Airbnb: Is it a fad, or will it revolutionize how you travel?

Commentary about business and finance.
July 28 2011 6:15 PM

Get a Room!

Is Airbnb a fad, or will it revolutionize the way you travel?

How will Airbnb change the way we travel? Click image to expand.
How will Airbnb change the way we travel?

It must be a strange week at the San Francisco offices of Airbnb. On one hand, the New York Times ran a gushy profile of the fast-growing business, a Web platform that helps individuals rent out their rooms or apartments to guests. And on Monday, it announced (PDF) that it has raised $112 million from investors, valuing the three-year-old start-up at a billion dollars. On the other, a ghastly story about an Airbnb customer who was robbed and left with a trashed apartment went viral.

So is Airbnb one of the best start-ups to emerge from Silicon Valley in recent years, a brilliant business that lets people monetize the extra space in their homes and might even disrupt the hotel industry? Or is it an overhyped media sensation, nothing but a posh Craigslist?

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Airbnb lets people rent out their apartment or home to guests. There are few restrictions on who can rent their place out, which means there is an extraordinary diversity of options. Want to stay for a week in an informal bed-and-breakfast, with someone to cook you oatmeal in the morning? Check. Want to stay alone in a Greenwich Village apartment for a night or two? Check. Looking to rent the fuselage of a plane or a tree house? Check to those options, too.

The site provides a simple backend framework for hosts to put up pictures and descriptions of their places. Guests use an easy calendar and reservation system to book nights and pay via credit card. The site is social and sleek, the reigning aesthetic that of a shelter-mag. Guests and hosts get permanent profiles where it is easy to leave feedback, assuring users that they will not end up in a smoke-filled studio when they expected a spacious three-bedroom apartment. And the company makes money by taking a percentage from both the guest and the host, 6 to 12 percent of the total transaction.

So why use Airbnb when you could just rent a hotel room? First, you often get far more for your money. A short-term corporate rental in downtown Manhattan might cost thousands of dollars. On Airbnb, you have your choice of apartments for a fraction of the price. Second, many travelers like being in a domestic space, as opposed to a sterile hotel room. Third, the variety of places is truly fantastic—from a whole country to a $10 couch in a group house. There are currently more than 100,000 options.

Those selling points have driven lightning-fast growth. The three-year-old company has booked 2 million stays. It has grown more than 800 percent in the last year, and is now adding more than 1,000 listings per day. The company itself says that it will surpass the Hilton chain in total rooms on offer, if not revenue or nights booked, in 2012. Those figures have led some of Silicon Valley's biggest investors to fund the still-small company. The Y Combinator graduate now has the backing of heavyweight Andreessen Horowitz, and that $112 million in fresh capital will help it expand domestically and overseas.

Granted, the $1 billion valuation does seem terribly high—$10,000 per rental space on offer, $500 per transaction completed, $7.8 million per current employee. But that is hardly a knock against Airbnb itself, particularly given the investment world's current heady enthusiasm for all things start-up. And the company should be able to continue to scale up at a blistering pace, particularly given its reported move into offering sublets and push to add listings overseas.

Of course, Airbnb does face hurdles. First and foremost, like all such overhead-light tech firms, it is vulnerable to competition. Indeed, Airbnb is already swimming in a crowded pond. HomeAway is popular for vacationers; CouchSurfing attracts the freegan set; and HomeExchange provides an easy option for folks willing to trade their houses or apartments. Right now, Airbnb has a slight edge on those rivals, given its diversity of options, professional service, and ease of use. But more viable competitors are coming. For instance, the Samwer brothers, German serial entrepreneurs, debuted the shockingly similar Wimdu, popular in Europe, and it has already raised $90 million in financing. *

Second, Airbnb is, at its heart, really just a nicer version of Craigslist. It does not claim to offer, and does not offer, all the amenities, predictability, and ease of booking a hotel. For instance, two Fridays ago, I went online to look for a room for that night. I wanted a space where I could stay by myself, with at least 10 reviews, for less than $100. Granted, my parameters were strict. But there were no available options.

Many people simply will not feel comfortable using Airbnb's service, and will prefer the more businesslike atmosphere and amenities of a hotel. Many might also choose not to use the service, even if they'd like to, if instances such as the horrible robbery ever become common. But most users I spoke with adored Airbnb, and liked finding a cheap, homey, fun place to stay. High fees are the most common complaint—though in some places, they are lower than hotel taxes.

In the end, Airbnb needs to be appreciated for what it is: a market maker, letting people rent spaces they might never have otherwise rented. In that sense, the company is better judged against sites like eBay and Craigslist than chains like Hyatt. And as on eBay, you might end up with a dud, or you might end up with a castle.

Correction, July 29, 2011: This article originally misspelled the name Samwer. (Return to corrected sentence.)

Annie Lowrey is a contributing editor for New York magazine. She can be reached at annie.lowrey@gmail.com.

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