Rise of Airbnb Hospitality Industry

The Rise of Airbnb: Taking Over the Hospitality Industry

 

Airbnb was founded in 2008 with just a single listing. A little over a decade later, you can browse close to two million listings, which includes over 30,000 tiny houses and 5,000 castles.

About 150 million users offer up their homes and properties in over 65,000 cities across the globe. That’s quite the operation..

So, how did Airbnb go from renting a single room with an air mattress to a $31 billion company with millions of listings? Here is a closer look at what it took for the founders of Airbnb to disrupt the hospitality industry.

 

 
rent out apartment

Renting Out an Apartment to Cover Rent

 

The story of Airbnb starts in 2007 in San Francisco. Brian Chesky and Joe Gebbia were designers that met at the Rhode Island School of Design and moved out west after college. As with many young professionals in Silicon Valley, Chesky and Gebbia were struggling to pay their steep rent.

On September 22, 2007, Gebbia sent an email to Chesky with a plan for making a few bucks. He suggested that they rent out their living room to designers coming to town for the International Design Conference the following summer.

The pair bought three air mattresses and set up a sleeping area for guests. They would charge $80 and provide internet access, a small desk, and breakfast. Chesky and Gebbia basically turned their rental into a bed and breakfast aimed at designers.

Chesky and Gebbia understood that hotels in the area tend to fill up quickly during tech conferences. Young designers would need an affordable place to stay.

To help with the design of the website and logistics of running a business, Chesky and Gebbia enlisted a former roommate – Nathan Blecharczyk. Blecharczyk became the Chief Technology Officer and cofounder of the venture.

The budding entrepreneurs officially launched Airbedandbreakfast.com on August 11, 2008.

During the summer of 2008, they welcomed their first three guests. The group realized that they had a potentially profitable concept. Instead of just making enough money to cover their rent, they could spin this idea into a new business.

While the three entrepreneurs had a great idea for a business, they still needed backers to fund their startup.

 
turn a profit

Struggling to Attract Investors and Make a Profit

 

After the International Design Conference, Chesky, Gebbia, and Blecharczyk explored various ways to break into the hospitality industry, including a roommate-matching service.

The group worked on roommate-matching services for several months before realizing that the market was already covered by Roommates.com. They soon went back to work on their initial business idea.

After an unsuccessful relaunch of Airbnb, the group took their idea to the 2008 SXSW festival in Austin, Texas. Unfortunately, they only attracted two customers and one of them was Brian Chesky.

By the summer of 2008, the group had redesigned their website yet again. They streamlined the booking process, allowing guests to book properties with just three clicks of the mouse. The new design still failed to wow any investors.

The group presented their idea to 15 angel investors. Seven of the investors completely ignored the pitch while the remaining eight passed on the idea.

At this point, many entrepreneurs would give up. However, any successful business owner can tell you that launching a business requires a strong commitment. If you have a business idea that you believe in, you stick with it even when others fail to recognize your vision.

 

Developing a Business Model in an Incubator

 

While the group struggled to attract investors, one venture capitalist recognized the potential for Airbnb. Computer programmer Paul Graham leads Y Combinator, a startup incubator in New York.

Incubators have become a common source for the development of startups and early stage companies. They tend to provide resources that new companies need to succeed, such as capital, business connections, and a solid business plan.

Graham invited the founders to join him in New York. The group would receive funding and training in exchange for a small stake in the new company.

The Airbnb founders flew to New York to join Y Combinator, which had already helped a variety of entrepreneurs launch successful businesses. Stripe, Reddit, DoorDash, Twitch, InstaCart, and Coinbase are a few of the biggest success stories.

After using Y Combinator to develop their business model and promote their new website, the group returned to the west coast to seek investors and carve out a niche in the hospitality industry.

 

Providing Travelers with Alternatives to Hotels

 

After returning to the west coast, the founders raised $600,000 in funding from Sequoia Capital. The following year, they raised about $7.2 million in a series of funding led by Sequoia Capital and Greylock Partners.

The group had the money they needed to launch the company that they envisioned. The next step was to find out if the public was interested in their service.

People that want to stay close to popular attractions or in remote areas have limited options. The hospitality industry is mostly comprised of major hotel chains and resorts. Small bed and breakfasts only cover a portion of the market.

Airbnb fills the gap between expensive bed and breakfasts and bland hotel chains. The company gives people another option for finding lodging almost anywhere in the world.

It did not take long for Airbnb to start attracting hosts and guests. By 2011, they had listings in countries across the globe. However, it was still a primarily US-based operation. To expand their reach, the founders started acquiring rival companies in foreign countries.

The acquisitions started with the takeover of Accoleo, a German competitor. The acquisition of Accoleo led to the establishment of Airbnb’s first international office in Hamburg.

By October 2013, the company had served over nine million guests across the world.

 
airbnb housing cost

Facing Backlash From Locals and Governments

 

While travelers and property owners seem to love Airbnb, some groups have publicly criticized the company. Locals have complained about increased rental prices in areas with an abundance of Airbnb properties. Governments have also gotten involved, exploring the idea of mandatory registration for hosts to cut down on the number of guests.

The concern comes from the fact that some residential areas in popular tourist destinations have become overrun with Airbnb listings. Instead of looking for long-term tenants, property owners can make more money by listing their properties on Airbnb. This tends to drive up the rental prices in the area.

Instead of fighting the backlash, Airbnb has accepted it. The company recognizes the potential impact of listings, which is why they continuously work with local authorities to develop a balance between renting out homes and protecting long-term rental prices.

Despite the concerns of locals, the demand for Airbnb and other home-sharing platforms continues to increase dramatically. Hotel companies are even jumping on the bandwagon.

Marriott International states that they plan to become the first hotel chain to launch a home-sharing business. Hyatt and Hilton are also exploring home rentals.

As hotel chains try to reach into Airbnb’s market, the company is starting to branch out into the hotel business. The company recently purchased commercial properties in Manhattan that they plan to convert into high-end apartment suites.

 
covid business impact

A Pandemic Puts a Hold on IPO Plans

 

Everything was going great for Airbnb and the founders were ready to take their company public. They had announced plans for an initial public offering (IPO) with the company valued at $31 billion.

Unfortunately, COVID-19 hit. The pandemic and associated lockdowns put a hold on the economy. As with most businesses in the hospitality industry, Airbnb suffered significant decreases in bookings.

During the peak of the 2020 lockdowns, the company suffered between a 41% and 96% drop in bookings. The company had to lower its internal valuation from about $31 billion to $26 billion.

In May 2020, the company had to start laying off employees. Things were spiraling downward, leading many analysts to predict the end of Airbnb.

As summer started, people around the world were growing tired of staying at home due to the virus. People were ready to vacation and needed a safe place to stay.

They instituted new policies for hosts, including disinfecting surfaces before and after guests arrive. Bookings are gradually starting to pick back up, providing a light at the end of the tunnel.

The founders realized that they could adapt to the pandemic and keep their plans for an IPO. On August 19, 2020, they announced that they had filed documents to begin the Airbnb IPO.

Perseverance and demand from consumers has helped them weather the storm. The pandemic is unlikely to last forever. As more people feel comfortable traveling, Airbnb is likely to remain one of the top sources for vacation rentals.

 

Last Thoughts on the Rise & Continued Success of Airbnb

 

Any entrepreneur can learn a thing or two from the story of Airbnb. The founders discovered something that was missing in a multi-billion-dollar industry and catered to the needs of the public. They gave people an alternative that offers a more intimate, personal setting compared to hotels and resorts.

Airbnb also swallowed up competitors to increase their global reach, which is a common tactic for major companies. Instead of competing in markets that they are not familiar with, they purchased established businesses to get their feet in the door.

In the end, Airbnb is a success story due to its unique offering. It allows travelers to stay in homes and private properties instead of another hotel chain or resort. You can rent properties almost anywhere in the world and live like a local.

 

 
 

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The Rise of Airbnb: Taking Over the Hospitality Industry