AirBnB wants to reinvent the city, one house at the time
A recent announcement describes the latest (first?) initiative by Samara, AirBnB’s innovation unit.
It’s called Backyard, and it’s about providing modular, innovative housing solutions to tackle some of the most pressing challenges of today’s real estate market. Not many details are provided at the moment.
I think Backyard has the potential to be both really disruptive and a great new business for AirBnB. Let’s take a closer look.
What’s wrong with housing today
Housing has to deal with a ton of inefficiencies and frictions, on many levels. It’s a nightmare to buy a house, or to refinance a loan; it’s also difficult to maximize the rental potential of any given home. In fact, plenty of TV shows capture huge audiences trying to dissect many common mistakes that landlords make when renting our their properties.
What’s tough for AirBnB
AirBnB’s biggest nightmares are regulators and laws; I can barely imagine the amount of work, money, and efforts required to try to comply with the law at all times, while at the same time minimizing the impact of these decisions on the company’s growth numbers. It’s a tough industry to be in, for sure.
Where’s the opportunity
AirBnB has possibly the highest amount of data points related to what people want and look for in a short-term rental unit, and therefore with Backyard they acquire the ability to design the ideal AirBnB experience from the ground up, with possibly very little effort for the landlord.
Furthermore, I would expect them to get… creative with how these “Backyard homes” are handled from a regulatory or ownership perspective (disclaimer: the company I co-founded, Fabrica, is building a technology product closely related to the ownership part).
For example, imagine I have a (real) backyard and decide I want to build an Accessory Dwelling Unit, or ADU (a small, independent, detached “home” that the local municipality allows me to build relatively quickly and easily). Normally, I would pay some money, have it built (perhaps using Cover), and the result would simply become part of the property I already own. In this case, no particular benefit for AirBnB, except perhaps for one more item in the inventory of homes available for rent on AirBnB.
Instead, imagine AirBnB finds a more creative way to lend me the money, and rent the use of my backyard to put up an ADU owned not by me, but by a separate subsidiary (controlled by AirBnB itself). In that case, there might be ways to vastly simplify the limitations of hosting people in your own house, and maybe additional tax optimizations (custom REITs, etc) and deductions.
In other words, it means that AirBnB could:
- take the financial risk (and rewards!) of building tons of real estate (there’s surely plenty of financial institutions ready to help them out, and certainly plenty of landlords or real estate developers interested in being part of the action)
- Vastly improve the supply of AirBnB inventory for guests (mostly with high quality inventory, which is always a plus)
- Vastly improve their experience (easier check-ins, better amenities, etc)
- Provide a powerful lock-in which other competitors couldn’t easily attack. If you control the land, you control the house.
It potentially means a future foray into AirBnB’s own “hotel chain” for the 21st century, with the difference that, instead of manually and expensively acquire real estate inventory and train personnel and so on like the Starwoods or the Hyatts of the world have always done, they could quickly grow and expand their presence with the help of bigger financial institutions and individual landlords willing to take a share of the opportunity.
It has all the signs of a very, very powerful marketplace dynamics. (more on marketplaces here, by the always excellent NFX).
Conclusions
It’s a bullish move, and it has an immense potential. AirBnB has the credibility to be able to pull this off. I am looking forward to learn more about Backyard as details will be revealed, and quite curious to see how an “old” industry will probably be disrupted in unpredictable ways.
Marriott, Hyatt and others? Watch out. Winter is coming.
