Meet Airbnb: The Company That Changed How We Travel

Hey Everyone - Harry here 👋

Welcome to Issue #11 of Deep Dive with Inquisition. In this issue, we cover the story of Airbnb, one of the world’s most famous and widely used online marketplaces for short- and long-term homestays and experiences worldwide, from its founding stories to the strategies it used to become the company it is today.

Early Days of Airbnb:

Airbnb is an online marketplace for short- and long-term homestays and experiences in various countries and regions. Based in San Francisco, California, the company was founded in August 2008 by Brian Chesky, Nathan Blecharczyk, and Joe Gebbia. The trio started the company with the mission “to create a world where anyone can belong anywhere.”

Overview of the Global Lodging, Tourism Experiences Market, and Tourism Market:

1. During 2023, the global hospitality industry was valued at over $4.7 trillion and was forecasted to grow to around $5.5 trillion during 2024.

2. The global hotel and resort industry was valued at $1.5 trillion during 2023, showing a 5% growth compared to the previous year’s figure of $1.43 trillion during 2022.

3. The global travel and tourism industry’s direct contribution to gross domestic product (GDP) was approximately $7.7 trillion during 2022.

4. The global online travel market size reached just under $600 billion during 2023, up from the market size of $225 billion during 2022.

5. Across all global major regions, air travel bookings soared by double digits year-over-year during the first quarter of 2024.

6. AI recommendation tools are being widely used by travelers around the world, especially those from South Korea.

The Rise of Airbnb: How It First Started

Airbnb first started when Brian Chesky and Joe Gebbia came up with the idea of turning their living room into a sleeping area by putting air mattresses and providing breakfast for those who stayed, turning it into a “Bed and Breakfast.” Then, during 2008, Nathan Blecharczyk joined the team as the Chief Technology Officer (CTO) and developed the website known as “Airbedandbreakfast.com” and officially launched the website on August 11th, 2008.

The first customers for Airbed and Breakfast were the attendees of the Industrial Design Conference in San Francisco during 2008. Airbed and Breakfast specifically targeted those who weren’t able to find accommodation in the city but needed a place to sleep for a day or two. However, when it first launched, the company only had two total users, one of whom was Brian Chesky. The founders decided to change the service's website and re-launched it once again during 2008. (Founders - always remember that it is perfectly fine to iterate the launch of your company!)

What do you do when you are in bad credit card debt, have launched and updated the company website three times but only gained little traction, and are starving yourself in order to pay monthly rent for your house? Sell cereals.

Really, this is what the founders of Airbnb did in order to cover their living costs alongside extending the runway for their company. Specifically, Brian and Joe were trying to figure out a way to make money. The company needed money desperately, and an idea struck them: leverage the 2008 U.S. Presidential Election to allow individual supporters of specific political parties to open their houses to other individuals who supported the same political party (e.g., Obama ’08) via Airbnb. Since Airbnb had a critical chicken-and-egg problem, the founders believed this was the best method for gaining a significant number of users and hosts for the platform. Furthermore, since the company’s name was “AirBed and Breakfast,” the founders decided the best way to provide breakfast was simply by giving them cereal.

However, the founders didn’t have enough money for their own rent and food, let alone provide it to their customers… which is why they did the following things below:

1. Reached out to the major cereal manufacturing brands (e.g., Kellogg) and got rejected.

2. Contacted local cereal companies; however, received a quote of over $10,000.

3. Leveraged a network from Brian’s university to print designs for 1,000 cereal boxes and assembled 1,000 boxes with hot glue in their kitchen.

4. Went to the grocery store and bought 50 boxes of cereal every day.

5. Mailed the cereal boxes to the press and ended up selling 30,000 cereal boxes due to the cereal boxes being “Obama O’s” and “Captain McCain’s.”

After raising $30,000 from selling cereals, the founders decided to take their “last shot” and applied to a startup program at Y Combinator (YC). YC is famously known as the world’s biggest accelerator program. Paul Graham, Co-Founder and Partner at YC, interviewed and invited the founders to join the January 2009 batch with funding of $20,000, along with introductions to investors inside and outside of Silicon Valley.

After joining the YC Winter batch, the company worked hard to produce results. Starting in late January 2009, the numbers kept going upward, with the founders making $460 in fees during early February, $897 in the second week, and $1,428 in the third—reaching the ramen profitability stage. (Ramen profitability stage differs for every company; however, for Airbnb during its YC batch stage, it was making $4,000 a month, which the company achieved.)

In March 2009, Airbedandbreakfast was shortened to Airbnb to eliminate confusion with air mattresses (the company experienced its hosts uploading entire rooms and properties, which is why they decided to move to a new name). The site had 10,000 users and 2,500 listings after the founders flew to New York to meet users and promote the site. The founders realized that one of the major reasons why the listings weren’t being closed on the platform was simply due to the poor quality of pictures taken by the hosts—so the founders went directly to the Airbnb hosts and took better quality pictures for them, which resulted in a major uptick in the number of total users and listings on the platform.

How did Airbnb Become One of the Fastest and Biggest Marketplace for Lodging and Tourism Experience platform?

Airbnb’s explosive growth didn’t start on Day 1 or Day 365. However, the explosive growth began when the company achieved ramen profitability after being accepted into YC’s 2009 Winter batch. It wasn’t simply because of "being accepted to YC"; it was due to the grit and creative approach of the founders that led to the majority of the success, along with technical aspects such as having a user-friendly, unique design, a high level of security for enhanced trust between the host and the user, etc.

Specifically, the company focused on providing the best possible design and user experience. The founders were so obsessed with design that they even decided to fly to New York from San Francisco to take professional pictures for the hosts with a listing on the platform because photos, then and even now, matter the most considering the nature of the industry. (When we look at accommodations to book—what do you usually look at? Photos and reviews, right?)

By November 2010, the company had achieved 700,000 bookings—80% of which occurred during the past 6 months after implementing the professional design and picture-focused listing strategy. Since it was founded, Airbnb has achieved operations in over 200 countries and regions, has over 7.7 million active listings from around the world, has hosted over 1 billion guests, and has over 5 million hosts worldwide who, in total, have earned over $250 billion. The company IPO’d in 2020 on the Nasdaq Exchange, holding a market capitalization of $71.74 billion, and generated yearly revenue of over $9.9 billion during 2023.

Below are the strategies that contributed to Airbnb’s growth:

1. Never be scared to try new things:

   → The founders of Airbnb bought 50 $4 cereal boxes every day from cheap grocery stores and created a new cereal brand with designs featuring the faces of the two major presidential candidates in 2008 to pay rent and fund the company. No matter how bad the situation is, there is always a way to not only overcome it but also scale—one of the most needed attributes for founders.

2. Leverage technology to focus on your users and provide the best possible experience:

   → Founders were obsessed and still are obsessed with providing the best possible experience for their users by leveraging technology. With millions of listings for accommodations and experiences, and millions of users interacting with the platform every day—alongside millions of users uploading their listings simultaneously—it is crucial for Airbnb to have strong technology to support this. Not only must the technology support the platform, but it is also essential for the company to make its platform simple yet effective in helping users find their needs and wants. This involves using technology, such as algorithms, to provide relevant search results that lead to bookings.

3. Design and visuals matter more than you think:

   → One of Airbnb’s successes is due to its user-friendly designs and clear visuals of the listings, which include everything users need to know before booking. For example, the platform shows the average rating of the host, providing credibility; honest reviews from those who have stayed in the listed Airbnb; the type of check-in; nearby attractions; the ability to cancel (with a yes/no option for a 100% refund); and more. The founders designed the platform to allow users to quickly identify and fulfill their needs and wants by simply viewing the listing and the professional visuals that show what the space looks like. This provides users with trust and a variety of information, enabling them to make better decisions before booking a specific Airbnb.

4. Have your friend sign up and leverage the referral program:

   → Airbnb focused on leveraging the referral program to grow, especially during the early stage, allowing users to easily spread the word of mouth. Specifically, referrers received a $25 travel credit when the new member booked their first trip on Airbnb and a $75 travel credit when they hosted guests for the first time. This approach allowed the company to sustainably grow through its referral program.

5. Building a community for your product, even as a marketplace, is crucial:

   → Whether you are a first-time host or a seasoned host on Airbnb, you will always have questions and stories, just like all founders do. This is why Airbnb has created a dedicated community of hosts from around the world, allowing them to ask questions, share concerns, stories, insights, and more. Having a community of like-minded people who support each other lowers the entry barrier for hosting on Airbnb, as it addresses many pain points, including both technical and non-technical questions. Additionally, having the community available in multiple languages is a plus for those who do not come from English-speaking regions, making the community even more crucial. (The currently available languages are English, French, Italian, German, Spanish, Dutch, Portuguese, and Japanese.)

6. Become an scientist - leverage your data alongside with A/B Testing:

   →Airbnb is known for its continuous A/B testing, and leveraging its data to identify user needs and areas for improvement on its platform. For example, A/B testing to improve the recommendation algorithm for better accuracy in search results based on user preferences is one of many tests the company conducts.

Below is the link to the official Airbnb Tech Blog on Medium for those who want to learn more about the types of A/B testing Airbnb conducts and their methodology.

Challenges for Airbnb:

1. Safety and security for both guests and hosts:

   → While having a well-functioning product with great design is essential, safety and security are equally critical. Given Airbnb's peer-to-peer model, ensuring strong safety and security measures is an ongoing challenge. The platform relies heavily on the assumption that users will follow local laws and Airbnb's policies, but this trust-based system is not foolproof. Maintaining and strengthening safety protocols to protect both guests and hosts remains a continuous challenge for Airbnb.

2. Navigating and overcoming regulations:

   → It will be crucial for the company to navigate and overcome regulatory challenges, as many cities around the world are starting to impose stricter regulations on Airbnb hosts. These regulations often include prohibiting short-term rentals due to rising concerns about housing affordability, safety, and the impact on local communities. For example, New York City has enacted a law banning short-term rentals of entire apartments for less than 30 days, including Airbnbs, in an effort to ease the housing affordability crisis and support the hotel industry.

Future of Airbnb:

1. Navigating regulatory challenges from around the world:

   → It isn’t just New York imposing strict regulatory challenges; many major cities and countries around the world, such as Vienna, Paris, Florence, Berlin, Spain, Portugal, and the United Kingdom, are also imposing stricter regulations on short-term rentals for platforms like Airbnb. It will be crucial for the company to successfully navigate these regulatory challenges and diversify its product offerings for both existing and future users.

2. Providing a smoother experience by leveraging technology:

   → Airbnb is leveraging technology, such as AI, to provide the ultimate experience for consumers and hosts. Specifically, the company uses AI to recommend price ranges for different seasons and to analyze booking data to predict and offer the best accommodations or experiences based on user preferences. Continuing to leverage technology in this way will be crucial for the company to deliver an exceptional experience for both its users and hosts on the platform.

3. Continue to grow its revenue:

   →  Fortunately, the company is experiencing consistent double-digit annual revenue growth. It will be crucial for the company to continue growing its revenue in double digits and to secure net profit. One strategy the company can implement is diversifying its product offerings (e.g., hosts, unique experiences), which will further enhance its financial performance.

Key Takeaways from the Story of Airbnb:

Staying in a stranger’s house for a night, weekend, week, month, or more seemed strange and unimaginable until 16 years ago when Airbnb was founded. The startup and rise of Airbnb were far from smooth; the company faced numerous challenges. Even now, the journey has not been without obstacles. For instance, just a couple of years ago, the company lost 90% of its value at the onset of COVID-19 due to the sudden decline in global travel and the hospitality industry. Entrepreneurship involves navigating through rough conditions while continuously experimenting.

Several factors contributed to Airbnb's success. One key factor is the willingness to try new things (e.g., the 2008 Presidential Campaign cereals), building a product that not only provides information but also fosters trust, and creating a community where people can support each other. The story of Airbnb is a living example that anything is possible if you are willing and able to endure the long journey of entrepreneurship, and that design and visuals can significantly impact trust.

Below are the key strategies Airbnb used to become the company it is today:

1. Experiment even during the lowest points:

   → The founders were accepted into YC Winter Batch in 2009 because they were different, and being different is a valuable trait in the startup and tech ecosystem. To fund themselves and the company, they sold cereals called 'Obama O’s' and 'Cap’N McCain,' named after the two major presidential candidates.

2. Creating a great product that solves pain points and fulfills the needs and wants of its target customers:

   → Airbnb addresses the pain point of expensive travel, makes it easier to identify unique experiences, allows travelers to find the perfect accommodation for their needs and wants, and more. When a product solves a problem and goes beyond by fulfilling needs and wants, it is likely to be embraced by target users, who may then become ambassadors for the product. This is evident in how Airbnb's users leveraged the referral program to invite more users, not only for finding rooms and houses but also for becoming hosts, ultimately solving the chicken-and-egg problem.

3. Leverage technology to fuel growth:

   → One of the things Airbnb did was successfully leverage technology (e.g., algorithms and AI) to provide the best possible experience for its users and hosts on the platform. It is crucial for every company, especially a marketplace like Airbnb, to leverage technology to fuel growth and focus on providing an excellent experience for both sides.

4. Community, Community, and Community Always:

   → Airbnb built a community for its hosts from around the world to connect, share insights, tips, and stories, ask for feedback, and more. Having a community like this definitely reduces the entry barrier for those interested in becoming a host on Airbnb.

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Thank you so much for reading!

-Harry