What’s Up Wednesday 4/10/19

Airbnb’s Incredible Growth

Amazingly, Airbnb recently announced it had provided lodging services to its 500 millionth guest.  That is an incredible accomplishment.  Considering the company only began offering services in 2008, to reach 500 million guests in the year 2019, is simply remarkable.  Airbnb is one of the true success stories of America’s recent high-profile tech startups.

Like many well-known startups, Airbnb is headquartered in the San Francisco Bay Area and has its origins offering a service to local Bay Area residents.  Operations started small, local, and then grew from there.  In a sense, the company started in the same way as many others that came before it.  In a way, Airbnb is not so different than many of the other modern innovative services that started in a specific geographic market.  It’s very similar to what occurred with another well-known Bay Area company; that company is Craigslist.  A service that started as something very simple and then turned into a fantastic large-scale business.  

The reason Airbnb had its origins in the Bay Area and experienced such great success is due to simple market conditions.   Lodging in the Bay Area is so in demand and extremely expensive that renting out extra space for short term stays makes a lot sense.  It’s a way for travelers to pay a little less than the going rates for hotels and it’s a way for people suffering from exorbitant mortgage payments to make some additional income leveraging their extra space. The ability to rent their spare rooms to guests on a short-term basis.

Since its founding in 2008, the company has gone through 15 rounds of funding with a total of 53 investors.  Airbnb procured a total of $4.4 billion in venture financing through all these rounds of financing.  Funding was obtained from some of the largest and well-known private equity sources including Sequoia Capital and Y Combinator.

Today, Airbnb has lodging offerings available in 81,000 cities and 191 countries.  That’s an amazing record of success in such a short period of time.  Growth rates have however slowed as others have entered the space.  Travel entities such as Expedia, HomeAway and Booking are examples of the competitors.  Airbnb enjoyed such great success that others were sure to follow.  It’s such a great business model, offering rentals without incurring the typical highly leveraged aspects of the lodging business.  Airbnb essentially acts as the broker between the host and the guest.  Airbnb simply serves as the marketplace. 

There are of course some negatives as well.  Since Airbnb doesn’t have the typically tight real estate ownership controls, as is the case with hotel chains for example, there can be privacy concerns.  We’ve seen this occur several times in highly publicized cases where guests staying in an Airbnb have found hidden cameras in their rentals.  Sometimes these cameras have even been found in ultra-disturbing locations like bedrooms and bathrooms.  So obviously, without the ability to tightly control real estate spaces where guests are staying, there will be some privacy abuses.  It’s an unfortunate byproduct of having such an open platform where anyone can easily sign-up and begin offering their room, home, cabin, condo, etc. to guests.

Success of Airbnb also gave rise to similar startup services in other industries.   One of these companies is the automobile rental service Turo.  Turo is similar in concept to Airbnb, but rather than renting someone else’s real estate for a short term stay, you are instead renting another person’s automobile.  Turo is another company that seen terrific growth since its founding in 2009 (total venture funding to date is $187.4 million) and had a national launch in 2012.

We should see more and more of entrepreneurs seeking new ways of putting of twist on traditional on these traditional types of services.  It makes a lot of sense and brings greater efficiencies to the marketplace.  Let’s hope Airbnb continues to see success because from our own experience, it offers a great service.

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