43 Comments

Summary:

I was an AirBnB sceptic for a long time, but trying the service made me realize just how disruptive it could be — and how it also shares a lot of the same characteristics of other disruptive businesses that are powered by the social web.

There are some technologies and services that seem fairly obvious when they first appear, in the sense that their appeal is more or less predictable, even though their ultimate size and reach may not be. But there are others that seem to almost defy logic in some way, and become far more disruptive than they seemed at first, and for me at least, AirBnB is one of those companies. Along with a few other services — including Twitter — it is one of the most fundamentally disruptive social businesses I’ve come across in a long time, and for many of the same kinds of reasons.

I’m not ashamed to say that I was an AirBnB skeptic when I first heard about the service. Like many people, I thought the idea of someone sharing their bedroom or apartment with complete strangers for money was a pie-in-the-sky idea dreamed up by some San Francisco hippie. It seemed like a variation on the idea of “couch surfing, which I figured would appeal to cheap students and other bohemian types, but not many regular people — and certainly not to business travelers or anyone important from a commercial point of view (in my defence, even uber-VC Fred Wilson missed out on the potential of the company).

Both of those assumptions have been proven wrong, and it didn’t really hit home for me until I tried an AirBnB rental myself. On a trip to San Francisco for GigaOM’s Mobilize conference, I rented a one-bedroom apartment using the service, and it was an eye-opener.

The social web lowers the barriers to interaction

In a sense, services like AirBnB — as well as ride-sharing services like Lyft and crowd-funding platforms like Kickstarter — take advantage of the same internet-powered social phenomenon that media entities like Twitter do: namely, a dramatic lowering of the barriers to interaction, to the point where it actually changes the way people behave in some fairly important and disruptive ways. And I think the real repercussions of that disruption are only beginning to make themselves obvious.

The main reason I tried AirBnB was that another conference had booked every reasonably priced hotel room within driving distance of downtown San Francisco — but I was also curious to see what the AirBnB experience was like. So I looked for something in the same price range as an average hotel room, and found dozens of potential rentals, each with photos of the home and the owner and reviews from users. At that point, it didn’t look all that different from something like Craigslist (although much more appealing from a design point of view).

But then the influence of social networks was added to the equation: since I had connected with my Facebook account, I noticed that the owner of one of the rentals and I had a mutual friend in common. Any hesitation I had about renting the home of a complete stranger in an unfamiliar city vanished, thanks to the power of the FOAF (friend of a friend) effect. If the couple who owned the apartment knew my friend, then I figured there was a better-than-even chance that I would like them.

Sure enough, they arranged to get me the keys in a friendly and efficient way, they left me a personal note and sent an email with tips about their home and the location, and they offered me whatever was in their fridge. On top of that, the apartment was lovely and well-kept, with homey furniture and personal touches that no hotel could offer: not only was it nicer looking than a hotel, but the whole experience was friendlier and more welcoming.

The scale that the social web provides changes the game

Granted, not every AirBnB experience is going to be so top-notch — there have been some incidents in the company’s history where renters took advantage of the owner and his or her property, and the service has had to adapt to that. But despite those events, the growth of the network suggests that it is disrupting the casual accommodation market in a way the hotel industry probably never expected. Even though bed-and-breakfast operations and corporate or vacation rentals have existed for some time, the sheer scale of AirBnB changes the game.

As Clay Shirky noted in his book “Here Comes Everybody,” even behavior that has existed before — such as sharing information with our friends and family, or connecting with people who have similar interests — becomes qualitatively different when hundreds of thousands or even tens of millions of people are involved. That’s what I think we are seeing with things like AirBnB and Kickstarter and ride-sharing services like Lyft, or job-outsourcing services like TaskRabbit: they aren’t just an incremental change in human behavior, they are a fundamentally disruptive one.

In a sense, each of these services just looks like a more refined and organized version of something you could have previously done through Craigslist: a ride somewhere, a place to sleep, supporters for your new CD or other project. But instead of being something that a small proportion of people do, the growth of AirBnB and other similar crowd-powered services has the potential to seriously impact some of the industries we take for granted — whether it’s the hotel business or the venture-capital or music or transportation industries.

What other industries could be disrupted in this way? Could we see people sharing health care someday, or their phone services, or swapping their corporate vacation time through some kind of online marketplace? It’s interesting to think about what else could benefit from this kind of phenomenon, and what the long-term effects on us as social beings will be when that happens.

Post and thumbnail images courtesy of Flickr user Aih

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  1. Great post, Mathew!

    As I see it, internet-driven disruption first started on the demand side (distribution businesses and gatekeeper businesses) and we had casualties like retail (blockbuster, borders etc.) and the newspaper/media industry.

    With the emergence of the social web and real online identity, disruption has moved to the supply side as well. Any service industry that requires significant investment to create supply can possibly start getting disrupted by lower-level services as long as the platform has a strong curation model. Hotels are on such business. Home delivery services (with a very strong curation model) could be another. Spas could be disrupted by individual masseuses who lack strong marketing right now. Various corporate services market could get disrupted at a much larger scale (than currently through elance or odesk) by freelancers, finding initial demand from the lower levels of the market (SMBs).

    Not great news for Craigslist, though, in all these niches.

    1. That’s a great point, Sangeet — thanks for the comment.

  2. I’m an air bnb host. I understand that the air bnb service distrupts the hotel industry, but most of my guests are students or travelers on a low income and just can’t afford a $120 hotel room on top of other expenses during their stay. I charge $50 a night and I’m located downtown, near amenities and popular tourist destinations. In turn, the money helps me pay my rent so that I can afford groceries. instead of taking money from the poor and feeding the rich, why can’t the poor help eachother out?

  3. you know how in stocktwits, the cream rises?

    same could work for healthcare

  4. Very Interesting article ! It’s worth mentioning that the Air B&B model can not only impact the traditional accommodation sectors as a competitor but the spinoff has far more reaching consequences.

    The Air B&B accommodation providor is typically not collecting or charging any taxes or paying for a business license. While this is another benefit to the traveller it impacts the municipalities and agencies who use those taxes to promote the destinations, fund the conference centers, provide the social services that help keep homeless off the street and on and on….

    I doubt that Air B&B or its users have the forethought to realize that when you hurt the destination you are visiting/benefiting from your will eventually kill the goose that laid the golden egg.

    Another side effect not covered is what happens when cities like NYC realize this and institute a major clampdown. http://www.staynyc.org is a case in point of this disruption.

    For a light hearted look at one organizations take on Air B&B check out this video

    1. The hotels and taxi commissions need to be destroyed. Sure it’s sad for the relatively poor average workers in those industries, but the rights of the people and of the environment and of the community are much more important than the wish of these commissions to own an exclusive monopoly on the market. Millions of homes are left empty in all cities of the world. That capacity needs to be used now. Same for cars on the road, 85% of seat capacity in cars on the road is left unused.

    2. Well put Ian! The amount that are operating illegally or under the “radar” is staggering. They do not collect the appropriate taxes or have the appropriate licenses or insurance. It all looks like a great deal, until the events supported by those taxes shrink or disappear, or when the guest gets food poisoning after an un-inspected kitchen makes them ill.

      Yes it is nice to make a few bucks on the side as an owner, and save a few bucks as a visitor, but you are doing the community you are staying in (especially smaller ones) a huge disservice.

      1. I have been an Airbnb host for two years. Can I put you right on a couple of points? Airbnb itself provides insurance for the bookings. Most people have property insurance which includes public liability insurance, too. The people who have come to stay with me through Airbnb would not have come to stay in this area otherwise as there are few hotels, and they are too expensive for students, young couples, and families – who are the majority of guests I have hosted.

        I pay income tax on the money they pay and as I own my house, I am paying the same amount of local tax whether or not I have guests.

        Those guests have been delightful, and many have become friends. Several of them have stayed an extra night in the area because they have enjoyed being here so much – which has put more money into local restaurants, shops and garages. Far from doing the community a disservice, I’m doing it a service – ask any of those local businesses.

        The Airbnb visitor is typically intelligent, educated, adventurous, in search of an authentic, individual experience. They are interested in the culture of the place they’re visiting and the reason they’ve chosen Airbnb is to experience it from the inside, find out about how people behave and think and feel. These people don’t enjoy the anonymity of the hotel experience.

        I can see that business travellers will probably continue to prefer it, but these people are additional to the existing business. If it wasn’t for Airbnb many of them would be staying in hostels, camping or caravanning – or they just wouldn’t travel.

        And yes, it is nice to make a few bucks on the side but the thing that keeps me going is the sheer enjoyment of meeting so very many lovely people, from every continent and finding out that we are all, whatever language we speak, or religion we belong to, the same.

        That’s probably the most potentially disruptive aspect of Airbnb, by the way.

      2. I stayed with an Italian couple in Florence and I’m from Malaysia. I definitely agree with Jenny on the experiencing the culture bit. There are insurances protecting the owner and typically some owners take a refundable deposit.

        they had a kitchen which i was welcome to use and the central market was 2 mins away. I have to say despite all the good food in Florence, the best time I had with my wife was actually cooking indoors with the freshest ingredients you can ever find, including freshly made pasta. We shared wine and grappa with our hosts, they had their friends come over, we went out for lunch at THEIR favourite local restaurant. Would I have gotten this same experience at a hotel? Probably not. And to say that hosts/owners are doing the community a huge disservice would be a HUGE disservice to the wonderful hosts I’ve come across in the heart of Tuscany, suburbs in Milan and Rome. There I spent all my money where locals would eat, drink, buy groceries, rent cars, take unsubsidized public transportation to the city, airport, bus stations etc.

        As for taxes, i believe its the prerogative of individual hosts, but for each new traveler met destinations of an entire life are shared between us. To say that they, owners/hosts don’t help in promoting destinations is not entirely true.

        Experience it. Then criticize.

    3. I knew, Ian Macphee, that sooner or later, someone will come in about the need to pay taxes. Poor state/govt/municipals – losing out on revenue. Now, we can’t have that, can we?

  5. Hi Mathew: Nice article, and I agree Airbnb is disruptive. One angle you didn’t get into is the legality issue. Many Airbnb hosts rent out their rooms/apartments even though their leases might make it illegal to sublet. Hopefully, the laws and leases will change. But, when I rented from Airbnb, we had to sneak around and pretend we were visiting friends or relatives of the host. Still, I hope Airbnb succeeds because it provides such superior value when compared to the traditional hotel stay.
    Also, on the business travel angle, I wrote about some statistics I got from Airbnb indicating that a considerable number of business travelers are indeed among the first-adopters. http://skift.com/2012/08/10/airbnbs-secret-weapon-business-travel/

    1. Thanks, Dennis — I wondered about the legality issue as well, but it certainly doesn’t seem to be slowing it down at all. Thanks for the comment.

  6. Airbnb is awesome. I’ve used it 5 times in the past 5 months, each experience was great. The main problem I have with them is their tactic of taking a huge fee, I think I’ve paid them $200 in airbnb fees already for just 5 rentals! Their fee is unreasonably high. And I do not like how they are scared people contact each other outside of airbnb, they hide all links in reviews, private messages behind a “(website hidden)” that is just ridiculous. I think they need to implement some kind of $100/year unlimited zero fee bookings membership and they need to believe themselves to be awesome enough so there is no need to hide links in reviews/messages and just trust that users are going to keep using airbnb regardless just for the guarantees, convenience, trust mechanisms etc.

    1. ARM – The reason they do this is because a great % of the places renting on AirBnB.com are illegal in that they are breaking the terms of their leases or ae renting short term in a building where that is’t allowed. You may be happy to get a cheap place to stay but what about the neighbor who has to put up with a new “neighbor” each night? Some may be great but others – well we know they aren’t hence AirBnB’s big guarantee!

  7. Nice article but maybe there’s also a hidden lesson in here that it may be wise to try something before dismissing (or praising) it.

    1. Good point, Ghunda.

  8. I liked what you had to say here, but wondering about the word choice “disruptive”. I don’t see how it’s disruptive. Seems a negative connotation for essentially a positive trend. Just sayin….:)

    1. Disruptive is the trendy jargon of the moment for the digital world. Any digital technolgy/application/process that allows users to more effciently execute some activity that can already be done but in a less efficient manner is said to be “disruptive” nowadays. Email disrupted paper mail, web advertising disrupted the newspaper business, and so on. You’re right in that the connotation is meant to be somewhat negative, in a Darwinian way, almost as if to imply the disrupted industry was destined to be subplanted due to its inherently inferior, analog, linear structure.

      As for Air BnB disrupting the hotel business, they appear to be appealing to two entirely different markets. I don’t envision many business travelers or vacationing families — the bread and butter of the accomodations business — sneaking around landlords to sleep in a stranger’s home — even that of a “friend” of a “friend.” This will be additive — very successful, likely, but additive for the most part.

      Afte all, the author wrote that he tried Air BnB out one day because the hotels were all full. Doesn’t sound like textbook disruption to me. Craigslist could be disrupted by this, yes. But the accomodations industry. I don’t see it.

      1. Alvin Weng Kit Chin Tom Monday, September 24, 2012

        There are holiday homes being listed and there are owners whose sole purpose is to provide a true BnB experience. Disruptions typically don’t go mainstream in a short term – its usually stupid initially and appeal to a niche crowd before being adopted by mainstream consumers. What airbnb is already is that it’s a community of like minded people.. it’s not seen as the best way to travel yet, but that community is growing. There are professionally run guesthouses, boutique hotels and BnBs that run on AirBnB. it’s fees are probably slightly cheaper than OTA’s and owners still get to dictate their own rates. It might be awhile more before it truly is seen as a disruptor in the accommodation industry, but the work that they have done has added so much more value to travelers and communities alike. More than the negative impact associated with these rentals.

  9. I think we will see significant growth in peer to peer marketplaces in the coming years. Many new startups are picking apart existing marketplaces such as parking (ParkingPanda), Bike rentals (Spinlister), car rentals (RelayRides), services (TaskRabbit), or tools (ToolSpinner). I’m excited to see Airbnb continue to grow like crazy and other companies follow in their footsteps.

    1. Thanks, Daniel.

    2. Totally agree Daniel! There is ripe opportunity in every area of our lives for Collaborative Consumption, and it is causing the wider market to re-evaluate the efficiency of what they’re doing, and their role in this new era.

  10. The main issue would be the rental agreement clauses on subletting. That would be a disaster

    1. The condo docs I’ve seen recently for highrises strictly prohibit short term rentals and the fines are serious money! As an example: the owner can be fined $500 for placing the on line ad. If someone moves in on a short term rental, the owner is fined $2000 per incident and $500 per day until the unit is vacated plus the lease is terminated immediately.

      1. I concur, I just signed one for mine in SF.

  11. I found social information like who of my friend have been to this city or even know the host very valuable. We, at MountVacation are trying to build the same thing via Facebook App called Skibook, where people share where they have skied and where they would like to ski.
    The challenging thing is the size of the database. I haven’t found it useful on AirBnB. Chance that FOAF is a host is so little for someone travelling abroad that feature is not useful. On the destination level it is easier to find friends that have been there.
    I travel for business 95% of my time. Travelling to big cities with downtown location can be very, very expensive and sometimes we travel even 3 or 4 people together for a few nights. I found AirBnB useful, because we can get luxurious apartment for the price as we would get middle or low class hotel room, without breakfast, since “non-refundable” rates on Booking.com or other OTA’s are usually without breakfast to keep rate down.

  12. The disruption these projects create pays due to the sheer amount of individuals who take interest and interact with each service. Drawing people in to engage with kikstarter projects or to try out the lyft service is made so easy with the websites and phone apps that enable these new ideas to become sweeping realities.

  13. Breaking a term of your lease is violating the terms of a contract, but it isn’t “illegal” … cities are making it a violation of ordinance to rent for less than 30 days, for example, and that is their way of making sure they make money either way; you get licensed and taxed, or you eventually get caught and fined. Ordinances that claim to be protecting the consumer based on health and safety are just money-grabs and efforts to defend more powerful businesses that organize and lobby (hotels) to save their effective monopolies.

  14. Hannah Cromarty Monday, September 24, 2012

    Interesting post Matthew!

    Ironically, the Friend of a Friend accommodation idea already exists as an alternative to Air B’n’B and CouchSurfing – have a look at http://www.staysatfriends.com and there are a couple of others as well. You get the trust element of having a friend in common with the owner, and you’ll often stay free or at a nominal charge. If you’re a well-connected individual, you can easily plug into an interesting network of accommodation around the world.

    Through Stays at Friends, we let some friends’ parents from Argentina use our place in Spain for a month while we were away and they were here to see their new granddaughter. They saved a fortune while avoiding being stuck in a small hotel room for four weeks and we got a top-notch bottle of Argentinian wine as a thank-you, and the warm feeling of being able to help out our friends at an important time for them.

  15. Nice piece, Matthew. I am an AirBnB host in the Boston area. My experience has been amazing: I joined on a Thursday afternoon in early July, and by the time I went to bed, I had a reservation 10 days hence, for a mother and son visiting the city. Before they arrived, I hosted two other couples.

    As you note, the barrier to entry is low, and the transaction cost, at least for the host, is minimal. AirBnB sent over a photographer at no cost to me to show off my place. I am aware that, as an unlicensed and unregistered B & B, operating in violation of my lease agreement, I am part of the gray market, and, while I don’t really like being in it, the risk seems reasonable. I do feel like I should purchase insurance, but am I afraid that I won’t be able to obtain it based on my lease agreement and lack of license. As an aside, I work in the food service industry, and I worry about the food safety of guests at other places.

    In addition, the vetting of hosts and guests I think, is laughable. In traditional B & Bs there is a self-selection of people who generally like to meet other people. AirBnB guests are perhaps a step-up from Couchsurfers, but almost all of my guests are new to the service, and have no reviews.

    I agree with those that the pricing and reimbursement schemes could be improved for frequent users, but this is still a quickly growing service and some hiccups are normal. In general, it’s a fantastic service.

    AirBnB’s customer service has been fairly good. I believe their app and web development has been more focused on the traveller than the host, and they have some inexplicable priority algorithms in listing search results.

    To get to your general question, this sort of service lowers the barrier to getting into a business that does not require huge capital investments and therefore a reasonably swift ROI. I do anticipate a “Craigslist” effect in the future, as marketers and scammers pick up on its popularity. AirBnB will have to create additional barriers to membership at that point to reduce that effect. I expect I’ll be getting offers for linens, cleaning services, etc., fairly soon.

    Anyone looking for a comfortable bed and delicious breakfast in my area is welcome to look at my “Retreat Near Boston and Cambridge. ;)

  16. Sid Hathiramani Monday, September 24, 2012

    I love Airbnb, I used it multiple times on a 3-week vacation in Europe and had great experiences. I completely agree that it is a “disruptive” innovation. One new start-up that operates on a similar model is vayable.com (I do not work for them nor am I affiliated with them in any way). Instead of offering accomodations, they offer “experiences” e.g. tours guided by locals. I actually think it’s a very complementary business model to Airbnb and wouldn’t be surprised if Vayable gets bought by Airbnb (or they start to compete in the same space).

  17. Just another reason not to buy a condo, IMHO

    1. Because you will partly base your decision on renting via AirBnB, sounds kinda dumb.

  18. I’m concerned about the legality of Air bnb and the relationship between tenant and landlord issues evidenced in NYC.

  19. I am curious how insurance is impacted?

    What about liability in the case of criminal activities?

  20. Lauren Anderson Monday, September 24, 2012

    At Collaborativeconsumption.com we certainly believe that businesses like Airbnb will continue to disrupt traditional industries. You only need to look at the increase of car manufacturers entering the carsharing space in their own right (BMW, Daimler, Volkswagen, Renault) to see that businesses capitalising on idling capacity will be the clear winners in the future. The banking industry is also experiencing a shift with the rise of peer-to-peer lenders like Lending Club surpassing $1b in global loan volume this year.

    Great to see that you gave Airbnb another chance Mathew! Let’s hope we continue to see the growth of Collaborative Consumption marketplaces as an alternative to traditional industry.

  21. Mathew, there’s a very clear logic behind AirBnB and many other car-sharing services and so forth. It’s a platform for putting underutilized assets to work. It’s nothing new – banks, for example, do the exact same thing for money. AirBnB puts your underutilized property to work. Car-sharing services do the same for cars.

    Anything that you can build to put underutilized assets to work technically has the potential do pull what AirBnB did. SETI did it ten years ago already, putting your computer’s available computing power to work in searching for extra-terrestrial life.

    The biggest personal investments, a residence and a car, have already been done in this space, and probably make the most sense. Netjets does the same, in a way, for private airplanes. I can’t think of what the next underutilized asset to be optimized this way will be, but it’ll surely come up.

  22. yes it can be very veru disruptive…i ahd a trio of ytong unruly german college students who didnt nothing but drink cinstantly and were total pigs spraying Axe deodorant all over rthe place and even into my eye…so i had to ask them to leave after 5 days cutting short their vacation wiuth me at 10 pm
    but they were totally inconsdsidearte drunks…one even admitted to getting arrested in toronto…before he came to me….so you have to be careful with who you host…

  23. Those who rent their property thru AirBNB do not pay taxes on the stay of the guest.. required of legitimate businessses. In addition most municipalities require if food is available, you must have an inspected kitchen and your homeowners insurance will not cover you for mishaps if your guest gets injured or burns the place down as making an income off a residential property puts the property in a business class insurance (unless you lie to your insurance company). One commentor said they pay property taxes so they think they are legitimate, but they are not. They also are required to pay a sales and room tax. Those who run legitimate businesses must jump thru hoops to comply with all the local, state and federal requirements. Air BNB is promoting “working under the table”. Although I hate the compliance and the taxes that I as a small business person must pay, if you are earning an income you should be paying your fair share as well. As you do not pay your share of the tax issues, other small businesses must pick up the slack due to higher taxes. If Air BNB customers were legal and paid their fair share of taxes and fees for compliance i would not have a problem with this concept.

  24. Two things. One, the lease issues might be a bump in the road, but people who enjoy hosting will find ways to host guests. I’ve called this new model of subletting the “Trump” model, as it is the exact model used by Trump (except on a large commercial scale). If it becomes more mainstream, the original leasing company will just incorporate a fee, as the “social pressure” combined with market forces will be enough to make sure it eventually happens (the condos down the street are making some extra profit, why shouldn’t we?).

    Two: Corporate housing pretty is this business model for the business traveler. There are a lot of companies who lease year around contract and sublet them out on shorter terms. The average daily rates are substantially lower than a hotel would be. The leasing companies are happy to have vacant units leased.

  25. Two things. One, the lease issues might be a bump in the road, but people who enjoy hosting will find ways to host guests. I’ve called this new model of subletting the “Trump” model, as it is the exact model used by Trump (except on a large commercial scale). If it becomes more mainstream, the original leasing company will just incorporate a fee, as the “social pressure” combined with market forces will be enough to make sure it eventually happens (the condos down the street are making some extra profit, why shouldn’t we?).

    Two: Corporate housing pretty much is this business model for the business traveler. There are a lot of companies who lease year around contract and sublet them out on shorter terms. The average daily rates are substantially lower than a hotel would be. The leasing companies are happy to have vacant units leased.

  26. It seems that most the comments here are from US-based people. Just to highlight that the majority of the growth in Airbnb appears to be from overseas sources. These places often don’t have as restrictive/penal clauses or, if they do, these things aren’t really enforced as strictly as in the US. So, my apartment in Cape Town, South Africa has become hugely popular as I charge a third of the average hotel room in the area.

    As for not disclosing contact details, that is to protect their own business. People can easily find a spot on Airbnb and then contact the owner directly, thus putting airbnb out of business. If you use a service, you must pay for it.

  27. So? It’s a good thing if it’s disruptive. Why, do we want to defend the status quo of long-established industries? Business should be made of services which are useful, and competitive. You may call this disruption, I may call it competition. This is like saying that the electric car is disruptive to the oil industry.

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