By Adrian Loveridge
It seems almost incomprehensible that a simple impromptu idea, fashioned just ten years ago, has grown into a company that is now estimated at being worth US$31 billion or a higher valuation than Expedia, Hilton or American Airlines.
From the conception days of buying three air mattresses to place on the floor in a loft room to help offset their rental property in San Francisco, the three founders, Brian Chesky, Joe Gebbia and Nathan Clecharczyk are now holding shares, which individually the pundits estimate are presently worth US$3.7 billion.
The company of course is Airbnb.
Despite these staggering figures, last year Airbnb earned ‘just’ US$100 million from US$2.6 billion in revenues or a return of around 4 percent. According to Forbes, its larger publicly traded competitors have margins of about 27 percent.
The concept is a really simple one, connecting people who have vacant homes and apartments with people wanting to rent them. However, not content with accommodation only, the company has diversified into selling guided tours with Experiences and helping with restaurant reservations through its partnership with Resy.
Airbnb’s chief executive officer (CEO), Brian Chesky’s plan, such as it is, is to draw loosely on Amazon for inspiration, turning Airbnb into an everything store, but for travellers. Chesky hopes that a billion people will use Airbnb by 2028 (only another ten years away), which represents a giant leap from the roughly 400 million people who have stayed in an Airbnb registered property in the decade since start-up.
With 100 million people who have already stayed in an Airbnb so far this year, that stated objective certainly does not sound too far-fetched.
What many forget is that Airbnb was not an overnight success story.
Originally called Air Bed and Breakfast, 12 months after the concept was implemented, the founding trio, were only taking 10 to 20 reservations a day. So they turned to seven, so called ‘angel investors’. In return, they received five rejections and two ignored emails. The ‘ask’ at that time was for 10 percent of the company for US$150,000, which would now be worth an estimated US$3 billion at perceived market value.
Apparently the biggest single obstacle in the early days was that potential renters were not comfortable inviting strangers that they had met on the internet to stay in their homes. Or as co-founder, Joe Gebbia, so accurately articulated, “it was a real battle to figure how you can cross this bias that was working against us, that strangers equal danger,” adding, “it’s something that we’ve all been taught since we were kids.”
They began staying with Airbnb hosts to learn what needed to be done, built out a peer review system so people could rate each other, added round-the-clock customer service and dramatically improved the quality of the website linked images.
The company now has over five million property listings and on one single night during August this year, a mind boggling 3.5 million guests stayed at one of those listings.
As the outside competition grows, creating a negative impact on Airbnb’s accommodation supply problem, the speculation mounts in financial circles exactly when the company will be taken public.