How Airbnb Succeeded as a Failing Startup

Submitted by Christina Alonso to the Global Startup course at the University of Seoul-??????? on June 20, 2022.

Introduction to Airbnb

Airbnb is an online marketplace to find short and long-term housing. Millions of hosts and travelers utilize Airbnb’s online platform to post and find places to stay at and has grown very popular in the past several years. They currently have over 4 million listings on their platform, which is more than the top 5 hotel brands combined. Although the hotel market still makes more revenue than Airbnb, Airbnb still stands out as a big competitor because of its variety of choices and locations, convenience, and price tag.?

Airbnb has provided the platform to customers looking for a place to stay, despite the awkwardness of staying in a stranger's home. They make customers feel safe and comfortable with a thorough introduction to the listing, pictures, and the ability to book and communicate with the host directly. Customers looking for a stay can also read reviews from others who have stayed at the same location and other locations the lister has. Airbnb also provides processes for hosts to guarantee safety like verifying profiles and providing a safe way to provide and collect transfers. Hosts are able to also report to Airbnb any damage or suspicious activity and can charge customers cleaning/damage fees through the platform.?

The First Airbnb Listing

Airbnb started as an idea in 2007 in San Fransico, California after two 20-year-old roommates, Joe and Brian,? rented their apartment to 3 guests. They provided breakfast and three air mattresses, and their website was called airbedandbreakfast.com. After making $240 in revenue from their first night, approximately $80 of rent per person, they saw this as a business plan to make ends meet. They then ended up inviting their former roommate Nathan to fix up their website, who ended up becoming their third co-founder.

The Story of Failures

In 2008, they launched their new website, but no one noticed. They even relaunched again at an annual SxSW 5-day festival, where they only gained one more customer. After the failed attempts of launching and re-launching their new website, they decided to pitch at the 2008 Democratic National Convention in Denver, Colorado. They planned an offline marketing campaign with the Democratic parties running, Obama and McCain. Their campaign allowed Airbnb to be featured on democratic cereal boxes, Obama O’s and Cap’n McCains, where each box provided information about Airbnb. They ended up selling 800 $40 boxes, generating $30,000 for the company’s incubation. After this, Paul Graham took notice and invited them to be a part of his 2009 Y Combinator batch and gave Airbnb their first funding of $20,000.?

Unfortunately, Y Combinator’s training didn’t provide them with enough skill and funding to make higher revenue and essentially be successful. Their next step was finding investors but were rejected by more than 15 in 2008. It wasn’t seen as profitable to the investors and lacked feasible business plans to grow. Their weekly revenues were around $200 with no growth, and their friends started advising them to find opportunities elsewhere. The biggest issue that led to Airbnb starting to look like a failure was the lack of awareness and credibility.

The Success Factors

Finally, the co-founders realized their biggest weakness was the platform itself. The photos from the listings on Airbnb sucked. Having bad pictures lack credibility and trust, and could drive customers from wanting to book at a place where they can’t enjoy what they’re supposed to sleep at. They rented a camera and went door-to-door in New York City to build relationships with hosts and shoot photos for them, enhancing the appearance of the Airbnb listings. After resolving this issue, they doubled their weekly revenue to $400 a week.

In April 2009, they received $600K seed funding from Sequoia Capital, and they kept growing from there. In 2014, their valuation soared to $10 billion, and Airbnb was considered a “Silicon Valley Unicorn”. Previous potential investors voiced their regrets about not investing in Airbnb when they had the opportunity. Since beginning in 2007 however, Airbnb has faced many legal and financial battles but still remains to be a $25 billion company today.