s greatest competitive edge within its operating model lies in its people. The three founders understand the need to keep its operations simple while offloading as much risk as possible. They have also established an innovative, adaptive culture within the company, where responding to user needs is of the utmost importance. Furthermore, the three founders complement each other in skillset:
Joe Gebbia was an entrepreneur from an early age and acts as the “face of the company.” He is responsible for crafting the company’s culture and identifying future growth opportunities. He is charismatic, inspiring, and often speaks at high-profile tech events to establish Airbnb’s position as an industry leader and disruptor.
Brian Chesky is responsible for setting the company’s vision and acts as the chief strategist. He identifies innovative ways to grow Airbnb’s business and looks for genuine ways to positively impact the lives of users and the communities they serve. He is also responsible for the design and look, and makes sure the interface of Airbnb.com reflects the company’s personality.
Nathan Blecharczyk is the CTO of the company. He is responsible for building a team of world-class engineers that keeps the website running smoothly, and ensures it is nimble enough to quickly react to customer needs/industry trends.
All three are gifted leaders who know how to mobilize and inspire a team. They are also well-entrenched within the tech world and have deep connections to investors with just as deep pockets. Their networks in the Silicon Valley investor community have allowed them to easily secure multiple rounds of generous funding. This, in turn, have allowed them to operate freely, without external pressures to deliver short-term profits. The founders, as a result, are primarily committed to delivering unique, first-class value to users and investing in the best talent to grow their business.
The total disclosed amount of funding that Airbnb has secured easily trumps that of many other successful peers. The access to this type of funding has been critical in growing Airbnb’s business without external pressure to focus on pure profits
Another key to Airbnb’s success is the management team’s focus on nimble, adaptable technology that quickly reacts to users’ needs. The company quickly added details to the webpage such as user reviews when trust became an evident issue between traveler and renter. In extreme cases, travelers have burnt down their host’s home after a wild party, and one user even created a fake identity to rent out a home to set up a meth lab. In reaction to these horror stories, Airbnb quickly changed user/host profiles to include detailed reviews of each user. In 2008, they offered information on social connections (via Facebook) to build up trust between the two parties.
Later on, they received user feedback that photos, house rules, list of amenities, and information about the neighborhood would be extremely useful in the decision making process, so they quickly appended these features to their website.
To keep up with mobile usage trends, they also offered a mobile app for iOS and Android users. By 2012, over a quarter of the company’s traffic came from mobile usage and the app had been downloaded over 1 million times.
We have explored how Airbnb’s business model of delivering unique value to two sets of customers is supported by their customer service-obsessed strategy and technology-driven team of engineers that quickly adapt to user needs. This complementary system will continue to provide Airbnb access to unique growth channels and we can expect to see more great things from them in the future.