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

by (Journalist) Leigh Gallagher

anointing

belonging anywhere wasn’t just a single moment; it was a transformation people experienced when they traveled on Airbnb. The company has codified this as something it calls the “belong anywhere transformation journey,” which goes like this: When travelers leave their homes, they feel alone. They reach their Airbnb and they feel accepted and taken care of by their host. They then feel safe to be the same kind of person they are when they’re at home. And when that happens, they feel like freer, better, more complete versions of themselves, and their journey is complete.

whether or not it is a full-fledged “transformation journey” for the average traveler, Airbnb has enjoyed success that is about something more than just low prices and freely available, quirky spaces. It touches on something bigger and deeper.

This kind of “sharing” — this hyperpersonal opening up of the most intimate and safest aspect of one’s life to a stranger — is not present when you hire a person to fix a leak on TaskRabbit, or when you get into someone’s air-conditioned black car for a silent ride to the airport with your head in your phone. More than anything else, it is this aspect of Airbnb that distinguishes it from Uber, Lyft, and any other of its sharing-economy peers.

“Uber is transactional,” she said. “Airbnb is humanity.”

revelers.

distraught:

“unconscionable”

But safety is paramount to Airbnb’s business; more than “belonging,” one could argue, not being hurt and not being vandalized are fundamental in Maslow’s hierarchy. And just like entrusting a user to provide good hospitality, safety, too, is a real challenge when the company doesn’t own its assets. “Our product is real life,” Chesky says. “We don’t make the product.” Because of that, he says it can’t be perfect. “What you end up with isn’t a community where nothing ever happens.” But he maintains that Airbnb is a “high-trust community” (the “real world on the street,” he says, is by comparison a low-trust environment), and when instances do happen, the company always tries to go above and beyond to make things right. In every instance, he says, “I hope we would have done more than you thought we would have done in that situation. I think most of the time, people would say we do.” Airbnb’s strongest defense against these headlines is that despite these high-profile incidents, they are rare.

media melee

“It’s one of the challenges when you have a company built on other people’s assets.”

antithetical

murky.

culpable,

The issue of being friendly and welcoming to one another isn’t ancillary, the way, say, Dove soap believes in healthy body image but sells soap, or the way lululemon believes in community but sells clothes. Airbnb sells welcoming and acceptance, and has built its entire brand and mission around the idea of belonging. If there were a polar opposite of belonging, this would be it. “Discrimination to most companies is an adjacency to their mission,” Chesky said in an onstage interview at Fortune’s Brainstorm Tech conference as the controversy was erupting. “Our mission, most importantly, is to bring people together. This was an obstacle to our mission, and if we merely tried to ‘address the issue,’ we would probably not accomplish our mission.”16

Early to bed, early to rise, and work like hell and organize. — CHRIS LEHANE

The company’s experience in New York is also a case study for the kinds of collisions that can happen when new ideas and technologies come out of nowhere to threaten the status quo and incumbent industries — and how the political realities on the ground aren’t always as smooth as the ascending line on these companies’ unfettered growth charts. It highlights how deeply emotional issues around housing can get. The struggle over Airbnb in New York and elsewhere has also pitted Democrat against Democrat, has brought together strange bedfellows, and has made it hard sometimes to discern just who is the David and who is the Goliath.

While Chesky’s reaction when the 2010 bill first appeared was to just fight back — early on, top Silicon Valley minds had advised the company to lie low and stay off the radar or even to be antagonistic — Airbnb’s Belinda Johnson brought a decidedly more conciliatory approach when she started, in 2011. She encouraged Chesky to start meeting with his opponents instead. “Belinda taught me that no matter how much somebody hates you, it’s almost always better to meet them,” he says. He embarked on a “massive charm tour,” traveling to New York and meeting with stakeholders: regulators, hoteliers, members of the real estate community, journalists — even Mayor Bill de Blasio (“We had a really great conversation,” Chesky says). Meeting face-to-face didn’t change their stance in most cases — that would soon become an understatement — but it got them to hear his side.

Chesky says that a lot of nuances about Airbnb’s workings are lost in the headlines. “We really do care deeply about this issue, and we are trying to solve it,” he says. He insists that large real estate groups are not what the company wants. “We don’t have much differentiation if it’s a corporate rental,” he says. “It feels like a hotel. There’s less belonging.”

There are few things more acrimonious than a political fight in New York City, especially one that combines labor, big business, and the hypersensitive, deeply emotional issue of affordable housing, and as the stakes got higher, so did the level of vitriol.

scintilla

pugnacious

slender

It falls on Lehane to oversee Airbnb’s strategy to push back and get the laws to turn in the company’s favor. “It’s a wild thing,” he says, sitting down for one of our chats in Airbnb’s offices. “It’s like you’re building a car, building the road, building rules, people are throwing rocks at you — it’s great!” But he freely admits he is also a consumer of what many by now have referred to as the Airbnb Kool-Aid. He believes the company has the potential to be a driving force for the middle class and says the reason home sharing has caught on with the consumer the way it has is that a series of larger socioeconomic trends have converged. It reinforces social contracts that have become frayed. It enables everyday people to be economically empowered. It brings people together. “At the end of the day, the reason why Airbnb is succeeding at the level that it is is not because of some magic potion or fairy dust that’s been put on some algorithm,” he told the U.S. Conference of Mayors in 2016. “It is because we’ve built a platform that allows people to

Mastering unique politics is Lehane’s specialty, and he knew that the key to winning Airbnb’s regulatory battles would lie in mobilizing its hosts. He says that Airbnb has something that no other private-sector entity he knows of has: hundreds of thousands of engaged hosts and guests who can be an “army of change.” His solution: implement a grassroots mobilizing effort, much like the company did in New York when the attorney general first struck, but one that would be the equivalent in size and scale to a presidential campaign — and would be launched all over the world.

To his way of thinking, Airbnb has two unique elements that make this possible. One is scale: in the United States alone, the company’s user base is larger than some of the country’s largest special-interest groups, such as the Sierra Club, the American

Many in the Airbnb community are casual users; Lehane divides them into “base voters,” the hosts, who are the more engaged but much smaller group, numbering just a few million; and “occasional voters,” the guests. But the company’s polling has shown that even the casual guest can be easily mobilized, and in certain markets as much as 5 to 15 percent of the general electorate uses Airbnb in some fas...

Its “base voters” don’t just believe in the cause; they make money from it. Airbnb hosts keep all the revenue that comes in the door but the 3 percent the company charges for its host fee. “These people are making ninety-seven cents on the dollar,” Lehane says. “You put all these things together, and that’s why I think we can be really politically disruptive.”

conducive

you come with the best of intentions, you could end up with a partnership. If a city comes to you, you could have many, many years of potential conflict.”

going to be doing this tomorrow than today? Yes. And more the day after that,” says Lehane. “The public is already there, and the politicians follow where the public is pretty quickly.”

countenance

“Success almost always results in legitimacy,” says Airbnb board member Jeff Jordan.

It’s a much-cited reference in Silicon Valley, where legions of start-up founders pride themselves on being unreasonable enough to get gobs of funding and then get the laws changed in their favor.

“Whenever you disrupt a massive industry and you try to make room for yourself inside of that industry, the various interests are going to push back,” he says. “They didn’t build a billion-dollar hotel industry by not knowing how to push back. The more incumbent you are, the more you can use politics to do that.” At the end of the day, Seibel says, echoing so many others, it’s the consumer who votes and the consumer who usually wins.

benign

Airbnb stays are longer than traditional hotel stays. Roughly three-quarters of its listings are outside the areas where the big hotels are located. It tends to draw larger groups. It is a different “use case,” in technology-industry terms. A large number of travelers stay with friends and family, “so if we disrupt anything, we might disrupt you staying with your parents,”

An important way hotels make money is in so-called compression pricing: the ability to send rates way up in times of peak demand. Such nights make up just 10–15 percent of nights but are a critical source of revenue. One of the things about Airbnb that makes hotel executives cringe is that when a big event comes to town, its supply of inventory can expand instantly to meet the demand. Previously, travelers would have paid higher rates or gone as far out as they needed into the suburbs to find a reasonably priced room. Now, they can just turn to Airbnb.

While it’s expanded well beyond that, in 2015, 70 percent of Airbnb’s full-home listings were studios, one-bedroom, and two-bedroom units, according to Airdna.21 So for the first time, short-term rentals were no longer just the big homes in lake, beach, or mountain destinations. They were in the apartment right next door in the heart of every city around the world. That’s what made the platform grow so fast, and it’s what makes the company so threatening to hotels. But it’s also why so many people who were initially drawn to Airbnb, both on the host side and on the guest side, weren’t customers of another vacation-rental site who switched; they were an entirely different kind of customer.

There is one other saying that you hear inside Airbnb’s halls. It’s a quote often attributed to Gandhi that Chip Conley recited on his first day, back in 2013, when he addressed four hundred employees, and it must still be oft repeated, because at least three executives recounted it to me when I brought up the question of competition with hotels. “There’s this great quote from

demur.

One of the unique aspects of the Airbnb story has nothing to do with its weird, unthinkable idea for a business or its high-profile battles with lawmakers or even the rapid growth of its user base. Rather, it is the lack of traditional management experience of the company’s founding team — especially its CEO — and the speed with which they have had to learn how to become leaders of a very large company. Airbnb is now in its ninth year of so-called hypergrowth, that vertical phase in the middle of the stick part of the hockey-stick growth chart when revenues essentially double, or come close to it, every year. Such a burst typically lasts a year, two, maybe three. Airbnb basically entered this phase in 2009 and hasn’t gotten out yet.

The path has been especially extraordinary for Chesky, the leader of the company — and the only one of the three who previously had no business experience whatsoever. “It’s kind of like, what did I know?” Chesky says. “Almost everything was brand new.”

and right, and there was an entire culture to build, with everyone looking directly to Chesky for vision and direction. The company needed him to be a CEO immediately; it couldn’t wait for him to get there. “There is basically no time for a learning curve,” Chesky says, teeing up another historic-figure paraphrase. “It’s kind of like the old Robert McNamara saying — there’s no learning curve for people who are in war or in start-ups.”

you pick the right source, you can fast-forward,” he says.

Chesky learned the importance of removing those managers who weren’t performing. From Salesforce.com CEO Marc Benioff he learned how to push his executive team. He also had access to an informal support group among his current-generation start-up peers, including Travis Kalanick of Uber, Drew Houston of Dropbox, Jack Dorsey of Square, and John Zimmer of Lyft, all sharing their individual lessons about everything from running start-ups to balancing friends, relationships, and other elements of young founder life.

conversation about this, Chesky stopped, looked at me, and told me I could be a source. “By the way, I’m learning from this,” he said, pointing to my notes. “If I wanted to learn how to interview a candidate, the obvious place to go would be another executive. But the better place to go would be a reporter.”

Of course, Chesky is operating at a level of highly privileged access; not everyone can call up Jony Ive or Mark Zuckerberg or Jeff Bezos. But Chesky insists there are always good mentors, regardless of someone’s level. “When I was unemployed and a designer, I also met with people, and I was [just as] shameless,” he says. In fact, if he had been meeting with some of these heavy hitters when he was an unemployed designer, he points out, it wouldn’t have been useful. “There wouldn’t have been anything to give back in the conversation. It’s a matter of picking people that are, at least, a couple of years in front of you.” Sequoia’s Alfred Lin says that plenty of CEOs have similar connections to Chesky’s but aren’t as successful. “I think the network is very helpful, but the potential has to be there,” he says.

historical figures like General George S. Patton, former secretary of defense Robert McNamara, and scores of others; management tomes by the dozens (his favorite is Andy Grove’s High Output Management); and niche-industry sources like the Cornell Hospitality Quarterly. To say Chesky is a voracious reader doesn’t quite capture it. He takes his family on vacation once a year, usually around the holidays, when his way of recharging is to ingest as many books as possible. While he’s away, “he doesn’t stop reading,” says his mother, Deb Chesky. “We’re at dinner, and he’s reading.” He also spends the holidays drafting his annual letter to employees, “for hours and days, like, nonstop,” Deb says. “And he reads it to us, and we think it’s perfect, and then he’s gone and changed it fifty times.”

people took some time. He learned the hard way, if two people had a disagreement, not to automatically take one person’s side of the story. Hard-earned experience taught him that his words and actions can carry major influence throughout the company. (Picking up a green marker on the table in front of us, he says, “It’s kind of like if I use this green marker. And then someone says, ‘Brian only likes green markers. Get rid of all the non-green markers in every room!’ And I might have just randomly picked up a green marker for maybe no reason.”)