The Rise of Airbnb

From renting air mattresses to a multi-billion dollar company, Guy Walker traces the trials and triumphs of Airbnb

“I thought of a way to make a few bucks- turning our place into…a place to crash”, emailed Joe Gebbia to his roommate Brian Chesky. Within the decade this email had become a $31 billion company, spread across 191 countries.

Rent payments were almost due and the two San Francisco based friends were struggling to come up with the money. An upcoming design conference meant all of the city’s hotel rooms were booked up. Joe Gebbia and Brian Chesky, two students at Rhode Island School of Design, thought they could rent out three airbeds on their apartment floor for $80 each, and cook the guests breakfast in the morning. The next day they registered the domain

A troubled start

Within the next week, they let their first guests stay. After this initial success, Chesky told his flatmate, “there’s got to be a bigger idea here.” This is when they brought on their third and final co-founder, Nathan Blecharczyk. Gebbia’s former roommate was a Harvard computer science student, who funded his entire college education through selling his internet software business, which he founded at 14. Blecharczyk immediately started to upgrade and improve their website.

After 3 failed launches, which involved a roommate matching program, the three settled upon the original idea and went in search of funding. They initially approached 15 investors, 8 rejected them; the other 7 just ignored them outright. However, the perfect opportunity then arose in the summer of 2008. The Democratic National Convention was being held in Denver, with Barack Obama and over 80,000 others descending upon the city. They finished their new website and had it public two weeks before the convention, with 800 listings online within the first week.

However, they found monetising the site was difficult. They had $40,000 in credit card debt and also wanted to further raise the site’s profile. In order resolve this, they came up with idea of branding bulk purchased cereal with Obama and his Republican opposition candidate, John McCain. ‘Obama’s O’s’ and ‘Cap’n McCain’ cereal was created and the PR stunt was a huge success. They sold out of all 800 limited edition boxes making $30,000 in total profit. This could then be put towards developing their business.

A few months later, in early 2009, they met Paul Graham. The entrepreneur invested $20,000 in the company and enrolled them in Y Combinator, a startup program which provided support and a further $600,000 to the trio.

By March of 2009, they had rebranded from ‘Air Bed & Breakfast’ to ‘Airbnb’, and by April were finally starting to live off the profits Airbnb provided. The next two years saw the company going from strength to strength. They gained actor Ashton Kutcher as an investor and ambassador and were able to hire numerous staff. By July 2011, the trio had raised over $119 million in venture funding, and Airbnb was reported to be worth $1.3 billion.

Problems at home

However, as the company has grown, so has its problems. Numerous examples of house trashing, vandalism and even claims of racism by hosts have become major issues for the startup. CEO Chesky decided that they would offer host insurance, which now covers damages up to $1 million. In addition, 2017 saw Airbnb team up with the NAACP, to tackle racism by hosts on its platform. This issue was brought to light in a paper from Harvard Business School, who claimed hosts on the platform were less likely to rent to an individual with an African-American name.

Further issues arose with governments and cities who opposed the influx of new prospecting landlords. In Australia, studies have revealed Airbnb is pricing out first-time buyers and pushing up rent prices in Sydney. People have started to even purchase houses and apartments in the city solely to let them out on Airbnb.

Similarly in New York City, a bill was passed which was intended to outlaw advertising short-term rentals, and would fine Airbnb hosts for non-compliance. Airbnb threatened to sue, claiming the bill was unconstitutional, but later reached an agreement with the Governor of New York. Similar issues are now arising in San Francisco, the state of Tennessee, Hawaii and multiple other major global cities.

Such controversies have made maintaining a good company image challenging, according to the co-founders. In November 2012, the company was widely praised for offering free accommodation to Hurricane Sandy victims. Since then it has become more actively involved in global and national issues.

Recent times have seen the company opposed to many of US President Donald Trump’s actions. Airbnb launched the #weaccept campaign to challenge Trump’s travel ban, and months later, upon hearing of Trump’s remarks of ‘s***hole countries’, pledged $100,000 to promote the countries criticized by Trump.

Despite the dramatic growth of their company, and their fortunes, the co-founders appear unaffected. A journalist recently asked Chesky how his life has changed, being worth $3.8 billion. Smiling, he told the reporter that he still lives with Joe Gebbia in the same San Francisco apartment they did in 2007. The two flatmates, with a combined worth of just under $10 billion, like to stay “grounded” and aren’t concerned about buying “stuff”. Casually turning to the reporter, Chesky announced that you can even book his couch “for just like $50.”