The flaw in AirBnB's billion-dollar business plan

20-airbnbflaw.jpgI’m not a business analyst, but from a user’s perspective, this is the problem with the business plan of AirBnB: the crowd-sourced rent-out-a-room for travellers website, just valued at $1bn.

The problem? It will become a victim of its own success.

We used Facebook to ask for an apartment in New York, and a friend pointed out a friend of his who has a profile on AirBnB for renting out her sitting room. So yes – I did look at AirBnB and it was really useful to browse through pictures of the room and information about it on the well laid-out site.

But when we messaged her on AirBnB, she sent us her email address and told us to deal with her through that so we could cut out the AirBnB charges that they levy on payments.

So in the end, though we used AirBnB as a reference, no money of ours passed through it.

The apartment was nice, it all went fine, and when we left she said we should recommend the flat to any of our friends from London and told us to get them to email her rather than go through AirBnB. Again – to avoid the fees.

You get what I’m saying. The more successful it is at putting people in touch, the more people are likely to skip using it.

People will use the nice layout of AirBnB to window shop for available apartments, and then carry out the transactions elsewhere – just a simple PayPal transfer over email.

I know AirBnB offer reliability ratings, which is a good thing, but I’d trust a friend’s recommendation over an AirBnB rating as well.

Okay – sure a lot of this requires existing friend networks to work – but Air BnB takes away its own business by creating those friend networks in the first place.

The networks can then be sustained over Facebook and email.

I’m just saying, a bit like people who go to PC World to browse gadgets, but then go home and buy them on Amazon, if Air BnB is successful, it will start to take its own business away from itself.

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Anna Leach





Anna LeachThe flaw in AirBnB's billion-dollar business plan
  • ben

    wow you’re so smart

  • http://coryforsyth.com/ Cory

    They’ll have to switch to charging people to list or browse instead.

  • ali

    There are many advantages to using airbnb to actually rent the place. If something goes wrong, they can help mediate. They collect security deposits and hold onto them so that you don’t need to trust a stranger with your money. And both the guest and host are able to write reviews, which helps future airbnb connections happen.

    I just traveled for six weeks using airbnb. I’ve used craigslist before to rent apartments in Europe but using airbnb felt much safer and more guaranteed.

  • alex

    This is an interesting and thoughtful argument, but ultimately totally off base in my opinion. As a personal note, I recently had a bad experience with airbnb, so I’m actually unhappy with them right now.

    I argue that if airbnb can shape up and fix its problems, not only will there be many willing customers but that enforcement of the fee will be extremely easy.

    First, the value they can add is twofold: *safety* and *convenience* for both parties. The article hints at this and talks about matching renters with hosts, but I think the author is really missing the complexity of the problem airbnb is trying to solve. Off the top of my head, I can think of many obvious services the site could provide and all of them can be denied from a user that doesn’t pay the airbnb fee:
    - Search capability allows hosts/renters to find each other. The author suggests friend networks, but going through a friend network is just too much work and hassle.
    - Reputation system allows us to avoid negative experiences and know what your getting before buying. The author is wrong dismiss the value of a reputation system. My friend network is just not large enough to serve this need and even if it were there’s no system to store and access the necessary information.
    - Standardized/open market pricing so no negotiation is necessary to arrive at a reasonable price. Without going through airbnb I’d have to haggle a price every time b/c the prices listed would be untrustworthy (like they are on craigslist).
    - Online system to do money transfer in an easy safe way also avoids needs to carry lots of cash.
    - System for dealing with communication between the host and renter. Right now, airbnb has a clever mechanism so that you can only get the other person’s contact info if you pay the fee.
    - Customer support if necessary.
    - Insurance in case something goes really wrong, both for host and renter. Even if I’m staying at a friend’s house I’d like to have my own insurance (same if I drive a friend’s car).
    - Secure system for key exchange that doesn’t require host/renter to meet each other and allows renter to checkin whenever they want. If you had this, you could issue a card to the renter (like zipcar) and only the renter could access the apartment. You could issue a secure box that holds the key to a host.

    This concept of renting your house to a stranger or staying at a strangers house is a very personal transaction. I think airbnb’s job is very hard to make it a positive experience and that if they do it right, there will be lots of people willing to pay a premium and even those temped to cheat won’t be able to.

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    the flaw is not a problem, the problem is how can they solve the problem.

  • http://ecomodo.com/ Tracy Currer

    This is tragic news for Airbnb and especially as the idea of collaborative consumption can bring so many good benefits for both individuals and the environment alike. But this is exactly why we did our homework before we launched our peer-to-peer service – Ecomodo.com – last year in the UK.

    Ecomodo enables people to take deposits for their items which we hold for the duration of the lend, choose an insurance option for lending household goods with a replacement value of over £50 and our feedback rating system checks both parties are happy at the end of the lend – and if not we have a dispute resolution system in place to sort out the problem. On top of this, Ecomodo lenders can automatically restrict who can borrow their items with trusted lending circles (friends, neighbourhood, workplaces, schools, clubs etc) which also means feedback given may have very real-world implications.

    We know we have had people use Ecomodo and then by-pass the site to borrow but on the other hand we’ve know we have members that have said to friends – “please go through Ecomodo – so I can get the insurance option – just in case.”

  • okayokay

    As Alex pointed out, Airbnb also offers an insurance option — that peace of mind is more than enough reason to only host officially through the site.

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  • Christine C

    As you point out, the insurance option is enough to go thru the system. BUT, if the transaction is illegal – as subletting is in many places, no one will be willing to issue insurance for this type of activity. And remember, insurance will have to cover both ways – the property and valuables, as well as the safety of the guest. I can’t think of an insurance company willing to undertake the risk of writing off an insurance policy for this type of illegal activity that will cover these kinds of risks.

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  • Dee

    The fees are there so to help with insurance, in the event something happens to her property.
    She is unwise to do it on her own, that is a big risk and good luck with property damage theft if that ever happens to her.

    I disagree entirely.

  • Leticia

    Itotally desagree. We’ve been airbnb hosts for 9 months now. I don’t even like the idea of dealing with money from strangers directly. Airbnb does that for us. We know by the time people arrive to our house that airbnb has their money and that we’ll get paid 24 ours after. My network of friends is not that big to assure that I have renters 80% of the time. Even when somebody that stayed with us for a while through airbnb approached us to rent directly next time, we told them to do it through airbnb. There’s safety insured by renting through them.

  • luke

    stupid post. They're valued at $1bn and have only got 30,000 rooms on the site globally. When they scale this and 3-4x the number of properties they list, the company will exit for $2-3bn. Tell the founders and shareholders then that the business model is flawed and see what kind of answer you get.

  • Taurusgirl

    Completely disagree with article. I've been a host and a guest. It's not worth the risk for guest and/or host to transact outside of the site. You can also list your place on other sites such as VRBO, Turnkey, etc. to increase exposure. Airbnb also issues a 1099 which is convenient at tax time…..unless the other individuals are trying to avoid the taxes. Hmmm, I thought this was illegal.