The Business Of
Sharing | Airbnb | What Do They Do?
Morning All!
Welcome back to The Business Of! I hope you’ve all had a lovely summer break! I’m excited to get stuck in and break down some more business models.
The table below shows us exactly what businesses we’ll be covering all the way till Christmas. Some companies will be familiar. Others not so familiar. But personally, I think all of them will be super worthwhile to understand.
This week we start a 2-week series and I’m very excited for it. Because it’s a business model that’s grown in popularity in recent times. And the 2 companies we’ll cover are both hugely popular names. We’re going to be diving into The Business Of Sharing!
And over the next 2 weeks, we’re going to be looking at these 2 ‘sharing’ companies;
Airbnb - home sharing. #164 company in world by market cap.
Uber - ridesharing. #152 company in world by market cap.
Today, we’ll set the scene by briefly looking at what Airbnb do and how the company got started. So without further ado… !
It’s Pretty Simple Really…
Okay, so there’s not a whole lot to say today about what Airbnb do… because it’s pretty straightforward! Homeowners (hosts) list their properties on Airbnb in order to make some cash. And individuals/families (guests) go to Airbnb looking for a property to rent for their holidays.
Airbnb’s platform has been a huge hit with guests because there are over 7 million properties worldwide for them to choose from. And Airbnb’s platform benefits hosts because there are over 150 million people looking for places to rent!
And that’s pretty much it! Super simple business model. And in tomorrow’s newsletter, we’ll get into the meat of things and look at how Airbnb make their money from being this middleman.
Company Struggling? Sell Cereal!
But before we wrap up, I want to briefly take you through the history of Airbnb. Because how Airbnb came to be Airbnb is a truly incredible story. And one for any aspiring entrepreneurs reading this!
Back in Sep 2007 in San Francisco, two young, broke, design graduates - Joe Gebbia and Brian Chesky - needed some money to pay for rent. There was a big design conference coming up in San Francisco, and Joe had an idea. Why not put an air mattress on the floor of their apartment, and let conference attendees sleep there for a fee? Might not be the most comfy sleep, but it’d be cheaper than having to pay for a hotel! Below is the original email Joe sent Brian about the idea…
And guess what - one person paid $80 to stay on the air mattress - and that’s how Airbnb got started! A couple of graduates looking for a way to make rent money! So, first customer sorted. I imagine it was all upwards from there? Well, no, not quite. Airbnb - or airbedandbreakfast.com as it was called at the time - struggled to gain any traction whatsoever. Bookings weren’t coming in. And investors were quick to reject them.
The founders came up with all sorts of ways to just keep their company afloat. Most famously, they even sold cereal! During the 2008 US elections, Joe and Brian went and bought 800 boxes of the cheapest cereal they could find. They designed US election-themed cereal boxes. Put the cheap cereal in their newly designed boxes. Called them ‘limited edition’ cereal and charged $40 per box! What’s 800 boxes x $40? $32k! Not bad for cereal!
And whilst making $32k from cereal was absolute genius… soon that $32k also disappeared! Running out of options, broke and in debt, Joe and Brian (and Nate - their third co-founder), turned to Y Combinator. The now widely admired startup accelerator. And this is where things took a huge turn.
The founders realised that the properties on Airbnb with the best photos got the most attention. And so they decided to travel to the homeowners who were listing on Airbnb. And take high-quality photos of their properties for free. And guess what - it worked! The better images brought more bookings. And more bookings meant more people wanted to list their properties. Revenue started to flow. And impressed by the growing demand, Sequoia Capital - one of the world’s leading venture capital firms - invested $585k into Airbnb in 2009. By 2011, Airbnb hit 1 million bookings. And the rest - as they say - is history!
In the following years, Airbnb raised a ton more money from investors. And in 2020, Airbnb ended up IPOing at a valuation of >$100bn. Making a handsome return for their founders, early employees… and even celebs like Ashton Kutcher and Jared Leto! And Airbnb now makes an extraordinary $8 billion revenue a year…
… not bad for a couple of broke, design graduates looking for rent money!
25th Sep 2023
And that’s a wrap! A lot to look forward to this week. Tomorrow, we’ll be focusing on that $8 billion revenue and looking at how exactly Airbnb make all the money they do!
Have a fabulous day!
The Business Of Team