Airbnb is a trusted community marketplace for people to list, discover, and book unique accommodations around the world.
Airbnb was first dreamed up in 2007 by Joe Gebbia and Brian Chesky, two friends living in San Francisco. Both friends had recently left unfulfilling jobs and were waiting for the next opportunity. The pair was struggling to keep up with the Bay Area's astronomical rent prices. They both had the entrepreneurial spark, but they wanted to create something truly meaningful with their talent and creativity.
During a conference weekend in San Francisco in 2007, Chesky and Gebbia realized that the demand for hotels was greater than the supply during certain events. To capitalize on this revelation and make some extra money, the two offered the space in their loft for rent to strangers. They set up three air mattresses and promised their first three customers a soft place to sleep and breakfast in the morning. This was the birth of Air Bed and Breakfast. They did not fully realize the potential of what they had immediately but after some careful research, they realized that they could fill a gap in the market with a new and insightful product whose basic infrastructure already existed.
They decided to create a website that allowed people to sell space to people who needed it most. They knew that their current website was not great, and so they hired their friend, Nathan Blecharcyzk, to engineer a more functional website. Airbnb was born, and two struggling young men and one successful man became co-founders of what was to become one of the most famous tech startups in Silicon Valley.
Airbnb first targeted large cities across the United States that regularly hosted large-scale conferences and festivals such as San Francisco. Their big breakthrough came later in 2008 when Denver was chosen to host the Democratic National Convention. This was important because it was an election year that saw two new candidates for the presidency. Denver was expecting to see an influx of 80,000 people for the weekend's events. It became immediately obvious that the existing hotel infrastructure in the city could not cope with that kind of traffic. So, Airbnb decided to make the DNC their first mission. It was an attempt at housing the overflow of convention attendees in Denver. Within one week, they already had 800 bookings.
The need was there, and the customers were responding, but the site was not making any money. Despite the huge influx of bookings in Denver in 2008, their first profit came from other efforts rather than the service their website provided. Ever the creative entrepreneurs, the trio created a publicity stunt in which they bought cereal in bulk and sold 'Obama O's' as limited edition collectors’ cereal. Enthusiastic Democrats in Denver and throughout America bought them. This PR stunt made them $30k in profits and left them with plenty of leftover breakfast foods to serve the guests on their airbeds in San Francisco.
After 2009, the money started rolling in from investors. They were invited to join Y Combinator, a program that mentors startup, and received $20k in funding. Their ideas blossomed and soon they began to receive small (by Silicon Valley standards) sums of money from venture capitalists. In 2009, they received $600,000 from investors.
The team behind Airbnb began to realize that they could make money with their site by charging a small service fee. They added a 15% service fee, distributed between owner and renter, and slowly they began to see money trickle into their bank accounts.
More room for growth arrived in 2010 when they received $7.2 million equity investment. From 2010, things began to take off for the dynamic trio. They began to turn the heads of some of the most well-known investors and hedge funds in tech. They even gained the interest of actor Ashton Kutcher, who was so impressed that he invested an undisclosed amount of money. Kutcher continues to sit on the board of the company as a strategic advisor.
In July 2011, Airbnb received a vote of confidence and $112 million in venture capital. All of a sudden their new startup was valued at $1.3 billion. They were finally able to move out of their apartment office and into a real office. The style of their new offices was created to encompass the best of the best Airbnb listings. Airbnb became the darling of many tech investors because of its unique and solid business model and today Airbnb is said to be valued at $13 billion.
Airbnb's customer segments are divided into two interdependent groups: guests and hosts.
The guests are travelers who are looking for a new way to travel. The guests may be budget travelers, families looking for alternative accommodation, business travelers looking for long term rentals, or adventure seekers looking for accommodation out with the traditional hospitality sector.
Airbnb's hosts are typically residential homeowners looking to rent out space in return for currency. They may also be small business owners who rent out accommodation to travelers in return for currency. These small businesses may be bed and breakfast owners or short term leasing agents.
Airbnb's business model requires each group to be present because a multi-sided platform is only successful for travelers if there are owners willing to lease their rooms and vice versa.
During their most recent phase, Airbnb has used three main channels to grow their customer base. They use a combination of online advertising, worth of mouth referrals and public relations mastery to market their platform.
Airbnb's online advertising is very visible, and they use a large network of affiliates and other paid advertising to raise and maintain visibility. They chose this approach over traditional SEO methods because they realized that they were nearly a decade behind their competitors. It was unlikely that they would ever be prioritized over companies like TripAdvisor in the search rankings.
Airbnb works hard to develop relationships with their hosts by creating both online events and offline opportunities for their hosts.
Airbnb also has to focus on maintaining positive relationships with their renters. They are keenly aware that their customers have many options when choosing to travel.
Airbnb's value proposition is diverse because of its multi-sided platform for customer segments.
For travelers, the value proposition mainly includes:
The ability to book unique properties
The ability to fully customize a search by room, price, size and amenities
A personal service based on the customer culture of valuing cultural exchange
The reliability of an independent platform containing properties that have been reviewed by other customers
For hosts, the value proposition includes:
The ability to create income from renting his apartment
Success based service fees that only occur if the apartment is rented
Trustworthy travelers as both travelers and renters are reviewed
Airbnb's key activities are mostly devoted to the development and maintenance of its platform. When Airbnb is developing its platform, it is looking for technological developments as well as the development of their online community. Product development is key for Airbnb. They are known for having some of the best developers and designers to work on their website.
When Airbnb are developing their community, they are simultaneously contributing to their product. The community management side of the business requires online and offline interaction. Airbnb has employed several country managers across the world to nurture their communities in key markets. They are able to both recruit more key customers as well as take valuable feedback from their community. This feedback can then be sent back to their platform development team.
Airbnb received impressive amounts of capital from some of the most well-known hedge funds and venture capitalists. The money allows growing the business by covering operating costs.
It also attracts some of the most talented people in technology to come and work on the team. The major ingredient to success for Airbnb is its talented people.
Airbnb has to ensure that it makes tourism boards and local governments their key partners.
Airbnb often operates in a legal gray area in many countries. This is not because they do something illegal, it is because it is an innovation that local governments haven't decided how to regulate yet.
Airbnb has three main costs: marketing, technology and sales. The technology costs include server space as well as programming and maintenance.
Marketing is one of Airbnb's biggest cost drivers because they are voracious spenders on online advertising. Their sales costs include the salaries and operating expenses of country managers in key markets.
Airbnb takes most of its revenue from the commission charged to the renter and the property owner. They make their commission clear and refrain from raising it when possible.
The biggest issue with the revenue model is that it is technically very easy for hosts to list their property for free and then make bookings and take payments offline. Airbnb screens messages to ensure that neither party is exchanging contact information before the booking has been paid for through the Airbnb platform.
CPO & Co-founder
info: Joe earned dual degrees in Graphic Design and Industrial Design. He is involved in developing the company culture, shaping the product design, and innovating future growth opportunities.
CEO & Co-founder
info: Brian received a Bachelor of Fine Arts in Industrial Design. He drives AirBnB's vision, strategy and growth.
CTO & Co-founder
info: Nathan received a degree in Computer Science from Harvard University and worked with Microsoft, OPNET Technologies and Batiq before becoming a co-founder at Airbnb. He oversees the technical strategy of the company, and is dedicated to building a world-class engineering team to keep Airbnb ahead its competitors.