The Airbnb Story: How Three Guys Disrupted an Industry, Made Billions of Dollars … and Plenty of Enemies

by (Journalist) Leigh Gallagher

the founders knew that for the site to succeed, it had to deliver product that both the guest and the host would not just like but like so much that both would use the platform again and would tell their friends.

In the early days of Airbnb, the search capabilities were pretty straightforward, returning the highest-quality set of listings that met certain basic filters — number of travelers, dates, amenities — within a certain geographic area. But over time, the company’s algorithms grew more advanced, able to factor in things like quality, hosts’ behavior patterns, and booking preferences. For example, Airbnb can tell by its users’ past behavior that some hosts like to book months ahead of time, while others are more comfortable with eleventh-hour planning; it tries its best to match a last-minute booker with a host who has shown a willingness to accept those kinds of reservations, to reduce the chances of a guest trying to book and being rejected.

The company now has four hundred engineers and a machine-learning engine that is marching ever closer to Airbnb’s holy grail: the nimbleness to extract from perhaps ten thousand available listings for certain dates in, say, Paris, only the five or six that each particular user would like most.

For the first eighteen months and even beyond, a good part of his job would be simply keeping the platform up and running. He set his phone to alert him whenever the site went down with a pop-up that read “Airbeds deflate!” When it went back up, the pop-up read “Airbeds fluffed!” “I was getting pinged by this thing all the time, every other day or so, often in the middle of the night,” he says.

Nevertheless, all of this back-end sophistication enabled the company’s growth. Ever since the first round of funding from Sequoia, the biggest challenge had been not creating the growth but keeping up with it.

Sand Hill Road in Menlo Park — the mecca for venture capital

(Hoffman says he learned a lesson from having passed earlier: when a “doofus” pitches a business badly, don’t presume it’s accurate. “Wait for the good pitch that’s reliable,” he says.)

One of the things Hoffman liked most was not just the idea but also the chutzpah and hustle the founders had demonstrated — skills, Hoffman says, that are especially critical for entrepreneurs who are starting online-marketplace businesses. “Different kinds of businesses require founders with different primary strengths,” he says. “And one of the strengths for marketplace founders is a willingness to think out of the box and be scrappy.” Some of the things the Airbnb founders had already done — doing unscalable things in order to later scale

were, Hoffman says, classic marketplace-founder behaviors. “If it were a network or gaming company, that might not have mattered much,” Hoffman says. “But in marketplaces, that’s really key, and that was in their founding story.” The challenge of making rent, the Obama O’s, the not dying — “That was...

But its biggest news was still to come: after months of rumors in tech circles, in mid-July 2011, Airbnb confirmed it had secured a new round of $112 million in funding, led by Andreessen Horowitz. The firm had passed earlier, but had done an about-face. The round also included other key investors like DST Global and General Catalyst Partners, and pegged the company’s valuation at $1.2 billion, officially turning it into what’s known as a “unicorn,”

More than anything else, the fund-raising round was a sign not just that the company had arrived but also that many thought it had the potential to be much bigger. The size and scale of the funding, along with the names of the investors, reverberated around the Valley. The news infused a palpable fear among the investing world of missing out on the next big idea.

the advice Chesky took came from Paul Graham, who told him that the difference between Airbnb and Wimdu was that Airbnb owners were missionaries, and Wimdu owners were mercenaries. Missionaries, he told him, usually win.

In what Chesky would later call a “bet the company” moment, the cofounders decided not to buy Wimdu, mainly for the reason Graham mentioned: Chesky didn’t want to absorb four hundred new employees who he felt were mercenaries and whom Airbnb had had no say in hiring. They also decided that since the Samwer brothers likely had no interest in running the company long-term — their whole business model revolved around selling companies, not running them — the best revenge was to force them to actually run the giant company they’d just built. “You had the baby, now you’ve got to raise the child, and you’re stuck with it,” as he told Hoffman.

asinine

On July 27, Chesky released the company’s first public response and attempted to reassure the community that someone was in custody, that Airbnb held safety as its highest priority, and that it had been in close contact with EJ and authorities

to “make this right.” He outlined some of the safety improvements the company would begin instituting. The letter made things worse.

The bad situation was getting worse. And despite having access to the best advisers, Chesky was still getting a lot of conflicting advice. Almost everyone was focused on the impact on the company, and afraid of doing or saying anything that would exacerbate the situation. Advisers were telling Chesky not to bother EJ, that she said she wanted to be left alone. Lawyers urged him to be very careful about what he said. But being cautious and quiet was exactly what was making things worse. At one point, Chesky finally realized he needed to stop listening to these advisers. “I had this really dark moment where I wouldn’t

say I stopped caring, but my priorities completely changed,” he says. He realized he needed to stop managing for the outcome and manage instead in accordance with his and the company’s values. He felt he needed to apologize, and in a big way.

The one piece of advice he did take: Marc Andreessen, who gave the letter a close read at midnight, told Chesky to add his personal e-mail address to the letter of apology, and he added a zero, changing the guarantee from $5,000 to $50,000. (The San Francisco Police Department subsequently confirmed that it had made an arrest. Airbnb says there was a settlement in the case but declined to comment more than that.)

Chesky’s primary takeaway from this experience: stop making decisions by consensus. “A consensus decision in a moment of crisis is very often going to be the middle of the road, and they’re usually the worst decisions,” he says. “Usually in a crisis you have to go left or right.” From then on, “add a zero” became a euphemism for taking one’s thinking to the next level. He would later call the experience a “rebirth” for the company.

As part of Airbnb’s rebirth, the founders made a few key hires. If the experience with EJ had taught them anything, it was that they needed a communications pro. They found Kim Rubey, a veteran of Democratic politics who’d decamped for eBay and then Yahoo. She had crisis, consumer, and government experience, which seemed like the right combination. She interviewed with all three founders and put together a hundred-day plan. After she accepted, they told her that, by the way, they’d be launching in ten new markets in Europe in a few weeks. “It was, like, ‘Oh, we forgot to tell you … ,’” she says.

“Before product/market fit, thinking long-term seemed preposterous,” Chesky later said.

“When you’re dying, you’re not thinking, ‘What do I want to be when I grow up?’ You’re thinking, ‘How do I not die?’”10

People often ask Chesky about the founding days, but he says that to think about the company only in those terms glosses over stages 2 through 5, which are much, much harder; he describes them as “fire-fighting.” This phase can be a lonely place — there are plenty of books on starting a company, he says, and plenty on managing people in large organizations, but there aren’t a lot of books on the stages that are in between.

agility.

you don’t get to millions and millions of customers without, as Y Combinator’s Paul Graham would say, making something people want.

If there were three phases of Airbnb, they could be very loosely categorized as the couch-surfing phase of the very early days; the igloo-and-castle phase, when the growth started to take off and the company became known for all the odd, quirky, get-a-load-of-this spaces; and the Gwyneth Paltrow phase, when its user base and inventory had expanded to such

The significance of the Paltrow phase was twofold: first, that Airbnb had become a legitimate option for the pickiest, most sophisticated of travelers, and, second, that it had become so large a platform that it basically had something for everyone.

Companies started using Airbnb as a marketing platform, creating specially themed listings around their brands: in the summer of 2016, pegged to the release of the movie Finding Dory, Pixar listed a night on a chic floating raft in the Great Barrier Reef designed to bring winners as close as possible to the natural habitat of Dory and Nemo.

gamut,

One of the most truly disruptive things about Airbnb is that you can now find a simple place to stay in New York City for under one hundred dollars per night.

Part of Airbnb’s success is that it tapped into a dissatisfaction with the mass commodification of large-scale hotel chains. Even the hotel companies recognize this. “Twenty years ago when you listened to what travelers wanted, they wanted a clean room and not to be surprised,” Arne Sorenson, CEO of Marriott International, explained in an onstage interview about disruption at the American Magazine Media Conference in early 2016. “That fed our brand’s strategy: OK, let’s make sure it all looks similar.” Now, he says, what the traveler wants has changed: “If I’m waking up in Cairo, I want to know I’m in Cairo. I don’t want to wake up in a room that looks like a room in Cleveland.”

Much in the same way we now want homespun, small-batch artisanal everything — from bread to pickles to cocktail ice — many travelers, and especially millennial travelers, want the same kind of imperfect authenticity from their travel experiences.

Whatever form it takes, it’s something that’s different, real, and unique. It’s making travel excessively personal when it had become impersonal. “It’s anticommodity,” says Greylock’s Reid Hoffman. “It’s uniqueness. It’s humanization.”

This is a big marketing hook for Airbnb, and it’s a smart one: hotels in big cities are often centralized to the commercial zones. The ability to stay on a tree-lined block in brownstone Brooklyn or a newly surfacing residential neighborhood in Prague is a novel concept and, for many travelers, is more desirable.

It’s less commodified, more unique. It’s less about the big avenues and wide arterial roads and the commercial zones where the hotels are often located, and more about the parts of the city reserved for the people who live there. It’s about, as Airbnb would later promote, experiencing a place like a local rather than as a tourist.

Airbnb had a new mission statement: to make people around the world feel like they could “belong anywhere.” It had a new color: magenta. And it had a new logo to symbolize this: a cute, squiggly little shape that was the result of months of conceiving and refining that it called the “Bélo.” It had been named by the company’s new chief marketing officer, Jonathan Mildenhall, who’d recently joined from Coca-Cola. Mildenhall also convinced the founders to expand “belong anywhere” from an internal mission statement to the company’s official tagline.

Airbnb, he wrote, would stand for something much bigger than travel; it would stand for community and relationships and using technology for the purpose of bringing people

together.

The Bélo itself was carefully conceived to resemble a heart, a location pin, and the “A” in Airbnb. It was designed to be simple, so that anyone could draw it; rather than protect it with lawyers and trademarks, the company invited people to draw their own versions of the logo — which, it was announced, would stand for four things: people, places, love, and Airbnb.

lampooned

warily

impediment;

“rise of the hipster nomad”

“We’re not rich, but we’re comfortable, we’re lifelong learners, we’re healthy, and we’re curious.” They chronicle their adventures at seniornomads.com.

“How do you take hospitality, which in many ways had gotten very corporatized, and take it back to its roots?” Conley went to work right away, trying to help bring organization and know-how to Airbnb’s host community. He traveled to twenty-five cities giving talks and hosting tips to help regular apartment-dwellers channel their inner innkeeper. He set up a centralized hospitality-education effort, created a set of standards, and started a blog, a newsletter, and an online community center where hosts could learn and share best practices. He developed a mentorship program wherein experienced hosts could help bring new hosts on board and show them the ropes to good hospitality.

Conley and the hospitality team can, of course, only suggest or encourage hosts to do these things; they can’t require it. This is where Airbnb’s review system kicks in, the company’s two-way rating mechanism that prompts both hosts and guests to review one another after a stay. The blind reputation assessments have become a vital element of the Airbnb ecosystem: they provide a layer of third-party validation for both the host

and the guest, and with both parties looking to bolster their reputations for future use within the system, the incentive to review is mutual and engagement is high: more than 70 percent of Airbnb stays are reviewed, and while there is some “grade inflation,” it helps keep both parties in check. The system has additional value for Airbnb: it is used as a lever to encourage and to reward good host behavior and to discourage bad behavior.

Early on, the founders learned that they were in possession of a valuable currency: the ability to determine where a host’s listing would show up in search rankings. That ability could be used as a powerful reward mechanism to its hosts: those who provided positive experiences for guests and received good reviews would get vaulted to the top of search results, giving them greater exposure and increasing their chances of future bookings. But decline too many requests or respond too slowly or cancel too many reservations or simply appear inhospitable in reviews, and Airbnb can drop a powerful hammer: it can lower your listing in search results or even deactivate your account. Behave well, though, and Airbnb will shine its love upon you. If you hit a certain series of performance metrics — in the past year, if you have hosted at least ten trips, if you have maintained a 90 percent response rate or higher, if you have received a five-star review at least 80 percent of the time, and i...

dedicated customer-support line, and you might even get the chance to preview new products and attend events. The reward-based ecosystem works: these days, Airbnb’s platform is populated with two hundred thousand Superhosts, and while not every one of them is perfect, of course, awarding the status is Airbnb’s most powerful tool for ratch...