Imagine a company with the potential “to do to hotels what Amazon has done to bricks ’n’ mortar bookstores”, says The Wall Street Journal. It already exists and it’s called Airbnb.
It was launched in San Francisco in 2008, when a couple of broke designers, Joe Gebbia and Brian Chesky, rented out airbeds in their apartment to make up the rent. Since then the online service – which matches spare space with short-term lodgers – has grown into a worldwide venture, active in 200 countries, with accommodation ranging from guest bedrooms in Brooklyn to a private castle in France.
The venture has proved so successful that Chesky, in particular, has been credited with starting a “sharing economy” revolution.
Airbnb is “adored by some and despised by others”, says The New York Times. Falling squarely into the latter camp is the attorney general of New York State, Eric T Schneiderman, who accuses Chesky and co of ripping off the city’s hoteliers and stealing tens of millions of city tax dollars. A bitter legal dispute is now in train (see below).
You can see why established interests are so panicked: the company has been growing like topsy. Serving a total of nine million guests and generating annual revenues of about $100m, it’s valued at around $2.5bn.
While evangelical about his cause today, Chesky, 32, is the first to admit he didn’t set out to disrupt an economic model. Raised in Albany, New York, the son of social workers, he was “a fidgety doodler” whose interest in art led him to design school, says The Wall Street Journal.
In 2004, he moved to LA to work as an industrial designer. Three years later he quit, packed up a Honda Civic and drove to San Francisco to crash with Gebbia, a college friend. The rest is history.
Still, the early days weren’t easy, says the TechCrunch blog. The founders – who initially focused on catering for design conventions and music festivals – had trouble finding investors.
Says Chesky: “One famous investor was drinking a smoothie and just got up and walked out mid-pitch.” They survived by running up credit-card bills. Their break came in early 2009 when Californian start-up accelerator Y Combinator gave them $20,000 and three months to refine the model.
To figure out the changes needed, the duo flew to New York (by then the centre of business) every weekend to stay in rooms booked via Airbnb.
Once the experience improved, notes Chesky, expansion took care of itself. Visitors from around the world would go back home and become hosts themselves. In March 2009, venture capital group Sequoia invested $600,000.
Chesky thinks this is just the beginning of the sharing economy, says The Atlantic, which will soon include everything from car-sharing to food. When you hear of some new peer-to-peer venture, it’s already often described as “the Airbnb of this”, or the “Airbnb of that”. That guy with the smoothie must be kicking himself now.
Argy-bargy over a legal grey area
Airbnb is a classic disruptive business whose success could have huge “social effects”, says The Economist. By turning “homeowners with spare rooms into entrepreneurs”, it’s a direct threat to the lower end of the hotel business. No wonder those “who want to protect the status quo” are proving so obstructive, says Andy Kessler in The Wall Street Journal.
When Airbnb took off in New York in 2010, the authorities stepped in, barring private citizens from renting an apartment for less than 30 days. After a period of evidence gathering, New York State sued Airbnb in October for violating the rule.
Chesky, who is fighting the suit, calls it a very “grey” legal area. But his “battle with attorney general Eric Schneiderman is no doubt being watched closely by his peers across the country”.
Looking at the sums involved, it’s clear why the hotel industry lobby, the New York authorities, and the city’s 30,000 unionised hotel staff are worried, says Elizabeth Harris in The New York Times. “According to the attorney general’s office, the top 40 Airbnb hosts in New York have each grossed at least $400,000 over the past three years, a collective total of over $35m.”
The top 100 have grossed $54m. Airbnb takes 3% from hosts and 9% from guests, but none of its hosts pay hotel tax. Airbnb says: “90% of our hosts have only one listing and it’s the home they live in”. They also serve an economic role, providing rooms for budget tourists who may not visit otherwise.
Chesky puts the argy-bargy down to the fact that the “sharing economy” is so new that the authorities haven’t yet figured out how to handle it. The problem is “that there are laws for people and there are laws for businesses”, he told The Wall Street Journal.
Peer-to-peer ventures often don’t fit either bucket. Meanwhile, the battle drags on – and is now being waged on a new front: data protection. “They have asked us for a lot of data on regular New Yorkers, and we don’t want to turn it over.”