{"id":3634,"date":"2017-02-22T21:28:53","date_gmt":"2017-02-23T02:28:53","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/in-airbnb-we-trust\/"},"modified":"2017-02-23T02:36:52","modified_gmt":"2017-02-23T07:36:52","slug":"in-airbnb-we-trust","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/in-airbnb-we-trust\/","title":{"rendered":"In Airbnb We Trust"},"content":{"rendered":"

Launched almost a decade ago as \u201cAirBed & Breakfast,\u201d Airbnb<\/a> has grown into a $30 billion<\/a> pillar of the sharing economy. Property owners and renters use it to rent millions<\/a> of beds, rooms, and entire properties to hundreds of millions of guests around the world. Beyond its core rental service, the platform recently launched Trips<\/a>, an adjacent \u201cexperiences\u201d platform for travelers and enterprising hosts. Reports also suggest that that the firm is building a flight-booking tool<\/a> to compete with incumbents like Expedia. The firm\u2019s success suggests a vision to not merely create a platform for accommodations, but to \u201cplatformize\u201d travel itself.<\/p>\n

Value in Trust<\/h3>\n

For guests, Airbnb creates value by providing access to diverse travel accommodations and experiences. Many of these heterogeneous offerings could not be easily sold or discovered in the pre-Airbnb world, though some conventional hotels have begun using the service<\/a> to market their own inventory. Hosts use the platform to turn spare space or short-term vacancies into extra income, rent out properties full time, or make money selling experiences to visitors. Both sides benefit from the platform\u2019s network effects, and Airbnb captures guest<\/a> and host<\/a> service fees on bookings in compensation.<\/p>\n

Beyond the transactional features of Airbnb\u2019s marketplace is perhaps a more profound form of value creation: the firm\u2019s focus<\/a> on trust<\/a>. Anyone who has received an \u201cA+++++\u201d eBay rating will recognize that platform rating and verification systems have existed for a long time. But inviting strangers into one\u2019s home or staying in an unseen property is a far more intimate experience than buying someone\u2019s old golf clubs. Airbnb\u2019s reputation management system\u2014and system of guarantees<\/a> when it fails\u2014is crucial<\/a> for creating value in its network.<\/p>\n

The Chicken & The Egg<\/h3>\n

Of course, networks and trust seldom arise out of nothing, and Airbnb spent years with little traction despite its stint in the vaunted Y Combinator<\/a> accelerator. To garner attention and raise money, they even resorted to selling election-themed Obama O\u2019s<\/a> and Cap\u2019n McCains<\/a>:<\/p>\n

<\/a>
\n(Source: TechCrunch<\/a>)<\/small><\/div>\n

Airbnb found a solution<\/a> in Craigslist<\/a>\u2019s already-extensive user base and active rental market. Leveraging that firm\u2019s network effects, Airbnb built tools to facilitate cross-posting between the platforms, and ensured that Airbnb-created Craigslist ads would be more attractive and inviting than that platform\u2019s users were used to. Perhaps more \u201cnefariously,\u201d Airbnb also began to automatically email Craigslist posters, soliciting cross-posting on Airbnb. This \u201cgrowth hacking\u201d method may seem underhanded, particularly in light of CTO Nathan Blecharczyk\u2019s history of profiting from email spam<\/a>. But it appears to have worked<\/em>, feeding Airbnb\u2019s \u201cflywheel\u201d of growth that it has ridden to a nosebleed valuation.<\/p>\n

\"\"<\/a>
\n(Airbnb\u2019s annual guest arrivals. Source: Bloomberg Businessweek<\/a>)<\/small><\/div>\n

Competitive Moats & Trustworthy Bridges<\/h3>\n

While listing properties and searching for accommodations on other services sounds straightforward, Airbnb\u2019s \u201cownership\u201d of trust is a powerful incentive for buyers and sellers to stick with one platform. Using a new travel platform to rent one\u2019s home or find a place to sleep entails real risks to property and safety; contrast that with browsing and purchasing from a new \u201cdaily deals\u201d platform, which entails little cost or risk (and may partially explain Groupon\u2019s struggles). Minor frictions of multi-homing<\/a> (managing multiple calendars, payment methods, etc.) aside, once one has established trust in Airbnb\u2019s platform, they have a powerful reason to remain in its network.<\/p>\n

Open Questions<\/h3>\n

Despite Airbnb\u2019s advantages, several questions remain about the firm\u2019s prospects and scaling ability. As shown, trust mechanisms deter vandalism and theft; after all, guests want to be trusted by prospective hosts. But these systems have failed in other ways: minority guests have documented several cases of apparent racial discrimination<\/a> by hosts or their neighbors. This phenomenon may block many from booking (let alone rating) properties in the first place: HBS researchers have found evidence of discrimination against prospective guests with African American names<\/a>. These effectively represent \u201cnegative\u201d network effects, where the platform\u2019s decentralized nature enables participants to harm or deter others, rather than transact with them.\u00a0Airbnb has taken steps to combat discrimination<\/a>; time will tell if they prove effective.<\/p>\n

Further, Airbnb\u2019s ability to capture the large and lucrative business travel market remains uncertain. The firm has lagged other platform players like Uber in claiming wallet share from incumbents<\/a>, though recent trends are promising. Firms staffed by frequent business travelers employ support staff and enforce purchasing policies that favor major hotel brands with standardized offerings and dedicated B2B marketing efforts. It remains to be seen if Airbnb can compete for this market with its current host base. Perhaps the firm will need to solicit more traditional hotel listings (and thus share value with incumbents) to compete.<\/p>\n

Finally, Airbnb has faced a litany of regulatory roadblocks, recently culminating in highly-visible legal battles with San Francisco<\/a> and New York<\/a>. Politically-powerful incumbent firms and activists concerned with urban livability and affordable housing have raised barriers to Airbnb\u2019s expansion the world over. The firm will likely fight many such battles as it scales, particularly in gentrifying urban areas with rising home prices. But given the value that it creates for users, Airbnb may succeed by tapping its devoted platform participants as citizen lobbyists (\u00e0 la de Blasio\u2019s Uber<\/a>).<\/p>\n

Challenges aside, Airbnb has built a lucrative and devoted platform of travelers and hosts. When properly nurtured, network effects and the firm\u2019s ownership of trust will likely constitute a durable competitive advantage, making Airbnb a platform to watch in the future.<\/p>\n","protected":false},"excerpt":{"rendered":"

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