Dear Airbnb, how should I vote?
It's been said that during New York City’s 2013 mayoral election, thousands of hosts wrote to Airbnb with a simple question: “How should I vote?”
In that moment, Airbnb expanded from e-commerce platform to political platform – which candidate would let the people of NYC keep earning? (A typical Airbnb host in NYC earns $7530 per year)
These platforms are now social and political movements
Revenue from Airbnb helps hosts cover day-to-day expenses. It helped some keep homes through economic uncertainty. As the global financial crisis unfolded in NYC, Airbnb moved from a niche service into a formal revenue stream. Now, a worldwide battleground takes shape around the shared economy, between private rights, public good, and incumbent interests.
The next 34%
In November 2014, Airbnb released a beautiful advertisement squarely aimed at its next market. The early majority.
This ad distils the ethos, operation, and value proposition of the site into 60 seconds. Now that the company’s already favoured by millenials, it’s pitching to their parents. And Warren Buffett.
(Please keep this video in mind, as you return to it at the end.)
"Towards the end of ownership?"
Fast forward to MIPIM 2015. A key theme this year is ‘Digital REvolution’, centred on “opportunities and drawbacks of digital technology within the real estate sector”.
The most important session of the conference is on 10 March at 5pm (CET):
"Towards the end of ownership? Big players from the sharing economy will explain their vision of our world’s future and debate with our real estate experts on the basics of our industry: property ownership.”
Nicolas Ferrery presents for Airbnb.
This is notable for two reasons. The first is that the property industry only now recognises Airbnb’s legitimacy after the company has eclipsed every international hotel chain in valuation.
The second is that the property industry is discussing the end of ownership.
That the end of ownership is being discussed at MIPIM means the end of ownership has already happened. I would slightly amend the panel title to: After the end of ownership.
The shared economy doesn’t wait for permission
At the Future of Work Conference in London last week, MIT’s Andrew McAfee introduced the post-scarcity economy, where there are enough goods and wages for everyone. He also cautioned “there is no economic law that means that all that abundance we’re sharing is going to be equally shared.”
We are already seeing that there does not need to be an economic law to drive sharing. In many industries, new levels of efficiency and price correction are driving thunderous customer adoption
Similarly, Uber does not replace taxis, it changes taxi allocation and pricing. AngelList does not replace angel investment, it provides a common marketplace for angel investors and start-ups.
For industries like finance and property, the shared economy actually does replace entire pieces – atomising functions, business units, companies, and sectors.
TransferWise not only replaces inbound and outbound currency desks at every major bank, it's also reducing overall volumes on the international forex market. Just because people want to transfer money from themselves to someone else, does not mean they want banks and a finance industry.
The cash-inflow to TransferWise has not gone unremarked in the forex industry. Sources working at two international FX companies headquartered in London, said the firm had had a tangible effect on their revenues in the first and second quarter of 2014, with one source estimating the drop in business to about 12 percent in Q2.
We Are Pop Up not only replaces commercial agents, but ShopShare also maximises use of the overall footprint of shops. And the marketplace is currently racing toward liquidity.
80 to 100 is easier than 0 to 80
Hotels as fixed assets require substantial capital investment and hotel operators work constantly to move occupancy rates from 0% to 80%.
Airbnb hosts work intermittently to move occupancy rates from 80% to 100%, whether filling space in an extra bedroom, or a home whilst on holiday. Airbnb reuses existing assets – assets that require no additional capital investment.
People don’t want hotels. People want comfortable and safe places to sleep and socialise.
That is the basis of the entire shared economy. Incumbents with high capital cost bases cannot compete with secondary use of existing assets.
Nobody asks for signed pieces of paper
The power of Airbnb’s business model hit me like a lighting bolt in 2011.
What is the actual product of Airbnb?
It’s not the space itself – that is provided by homeowners. The products of Airbnb are connections and contracts. Connections between people, and executed contracts that say if a guest shows up at 12pm on 10 March in Cannes, the host will provide them residence for the next 72 hours.
Hotels provide similar functionality, however, hotels are long paper trails of individual contracts between guests, hotel operators, staff, suppliers, booking agents, land owners, financiers, local authorities…the list goes on.
All replaced by Airbnb with a single online transaction: Guests with hosts.
And so it is that in MIPIM’s ‘Digital REvolution’, multi-layered, antiquated incumbents and signed bits of paper are forced to evolve.
From e-commerce transactions to political firestorms
With surprising speed, the platforms – Airbnb, Uber, TransferWise, We Are Pop Up – move from commercial websites into political and social movements.
Directly connecting buyers and sellers changes entire value chains. The official term is disintermediation – “cutting out the middleman”. This process of creative destruction is always occurring in business, and it’s a fundamental feature of trade.
The difference with these platforms is that speed of adoption is now months instead of decades. The scale of the platforms is global. And parties that do not consider themselves to be middlemen – like local tax authorities – are swept into the fold.
As the world moves toward Andrew McAfee’s post-scarcity economy, these platforms are the forerunners of inclusive commerce that will redistribute entire economies of value.
To some, the rise of the platforms seems obvious and inevitable. To many others, the rise of these mechanisms is not only surprising, but also threatening. The backlash of incumbents elevates platforms into popular political and social movements.
One notable exception is TransferWise. Arguably, TransferWise is growing faster than any platforms before it. Yet it finds none of the political backlash of Airbnb, Uber, or We Are Pop Up.
Where is the outrage from the incumbents?
In the wake of the global recession and repeated scandals, from LIBOR to offshore tax evasion, global banking cannot protest. Nor can any public agency be seen to support them.
So we have a perfect example of a platform atomising an entire piece of an industry in complete silence. Proof that political attacks on the shared economy are just that.
What about the public good?
Private property rights will be the final hurdle for Airbnb in a given jurisdiction. The forerunning debate starts with 'the public good' – are Airbnb properties ‘illegal hotels’?
It’s now been proven that active Airbnb clusters drive:
– Higher overall tourism spend
– Greater local economic activity
– Revenue for neighbourhoods not traditionally associated with tourism
– Bankruptcy and foreclosure mitigation
– Increased economic resilience
So how can it be said that Airbnb is bad for the public good?
Let’s consider the losses
The case of Airbnb hosts sheds light on the difference between public good and entrenched interests. If both transacting parties are happy, and the platform generally promotes public good, then who suffers from its growth?
Two key parties are hotels and local tax authorities. This represents a theme we will see again and again in the sharing economy. Sectors where private companies, and their regulators, are both replaced by a single platform.
Are they actual losses, or political losses?
While on the surface, the politics of Airbnb seek to define “what is a hotel?”. The real political question is: are homeowners free to use properties as they like?
If not, what are the politics of restricting a homeowner’s use of their assets, in favour of the entrenched interests of the hotel industry?
The shared economy rises in every area of the economy and our lives – education, energy, health, finance, travel, shopping… Technology connecting existing demand to new supply. It offers people better ways to do what they want to do.
The shared economy will lead to the post-scarcity economy. The individual and social benefits are unlimited. And that’s a very hard pill for incumbent markets to swallow.
TL;DNR: Everything that Airbnb has done until now is the opening act.
All the attention Airbnb has gathered to date – 8 years, 30 million guests, a $20B valuation – represents a niche travel site. Airbnb is only now becoming a mainstream service. Those 30 million early adopters – the first 13.5% of the company’s market – propelled it past every major hotel chain.
Now it’s going after the next 34%.
By the time an industry built on holding assets holds a session called “Towards the end of ownership?”, it is already in decline.
***
1. The sharing economy for retail shops goes mainstream
We Are Pop Up finds product-market fit
2. "Antiquated and undervalued"
How property technology is set to unlock trillions in value
3. Our data: How people want real estate to work
6 reasons why property technology will win
4. Dear Airbnb, how should I vote?
These platforms are now social and political movements
***
Addendum
The Rise of the Sharing Economy:
Estimating the Impact of Airbnb on the Hotel Industry
Last revised: 11 February 2015
