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Should You Worry About Airbnb?

Should You Worry About Airbnb?

Say what you will about Airbnb, the San Francisco-based company gets headlines. That’s largely because the online marketplace for short-term room rentals is sending a shot across the bow of the hospitality establishment. While some of the industry’s entrenched players are taking a wait-and-see approach, others are responding to the threat with the full weight of the law behind them.

First, a bit about the upstart, which ceased to be a start-up when it raised $450 million in its seventh round of funding in April. The company is now powered by $776.4 million, according to the startup database CrunchBase. The growth has happened so quickly, it even caught its founders by surprise.

Back in 2008, Brian Chesky, Nathan Blecharczyk, and Joe Gebbia were living together in a California apartment, selling collectible cereal online after the money they had saved for an online room rental marketplace venture ran out. The novelty “Obama O’s” brought in $30,000, and after they’d burned through those funds, they turned to eating their product so they’d have enough money to make rent.

By 2009, though, the struggling outfit had reached what co-founder and CEO Brian Chesky calls “ramen profitable.” Y Combinator, a seed-funding source for digital entrepreneurs, chose to invest $20,000 in Airbnb in January of that year. Bookings picked up, and Sequoia Ventures led an additional round of seed funding that put $600,000 in the company’s gas tank three months later. Over the next 18 months, Airbnb logged 700,000 nights booked through its online peer-to-peer service, and Sequoia came back again in November 2010 with Greylock Partners and five other investors to drop $7.2 million on the burgeoning lodging marketplace.

The company had uncovered a latent demand for low-cost, short-term rentals by making it easy for the average Joe to rent out his own house or apartment to couch surfers, backpackers, and hostelers—mainly young and adventurous travelers looking for a place to crash for a few nights. However, it tapped into something much bigger, too.

The minds that figured out how to make $30,000 with a cardboard cereal box tied to the 2008 presidential election also figured out how everyday people could turn their single largest investment—their home—into a source of income. “We are fully committed to the vision that one day you will be able to travel to any city or town around the world, and with the click of a button, access local people and cultures safely and easily,” Chesky said in a 2011 statement.

Doubling down on the look and feel of its site, as well as the requirements of the people advertising their spaces on it, the company expanded its reach far past couch-surfing hipsters to anyone looking for a good deal on a room in a different city. Today, Airbnb covers 192 different countries, with more than 600,000 spaces available, and, to date, has connected more than 11 million guests with a place to stay.

Volume like that is a difficult thing to manage, and risk—to sellers and buyers alike—has been the central threat to Airbnb’s success. This risk is also central to hoteliers’ concerns about the service, as the online rental marketplace begins encroaching on room sales. “Think of it this way,” says Cindy Estis Green, co-founder and CEO of Kalibri Labs, a hotel industry consultancy. “If New York City has 100,000 hotel rooms and Airbnb suddenly adds 35,000, you’re diluting the market by more than a third. So, yes, it’s disruptive.”

But just because hoteliers are running defense on their distribution channels doesn’t mean they haven’t also got a point when they highlight the risks inherent in web-based room sharing. “There are no regulations covering these rooms,” Estis Green says. “There may not be adequate security or fire safety measures taken, for example. You don’t really know who you’re renting from. So I think it’s reasonable to push back on that.”

“Hotels have to comply with all existing regulations, whether that’s operating under local fire and safety codes, adhering to ADA-acceptability requirements, or paying occupancy taxes to local governments,” adds Vanessa Sinders, SVP and department head of government affairs at AH&LA. “Currently, the short-term online rental companies don’t always comply, and we don’t believe it’s acceptable to ignore the laws and regulations that are on the books.”

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