Airbnb Inc.: From air mattresses and breakfast cereals to spearheading the sharing economy

written on December 16, 2020

Known for enticing guests out of conventional hotels and into people’s spare rooms, connecting both high spenders and penny pincher travellers with hosts worldwide, Airbnb has become one of the greatest travel innovations of the 21st century. And what started as a simple solution to avoid eviction a few years ago, has since grown into a multi-billion-dollar corporation that has transformed the travel and tourism industries across the globe, spearheading growth of the sharing economy.

Now, approximately 13 years after the concept was born, its market value exceeds that of travel giants and Expedia, beating all expectations and reaching a much-anticipated milestone of becoming a publicly listed company a mere 10 months after the COVID-19 pandemic turned the travel industry upside down.

A brief history of Airbnb

After moving to San Francisco in 2007, roommates and close friends Brian Chesky and Joe Gebbia were racking their brains for a solution to paying the rent. They creatively came up with the idea of placing an air mattress in their living room and turning the area into a bed and breakfast. In February 2008, Nathan Blecharczyk joined as the third co-founder of the new venture which they named Airbed & Breakfast and set out to officially launch their website a few months later. Their first customers were visitors to the Industrial Design Conference who were unable to find accommodation in the city and opted instead to sleep on the founders’ floor.

With the US election at full force the same year, Gebbia and Chesky put their marketing chops to work by selling boxes of repackaged generic cereals they named Obama O’s and Cap’n McCain’s in reference to the two presidential candidates at the time. Marketed as ‘limited edition’, each box sold for $40, generating $30,000 which was used to fund the company’s operations.

In 2009, they partnered with Y Combinator, an American seed money start-up accelerator, to expand the company’s limited offering, refine their product and attract additional venture capital, while they simplified their original moniker to the current Airbnb. At the same time, they added a wider variety of properties to air beds and shared spaces like private rooms, as well as entire homes and properties. By March of that year, the platform had 10,000 users and 2,500 listings.

Wondering where the ‘Air’ in the Airbnb came along? It plays homage to that very first air mattress they rented out, a tribute to the company’s roots, while Airbnb is a shortened version of its original name - Airbed & Breakfast.

The following decade began with a bang as its mobile app nabbed the app award in the South by Southwest conference, while a string of Airbnb offices opened their doors in all corners of the world from London, Paris, Barcelona and Copenhagen to Moscow and Sao Paulo. In 2011 Airbnb achieved a unicorn status and by 2013, it had served 9,000,000 guests since its founding, adding nearly 250,000 properties that year alone. In 2014, Airbnb redesigned its website and logo. Dubbed the Bélo, the logo serves as a symbol of ‘belonging’, showcasing four distinct elements – a head, which represents people, a location icon which portrays a place, a heart that symbolises love and the letter A that refers to the company’s name.

The company went on to roll out Airbnb Plus, a collection of homes praised for their quality services, comfort and design and Beyond by Airbnb, a service that offers luxury vacation rentals. By October of 2019, around two million individuals were staying at an Airbnb each night.

The company has also made a number of notable acquisitions which boosted its offering further. In 2011 it acquired German competitor Accoleo, which helped it launch its first international Airbnb office in Hamburg, while just before the 2012 Summer Olympics, it acquired the London-based rival CrashPadder that saw it add an extra 6,000 international listings to its existing inventory, transforming it into the largest lodging website in the UK. In 2017, it bought Canadian-based villa rental company Luxury Retreats International for approximately $300 million, whereas in August 2019, it acquired Urbandoor, a global online marketplace offering extended stays to corporate clients.

In less than 15 years, Airbnb has grown from 2 hosts to more than 4 million, hosting over 800 million guests in around 100,000 cities in over 220 countries and regions across the globe. With 5.6 million active listings worldwide as of September 2020, the company offers all sorts of lodging ranging from cabins, farms and tiny homes to boats, castles and unusual accommodation options like yurts, treehouses, private islands, lighthouses and igloos. Yet its services go a step further with listings for unique experiences with local experts that can be held both in person and online.

Fun fact

The smallest accommodation to be listed ever on Airbnb was a one square meter waterproof construction located in Berlin, Germany. The one-euro-a night lodging on wheels included a bed, a desk and a chair, which also held the record for being the cheapest listing in Europe. A similar unit was also built and listed on Airbnb, this time located in Boston, Massachusetts.

When did Airbnb go public?

One of the most hotly anticipated IPOs of the year, Airbnb went public on December 10, 2020, with its shares opening at $146 a share, way above the expected range of $56-$60 per share range. The opening price marks a 115% increase above the IPO price, while the company’s debut on the Nasdaq gave Airbnb a valuation of over $100 billion, making it one of the largest IPOs of 2020. Airbnb raised about $3.5 billion during its IPO.

Is Airbnb a buy?

With the COVID-19 pandemic bringing travelling to a halt to much of the world, industries such as airlines, hotels, restaurants, as well as all sorts of leisure facilities have been heavily impacted. Airbnb was no different. With its business model exposed and bookings fallen off a cliff with an estimated 41% to 96% drop, the company lowered its internal valuation from $31 billion to $26 billion, while it was forced to lay off close to 25% of its workforce in the Americas, Europe and Asia. During the pandemic, the company also updated its cancellation policy to allow guests to cancel their reservation for a full refund worldwide. The decision was met with much furore by hosts, however, Airbnb pledged that it would pay 25% of what they would normally receive through the cancellation policy, setting aside $250 million for this cause.

However, after a steep drop, third-quarter 2020 revenues have recovered sharply. It reported $219 million in profit as the business began to bounce back from the effects of the pandemic travel slowdown. Despite limited international travel, local bookings have seen a rise as people are eager to experience a change of scene and get out of their homes, while the lines between travel and living are blurring as the pandemic has boosted employees’ ability to live anywhere, encouraging nomadism. And according to reports, home rentals have outperformed hotels in several global markets since the onset of the pandemic.

A clear indication that its business model is on the rebound, Airbnb appears to be able to turn an operating profit, demonstrating resilience.

What’s next for Airbnb?

Whereas Airbnb may be known for its rental lodgings, the company has branched out through its Airbnb Experiences, which have seen an increased focus most especially during 2020. With more than 50,000 activities, these one-of-a-kind events hosted by local experts go beyond typical tours or classes and allow users to experience a variety of activities ranging from mole making cooking classes with an indigenous cook in Mexico City, walking among penguins with a conservationist in South Africa, attending a music and cultural tour of Havana with a local D.J. or attending a song writing session in Nashville, to name a few.

During the pandemic, many of these experiences went online, so much so that today, it has 700 virtual experiences, which have generated $2 million in bookings over the past five months. Thanks to these experiences, so-called armchair travellers can make their own pasta, attend virtual tango lessons or get a high-intensity interval training workout with an Olympic athlete.

Airbnb experiences may be a good avenue for revenue, but with vaccines for COVID-19 rolling out soon, the recovery for the travel industry looks not as far as once expected. And although hugely fragmented, Airbnb has managed to consolidate the home and apartment holiday and travel rental market. With its performance beating Wall Street expectations, analysts expect the brand to grow 35% per year and earn $6 billion in revenues by 2022, ultimately retaining its near-monopoly in the home-sharing industry.

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