When hedge fund CEOs are paid $600 million in salary... it's a recession.
Congrats to AirBnb and YC on joining the top .001% :]
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.
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.
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.
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.)
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.
I believe a more accurate way to phrase this is that the short-term rental market provides a more accurate valuation of the property.
High prices are complaint only for the buyer; the seller will be glad that his condo is now valued correctly.
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.
Seriously, they don't deserve all this hype and buzz.
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..
http://www.google.com/search?q=airbnb+address+local+issues&#...
Nor does Airbnb themselves
See previous post on the topic.
http://apps.ycombinator.com/item?id=2333475
See charlie4real comments.
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.
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 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).
-Howard Aiken
* Mainstream promotional marketing
* 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.
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. "
via http://www.businessinsider.com/airbnb-billion-funding-dst-an...
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...
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?
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.
Always keep a backup of your database! :-) In this case, I think it is pretty clear the execution is worth a heck of a lot more than the idea.
http://www.paulgraham.com/airbnb.html
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.
Around 5000 rooms a night get rented (via the video).
The make an average of ~10% per transaction (3% from the host, the rest from the guest: http://www.airbnb.com/help/topic/hosting)
Say an average of $60/night.
60 * 0.1 * 5000 = $30,000 revenue/day.
That's pretty decent money.
Anyway, congrats to the abnb team, much deserved!
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?
Then I believe they claim about 5k rooms/night total, which means that >40% of their global business is NYC.
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.
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.
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.
http://www.google.com/trends?q=airbnb%2C+vrbo&ctab=0&...
Google trends airbnb v. vbro.
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."
http://www.fastcodesign.com/1663349/infographic-of-the-day-a...
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.
"We are a community marketplace for unique spaces."
Of course, they could expand in that direction in the future, but I wouldn't say the Holiday Inn is a unique space.
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.
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.
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?
Also, the idea was different initially. Initially they expected the host always to be there.
I am kind of surprised that you didn't buy in the idea. Couchsurfing.org has been very successful
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.