Reservations About AirBnB

the ground floor to the top bunk. It's Airbnb on the brink. So Ariel today we're talking about Airbnb. We are, and uh, you know, I'm a traveler. I've used Airbnb before, have you once? So we have both used Airbnb. Before this episode, I had not actually really looked in to the history of Airbnb because it was just it was part of the sharing economy. It kind of for me, got lumped in with Uber and other things that, to some degree or another tend to get lumped in with

the shared economy. So let's talk about where this company came from. Who started Airbnb? Well, it was founded by Brian Chesky and Joe Gebbia and eventually another gentleman, Nathan Blackhard. I have no idea that's the right way of pronouncing. We were butchering his name, but good reliable Nathan Nathan back in two thousand and eight. But they actually had the idea like a year earlier. So airbnb is only about ten years old as of recording this episode. And

the idea came out of necessity. So you had Joe and Brian who were living together an apartment in San Francisco, one of the most expensive places to live on the plan, yes, and they were struggling to make rent. And I'm sure that is a case that a lot of folks out there can identify with. So they came up with an idea sort of. This wasn't even a permanent solution. This

was literally an opportunity in front of them. Yeah. In September seven, Joe emailed Brian because they're living together, and said, Hey, I thought of a way to make a few extra bucks. Let's buy some air mattresses and rent out. Are a little bit a loft to people who are coming in town for designers conference because hotels are getting kind of scarce. We can give them breakfast and maybe tore them around the city and um, make a few extra bucks for Yeah. In fact, that was the U r L airbed and

breakfast dot com. And how much did it cost to stay on a air mattress in these guys apartment with breakfast and maybe touring of the city, don't forget a cost eighty dollars. Not bad for San Francisco, actually not at all. So then they had to go for one of the events that has become at least for a while, it was really really, really important, especially in the tech space.

I don't know if I would argue it's just as important today as it was maybe a few years ago, but that would be south By Southwest, And so they decided this was a good spot to give it another shot. And how many people did they manage to land at that auspicious launch to customers and one of them was a founder was they really was kind of only one customer, um, but they did get, you know a little bit of

good out of south By Southwest. They connected with the CEO of Justin TV, Michael Siebel, who kind of became their friend and helped advise them from that point on. Now they were looking at ways to perhaps attract more people. One of the things they were concerned with was that perhaps they had made the interface a little too complicated.

And we've seen this over and over with user interfaces where it comes pies keep working to try and simplify that, to remove as many steps as possible, because the fewer steps you have, the more customers you tend to land. I mean, that's why Amazon has that buy it with

one click button. So they did a kind of a redesign there, and how many like this, Like they just keep asking me all of this trivia about what I've written because because you wrote it, because you wrote it, how many people per day We're we're visiting the site, um, about fifty people a day, and that's not great. It's not great. And out of those fifty people, they're only

getting right. So this is clearly very slow starter. And and in fact, I think a lot of people at this point probably would say we're gonna pull up stakes before it gets we're too deep. But um, these folks didn't. They took their tool I was not doing well and brought it to fifteen investors and out of those fifteen they got eight rejections. Okay, and then the rest just didn't respond to them. Yeah. Yeah, And all this time, you know, they're trying to keep their business running. They

really believe in this idea. But now they're in debt and they're broke. Yeah. Brian had built up about twenty five thousand dollars in credit card debt. Yeah, and I've I've read some accounts that said Joe had about the same and other accounts where they said they only had like thirty candid But it's still a lot of debt if you don't have money and you're struggling to make rent. They said that they had binders like the kind you would collect baseball cards in, except they were filled with

credit cards. Yeah. Yeah, but they still they still did not give up there, like the little engine that could. Yeah. So they decide to try for another big event. So this particular event that they were looking at was the Democratic National Convention, another huge event, and they launched a new website in line with the two thousand eight DNC and they got eighty bookings out of it, you know, is a little bit of an improvement. Yeah. And then

they had a crazy marketing idea they did. They bought a bunch of really cheap Cereal, and they had a friend print up a bunch of cereal boxes. And these cereal boxes were filled with the really cheap cereal. But the boxes themselves said Obamas and Kata McCain's to kind of play to the people who are at the d n C. And then they put their company info on it as well, and then a number. Because these were limited edition boxes, they could only afford to make, you know,

so many of them. Yeah, And they ended up selling them for forty dollars each. Yes. And the crazy thing is Obama Ow's sold out. It was a prediction, I guess for the Yeah. Yeah, kept mckaines didn't sell out, which is actually good for them. We'll get to that point. Um. But they raced around thirty dollars um and they put it back in the company to pay off debt. They had only made like five k by this time, like five dollars, yes, So they were not making enough money

to pay their day to day living costs. So so Nathan said, buy you guys, peace, he says, And so yeah, we're talking. They're still in debt. They had paid off some of it, but they were still they still had a good amount of debt going. They were not making enough revenue to pay their living costs. And remember this all started off as a way to try and pay off rent. Yes, so they were not even making enough to buy food. They were living off of leftover dry

McCain cereal. They wouldn't even buy milk, Yeah, just just crunching on druy crunchy McCain. I did that the other day. I made a bowl of Simantos crunch in the morning and then found out we didn't have milk. And that was a sad, sad experience. It is. That's because you've already committed, you've gone from box to bowl and yet yeah, and you know, I've been there. I've tried to put the cereal back into the box and it never goes well.

So these guys they had a choice. Did they continue forward or did they try to put the cereal in the box? Well will? I mean, you already know because their B and B still a thing. But we're going to explain how that happened in just a moment. But first, let's take a quick break to thank our sponsor. Okay, so we've got our co founders living off of leftover marketing materials and still struggling to make ends meet. What comes next? All right, so you know they're they're still

not giving up. And their friend Michael Siebel, who they met at south By Southwest from Justin TV, said, you guys should join the Y Combinator. Yeah. That's the incubator company that helps startups and it typically connects the entrepreneurs who have founded a business with potential investors. Yes and uh. He even went as far as to call it Paul Graham, the founder of the Y Combinator, to have him extend the deadline for them to apply because it had just passed.

But Brian and Joe didn't really want to because they had some customers and they had already launched or five times. But they did. They did, and good old reliable Nathan comes back out to join them for the big pitch. Yeah. Yeah, and their interview did not go super well. Um and and in fact, Joe wanted to pack some of their Capta McCain's with him, and the guys are like, no, don't do that. You've just got to give your pitch at Y Combinator. You just have to give your pitch,

no presentation. Yeah, you're not supposed to have any other materials that could possibly sway somebody, but he snuck it in and when their presentation didn't go well, he gave the cereal to Paul, and Paul realized that these these boys just don't give up, and he said that if you can convince somebody to fork over forty dollars for some cheap cereal, maybe you can make this work. Yeah. Yeah, So there's another thing about y combinator. Once you're given

an offer to join, you have to accept it right away. Yeah, there's no deliberating. And so they're on their way back home to San Francisco when they get that call and they have to make the decision do they go with it or do they decide to try and strike out, keep going at it on their own. Yes, And they actually lost connection with the call on the way and had to get the call back, but they did accept and they received twenty dollars seed money for joining, and

then they got Nathan to rejoin the company. So the three amigos are back again. And then uh in two thousand nine, they were still working on making, you know, adjustments to Airbnb or what would become Airbnb. They had that twenty dollars of seed funding, which is really not that much when you look at some of the initial seed investments in companies. Yeah, but it's more than they had been making by a substantial amount. They kept on looking for more investors. They kept finding a lot of

closed doors in the way. Yes, people kept getting hung up on the name airbed and Breakfast, which I don't blame them. Yeah. They also looked for ways to make the service more attractive, like literally look more attractive. Yes. Yes, Paul had told them to go and visit their clients. So the people who are posting available spaces, available spaces, they're known as hosts in the airbnb speak. Yes, and he told them to go visit these hosts, take professional

pictures of their homes. Yeah, not just those little cell phone images that were popping up. Remember this is also in two thousand nine when the cameras on cell phones were not as good as they are today. Yeah, and you know, get to know these people one by one, make reviews of their home, get feedback from them. So they did. They went in and they took quote unquote professional pictures of all these homes and rooms and rooms and posted them and made everybody's profiles that they could

look much better now. This actually did have an effect. They actually saw an increase in bookings and they doubled their revenues, which sounds impressive until you know how much they were making to start with four hundred dollars a week. Yeah, and that was the doubled amount. Previously they had been making two hundred dollars a week, so between three people,

four dollars a week. Not a runaway success yet, but they were still determined to give this as hard a shot as they could, and it was in March of two thousand nine that they finally changed that name of air bed and Breakfast to Airbnb, and that helped a little bit. And then they also started to include the ability to do vacation rentals through Airbnb, yes, whole apartments

and houses and the like. And then in April two nine, these changes really paid off because they got an investor in Sequoia Capital, who gave them six hundred thousand dollars of startup money, right, and finally they were able to really push for a good start up. There was also another thing that happened around then. The recession that had hit. The economic recession was starting to finally kind of we're coming out of that. So that helped them as well.

You had people who suddenly felt like they could afford to go on trips, yes, and they had a cheaper way to do so. Yeah. So the thing to remember about airbnb the thing that the value proposition right, because you sit there and you think about the service that Airbnb actually does, because you think, well, the hosts own the property, right, they're renting it out. The guests are the ones handing over money to rent that property. So

where does Airbnb come in. Well, they act as the platform for the hosts, and they elevate that property so that more people can see it. And that's where the real value is. Because obviously, if you wanted to just put up a room for rent, then you were doing it in some either like local papers or Craigslist or some other service. It might be hard to discover your property. So this was something that once it caught on, people really saw the value. So as a host, it was

valuable because more people saw the potential rental property. As a customer, as a traveler, it was valuable because now you suddenly saw what your options were in the city you were traveling to, and you suddenly could say all right, well, we don't have to stay in a hotel. There's house and it's really close to the places we want to go to, and it's cheaper. Let's stay there instead. Yeah, and this is good because it meant that Brian and Joe and Nathan could now pay their own living expenses.

So comes around and the company is on the rise. It's it's now getting more widespread adoption, helped in no small part by the fact that they were able to get an app in the iPhone App Store, which was pretty brand new in like that the brand, the app Store, I think launched in two thousand eight, late two thousand eight, so this was not too long after the apps were first available. Yes, And then in two thousand eleven they

hit one million nights booked. Not bad, No, and they were in eighty nine countries, which is also not bad. They went back to south By Southwest, Yes, where they won the Breakout Mobile App Award, And they also were able to land more investment money, and it was this time princely sum. Indeed, before it was six dollars, this time one million dollars, which bumped their value to one billion dollars, approximately a billion dollar company. This to me

is one of the most phenomenal stories I've heard. You know, we talk in business about the concept of the unicorn. That's the startup, the billion dollar startup. You know, it took a couple of years. But when you again, when you go to barely able to stay out of debt to a billion dollar company in that short amount of time, it is a phenomenal story. Yeah. Yeah, then you're not

necessarily make believe unicorn, You're in normal Yeah. And and in May two thousand eleven, Airbnb got a celebrity investor. That's when actor Ashton Kutcher would invest what was called a significant amount of money in the company and was named a strategic advisor. Um. Not many people realize this, but Kutcher is known for his investments in the business world. He's actually, from what I understand, not just business savvy,

but very tech savvy as well. And he saw the value in this and he decided to also invest at this time. Yes. And then in two thousand twelve, they did something really good for the people who host on their site. They implemented a host coverage policy called a host guarantee. But they did this because the people who were releasing their their space. We're having issues. Some of

the renters were trashing their location. Yeah, they would have like they would rent out an Airbnb and then throw a wild party in there yeah yeah, or in some cases use it for a brothel. Yeah, there were questionable uses, and Airbnb, in an effort to try and make sure that it was heading off any potential lawsuits or liability issues, creates this policy which is now essentially an insurance policy of like a million dollar insurance policy to protect the

property of homeowners and hosts. Although there are a lot of qualifiers on that policy, so it's not like it's cart blaunch and though it's cash, art and pets are not covered, yeah, and and common areas are not covered, so it's not like it's, you know, you find a scratch on a table and suddenly you get a million dollars and normal wearing tear is not covered. And they do encourage you to try to work it out with

the person who leases your space first. Um. But they also instituted our support logistic teams, compliance teams, and local area teams. And this is because they didn't really have

a company structure. Yeah, they kind of just did everything as they could themselves, and then when they couldn't anymore, they'd hire more people in, but there wasn't great communication or plans or this is what this is sometimes what happens when you've got like a small group of people who come up with an idea and then it grows exponentially very quickly, like you might have an idea that's easy to launch but difficult to maintain once it gets

up to a certain scale. So they began to invest in the business and start to build out teams for leadership in order to actually be good stewards of the business and help it grow in a way that was sustainable. Yes um. And then also in two thousand and twelve, they added wish lists for places you want to stay, so if you're looking around on Airbnb and popping around, you can see, oh, there's this really cool place that I want to go and put it on your wish

list UM to go in the future. And they helped with Hurricane Sandy. They worked with the State of New York to provide a disaster relief tool where people could basically give their space for free to people who are escaping the hurricane, saying I have space available if you need a place to stay, which happened this year with Hurricane Florence as well. Yeah, we got a little bit more to talk about with Airbnb, but we'll do that right after we come back from this break for our sponsor. Okay.

So they're starting to come across some problems as their business grows, as all businesses do, growing pains, um And now they start running into this new problem and it's one that they're still struggling with today. They start coming against rental regulations cities and states and countries. We're having issues with people renting out their personal homes and apartments because it was conflicting with rental laws in that area and hotel laws, um. And some hosts are even getting

evicted for using their residences as Airbnb destinations. Yeah. So you know, you also had established industries like the hospitality industry and various cities can be very very powerful, and there are regulations there for a reason. They're there to protect people from predatory business practices. It's it's the reason that the regulations are there are because without them there, people can get harmed in some way, whether it's financially,

the sly, whatever it may be. And Airbnb was appearing

to sidestep that, and some people were taking advantage of it. So, for example, if I happen to own a building that's filled with apartments and I'm collecting two thousand dollars per apartment per month, but I could rent out each of those rooms for two hundred bucks a night, then suddenly, economically it makes way more sense for me to clear out that building and operate it as a hotel, essentially using Airbnb as my front end, because even after they

take their cut, I'm still going to make more money than I would as a landlord. And that was a big fear was that there were landlords who were doing something similar. Maybe it's not a full apartment building, maybe it's a duplex house that has multiple apartments built into it, and that became a big concern, and hotels were saying, hey, this isn't fair. They're they're not held to the same

regulations that we are. They're undercutting our business. We have to still adhere to the regulations and they're doing the same thing we're doing. It's just that they don't have to play by the same rules. And they're also saying, hey, they're cutting into your tax money because they're not paying taxes on this. Yeah. So this this is also something that we see in general in the sharing economy as well, Like we've seen this with Uber and lift and taxis yeah, yeah,

and limited limousine companies as well. So we're still seeing that kind of shake out. And this is a really complicated issue. It is because it's not like there's a blanket response for every incident. Every city is different, countries are different. Yeah, some some city states and countries welcome Airbnb and others say, oh, please know you're hurting our economy. And I think Airbnb is a very valuable service. I can also see the point of view of some of

the critics. Not all the critics are regulatory agencies. Sometimes it's people who live in certain neighborhoods, right, they're saying that it's gentrifying their neighborhood or taking up all their parking, or is just too loud, yeah, or they don't know who's living next to them, and and things are driving up the price of living in some areas, and that that which goes in with your gentrification that you were saying, like, that's you know, we've seen that happen here in Atlanta

quite a bit, where we've seen whole neighborhoods that get transformed to the point where the people who are living there can't afford to live there anymore. And uh, and while there are benefits to gentrification, you have to look at all the consequences, not just the good ones. Yeah, they've started some worldwide home sharing clubs so that the people who are sharing their homes and the people in the community can get involved and help find these solutions.

They've also put into their company fees to collect hotel taxes in the in the cities like San Francisco and Portland where that is required. So that's currently where they are. Last year, they're up to three million rentals worldwide in one countries and thousand cities. So the story I would say here is that you had some people who had a good idea. They didn't know exactly how to implement it so that it would have the most effective impact, but they stuck with it even in the face of

destitution and starvation. Well, I'm glad we were able to cover this. I look forward to revisiting it. Perhaps in the future, maybe we'll see another Brink moment when the company is a couple of years older. I always like to, you know, leave our options open, just in case there's something that develops after we record this. Sadly, the world does not stop after we record an episode. We're gonna work on that, but until next time, I have been

Jonathan Strickling and I've been aerial casting. If you would like to learn more about what we've talked about as well keep track of all of our episodes, make sure you visit our website at the Brink Podcast dot show, or you can email us at Feedback at the Brink podcast dot show