The Rise of Airbnb

Ingenuity, tireless dedication and fine-tuning launched a simple concept into a successful global disruptor.

by Jane Rhodes

In 2007, San Francisco, roommates Brian Chesky and Joe Gebbia were struggling to pay their rent. With a major design conference coming to the city and hotel rooms in short supply, they spotted an opportunity. They inflated three air mattresses in their living room and set up a simple website, offering a bed and breakfast experience for attendees. This makeshift setup marked the birth of “Airbed & Breakfast.” The concept was simple and effective, and would eventually evolve into the $75 billion global hospitality behemoth Airbnb.

The ingenuity of Chesky and Gebbia’s idea quickly gained traction. Initially, their guests were conference attendees desperate for a place to stay. They charged a modest fee, offering not just a place to sleep, but also breakfast and a unique opportunity to connect with local San Franciscans. The success of this initial venture sparked a realization: there was a significant market for affordable, short-term lodging that provided a more personal touch than traditional hotels.

Recognizing the potential, the duo decided to take their concept to the next level. They joined forces with Nathan Blecharczyk, a former roommate and a skilled computer programmer, to build a more robust platform. This team of three, each bringing a unique skill set, worked tirelessly to develop a user-friendly website that could connect hosts and travelers worldwide. They expanded their offering beyond air mattresses in living rooms, encouraging people to list their spare rooms, apartments, and even entire homes.

Despite the promising start, the road ahead was far from smooth. The early days were fraught with challenges, from legal hurdles to skepticism from venture capital investors. The trio faced numerous rejections as they sought funding, with many doubting the viability of their business model. Undeterred, they continued to refine their platform, improving the user experience and building trust among their growing community of users.

At a Stanford Graduate School of Business event in February 2023, Chesky — now the CEO of Airbnb — explained that amid the rejection by the venture capital world, the trio in 2008 turned to their own customers for fundraising dollars. In an inventive approach, they marketed their cereal boxes emblazoned with images of presidential hopefuls Barack Obama and John McCain. This unique breakfast offering in Airbnbs was a hit, with over 1,000 boxes sold, generating $30,000, as Chesky revealed.

This unconventional strategy caught the attention of at least one investor. Paul Graham, a co-founder of Mountain View, CA-based tech startup accelerator Y Combinator, was intrigued enough to offer an investment, according to Chesky. He was impressed by their ability to sell cereal at a significant markup.

“If you can convince people to pay $40 for $4 boxes of cereal, maybe, just maybe, you can convince strangers to live with each other,” Graham told the founders, as recounted by Chesky.

This marked a turning point for Airbnb, as Y Combinator made one of its earliest investments in the company. The firm reportedly invested $20,000 in early 2009, acquiring a 6% stake, giving them the much-needed capital to expand their operations.

A Global Empire

Post-investment, the trio’s focus was on refining their website and user experience. The team worked on making the platform more user-friendly and trustworthy. This included enhancing the design, improving search functionality, and introducing features like user profiles and reviews. With a more polished platform, Airbnb began to see an increase in listings and bookings. The concept started gaining traction not just in the United States but globally, as people around the world began listing their spaces.

Airbnb’s growth is rooted in its community-centric approach. According to the co-founders, the platform isn’t just about listings; it’s about creating connections and memorable experiences. This human element set Airbnb apart from the impersonal nature of traditional hotels. One of the key factors in Airbnb’s success is its robust review system. It built a foundation of trust, essential for a platform where personal spaces are shared. Hosts and guests leave reviews for each other, creating a self-regulating community. This system not only builds trust but also encourages better experiences, as both parties are accountable.

After the initial seed funding from Y Combinator, Airbnb started attracting more investors. In November 2010, it raised $7.2 million in a Series A funding round led by Greylock Partners and Sequoia Capital, and in July 2011, it secured $112 million in Series B funding, which was led by Andreessen Horowitz, DST Global, and General Catalyst.

Airbnb continued to innovate by diversifying its offerings. It expanded beyond just offering accommodation to include experiences and adventures, allowing hosts to offer tours, activities and classes. By 2011, Airbnb had listings in 89 countries and over 1 million nights booked. That same year it opened its first international office in Hamburg, Germany. This rapid scaling was a testament to the platform’s growing popularity and the strength of its business model.

Reflecting on these early years in a 2017 podcast with Reid Hoffman, Chesky explained: “We had a saying that you would do everything by hand until it was painful. So, Joe and I would photograph homes until it was painful, then we got other photographers. Then we’d manage them with spreadsheets until it was painful. Then we got an intern…Then we would automate the tools to make the interns more efficient… And then eventually, our system does everything.”

Airbnb leveraged that automation and technology to match guests with hosts, make browsing and booking easy, and facilitate communication. The platform uses a sophisticated algorithm to personalize listings based on user preferences and past behavior. Their app and website set high standards for user experience, making the process of listing, finding and booking accommodations seamless and intuitive.

The company quickly became recognized as a disruptive force in the traditional hospitality industry. Its model of a peer-to-peer lodging marketplace was seen as revolutionary, and it started to influence how people travel and experience new destinations.

First Profit

In October 2013, Airbnb announced that it had reached over 9 million guests since its founding. The following year, it launched its now-famous logo, which took London and San Francisco-based DesignStudio a year to complete, and in December hit a valuation of $10 billion following another funding round.

In August 2015, the company became officially legal in its hometown of San Francisco after years of regulatory battles. Before then, its operation in the city, as in many other places around the world, existed in a legal gray area. Its business model did not fit neatly into existing regulatory frameworks, particularly those governing short-term rentals and the hotel industry. As a result, the company often operated in a state of uncertainty, with its legality being a subject of debate among city officials, residents and traditional hospitality businesses.

Three years later, in December 2018, the company reported its first substantial profit, marking a significant financial milestone. Reporting a profit in a market that includes intense competition from both traditional hotel chains and other short-term rental platforms underscored Airbnb’s competitive advantage in the hospitality industry.

The profitability also set the stage for the 2020 Initial Public Offering (IPO), which took place in December of that year. The company achieved a remarkable market valuation of over $100 billion. Since its launch, the company’s valuation has fluctuated. It reached a peak of $131 billion in November 2021 and hit a low of $54 billion in December 2022, before recovering in 2023.

Since the Covid-19 pandemic, the company has been adapting to changing travel patterns, focusing more on long-term stays and local travel experiences. People sought accommodations for extended periods, either to work remotely, to be closer to family, or to self-isolate.

The recent years have also brought increasing scrutiny of — and in many cases, public anger toward — Airbnb, particularly regarding the impact of its business model on local housing markets and rental prices. From around 2017, cities across the globe, including Toronto and Paris, began implementing stricter regulations on short-term rentals. These often include measures like requiring hosts to register with the city and limiting the number of days a property can be rented out. In other major tourist destinations such as Amsterdam and London, there was growing public outcry over the transformation of neighborhoods due to the prevalence of short-term rentals, leading to further regulatory action. In perhaps one of the boldest moves of any major city, New York City in September 2023 enacted what many called a “de facto ban.”

An Uncertain Future

Airbnb’s journey, marked by innovation and fraught with regulatory challenges, points towards an uncertain yet intriguing future. Since its launch a decade and a half ago, the company has demonstrated remarkable versatility, and its ascent from a simple idea born in a San Francisco apartment to a global phenomenon has been nothing short of meteoric. But this rapid ascent has been shadowed by growing pains, reflecting the complex interplay between disruptive business models and established societal norms.

The increasing regulatory pressures in major cities around the world pose a significant challenge. Regulations often arise from deep-seated concerns about housing affordability and community integrity, issues that are at the heart of urban living. Airbnb’s response to these challenges, balancing its business interests with the concerns of local communities, will be critical in shaping its future trajectory. The company must find a middle ground that satisfies both its growth ambitions and the needs of the communities in which it operates.

Additionally, the fluctuating valuation of the company, which has seen both remarkable highs and notable lows, reflects the volatility of the market’s perception of Airbnb’s long-term viability. This volatility is not just a financial concern but also speaks to the broader uncertainties surrounding the sharing economy and its place in the global economic landscape. Airbnb’s future is as dynamic and unpredictable as the very market it helped create. The company’s ability to innovate in the face of adversity, adapt to changing market demands, and navigate complex regulatory landscapes will be key determinants of its continuing success. The next chapter for this trailblazing enterprise will unfold in a world that is constantly changing, potentially setting new benchmarks in the industry.