AIRBNB: The Growth Story Unveiled
In 2007, two graphics designers Brian Chesky and Joe Gebbia couldn’t afford the rent on their San Francisco apartment. Both entrepreneurs at heart, decided that the only way to survive at the time was to rent any and all spare space in their apartment to offset expenses. They decided that the engine to make this happen would be an indigenous created web site…and thus AirBed & Breakfast started.
A design conference in town was the initial beginning point for the two to rent the spare space, the loft, in their place to those that could not find rooms locally because demand was so high all hotels were sold out. So they decided to create a simple, yet appealing website that got both of them their first three customers. The space was rented for $80 per night and it included breakfast in the morning. Most hotels in the SFO area were going for 2–3 times the cost with no breakfast.
The following spring, they brought former roommate and engineer Nathan Blecharczyk on board to get Airbed & Breakfast off the ground. The planned launch seemed very logical and was focused around the Democratic National Convention, they knew that hotel vacancy would be extremely limited and they were right. Skip some 7 years forward, and Airbed & Breakfast is now Airbnb, mainstream and a household name worldwide and surpasses resident chain mogul Hilton in most nights booked on a yearly basis. Spring of 2014, Airbnb had 10 million guests and 550,000 properties listed worldwide, with a company valuation at $10Bn, surpassing longtime legacy chains of Wyndham and Hyatt. Airbnb has secured rounds of funding totaling $776.4M from investor firms Y Combinator, Sequoia Capital, Keith Rabois, Andreessen Horowitz, Ashton Kutcher, Founders Fund, and TPG Growth in a total of seven funding rounds — the last of which raised $500M alone.
How did Airbnb start and how were they able to grow an empire today worth billions?
In 2008, founders pooled together to start this journey through hard work with a belief that their product filled a huge void in the current market, and through pure hustle was able to get a kickstart with minimal funds available.
Their first real sort of indigenous cash round came from an idea of buying generic cereal and create a special edition election themed box that portrait Obama and McCain during the presidential race. The boxes of cereal sold for $40 a box. Although I think highly over priced, non the less they were able to sell around 500–600 cereal boxes bringing in about $30K in profit. This was their first round of raised money.
Image via techcrunch.com/gallery/a-brief-history-of-airbnb/slide/9/
The site still fell short and the traction that they were looking for did not capture what they both anticipated were to actually happen. This was the low point of the company. Airbed & Breakfast joined Y Combinator’s 2009 winter class, which got them another $20K in funding. The name at this point changed to what we know today as Airbnb and received a hefty seed round from Sequoia Capital and Y Ventures at $600K. Airbnb’s business model brought lots of criticism, one of them being Fred Wilson of Union Square Ventures. He believed that the model had too many flaws…why would someone want a complete stranger staying at their house, how could you trust your belongings were safe? Many pending questions to such a far fetched idea that had too many cracks to fall in and fail.
Many people speculate and will not accuse Airbnb of growth hacking long time platform Craigslist, but for arguments sake we will say they did. The reason why they targeted craigslist is because the online market platform had one thing that they did not have, a huge user base. Airbnb at the time before all other copycats that are here today, felt this was the avenue to acquire users. To get into the market Airbnb offered their users that posted properties on Airbnb to post on Craigslist as well. The concept seems easy enough right, on the contrary it took many hours of smart engineers to create a product to allow this concept to work. Look for future blogs as to the execution of this model.
The integration seemed to be a massive win to acquire huge volume of potential users via Craigslist. Airbnb did something better to their listings then the average or even above average Craigslist listing. They put high quality photos of properties that really appealed to the consumer, almost a type of ad for users to take hold of and admire. Airbnb personalized listings capturing the property strengths and the location amenities that made their listing far more professional and appealing than those on Craigslist. Airbnb new that once they were able to acquire the user off of craigslist, there was no turning back and retention of users from Craigslist were high.
The first Craigslist integration seemed to be working but critics wondered where and how Airbnb was acquiring more listings and more bookings when their footprint on social advertising or blog posting was so minimal. Couple of studies showed and hypothesized that Airbnb were black hatting in order to acquire users on the cheap. A Mr. Dave Gooden, from davegooden.com explained what he did to further prove the theory of black hatting from Airbnb.
Gooden first set up a trap by posting a couple of rental properties to Craigslist, he elected to use the anonymous email and not to be contact by solicitors option. In a short period of time Gooden explains that he received a response from an individual personally liking his listing but asking for him to transact on Airbnb.
Image via Dave Gooden @ davegooden.com
When you are able to scale a black hat operation like this the juice can be worth the squeeze. You are able to quickly acquire users, the only downfall to black hatting in this sense is that it is considered spam and in present day measures are being taken to mitigate those trying these techniques.
Lastly I feel that Airbnb really capitalized on a re-blue of their referral program. Keep in mind that the shift from internet to mobile was a huge shift for the company as they saw the space to capitalize on mobile growing exponentially. Mobile referrals were new to the market space at the time but Airbnb looked to try to perfect. A team put together analyzed mobile referral data and also looked for advice from other companies with similar mobile referral programs to get a better idea of how to execute a relaunch. After much work from the referrals relaunch team Airbnb relaunched their mobile referral program in January 2014. They were able to track metrics of the relaunch via there Air_events logging platform.
The team was able to learn through many testing variables that invites to the app felt more like a gift rather than a promotion of the app. They were also able to capture the photos of actual people related to the invites which proved to better retention and a far less churn of users. They also found that using the Recommended Contacts feature from Gmail and Android APIs resulted in a higher conversion rate, likely because these contacts are closer to the sender. www.slideshare.net/500startups/500distro-under-the-microscope-how-airbnb-thinks-about-productmarket-fit-team-more. Another A/B test involved the promotional emails sent by Airbnb to potential referrers. When testing self-interested versus altruistic language, they found that altruistic emails resulted in more invitations sent globally — which is also in-keeping with the idea of Airbnb referrals as a gift. nerds.airbnb.com/making-referrals-work-for-airbnb/
Airbnb’s new revamped referral program increased user count drastically and established that referral programs are not just about getting the user or provider avenues to save money, but falls on a higher personal note to understand what specifics of the market you are seeking and do you understand the demographics of the user space you seek to acquire. User experience over growth is something that Airbnb weighs highly in their future progress of their referrals program. The Airbnb team looks to continue to strive to perfect user experience with referrals.
Success stories like Airbnb fall solely on the founders and their motivation to throw themselves amongst a highly predatory and saturated market at the same time taking an idea that they believe fixes a void in that specific market they are seeking shares in. It takes a certain type of individual that at the end of the day is willing to risk it all for something he truly whole heartily believes in. The mind is a powerful thing, and I believe that founders Chesky and Gebbia took their motivation and goals of success and never looked back. Today Airbnb is an idea that they started with nothing and now is if not the biggest booking platform for the hospitality industry in the world, breezing by super moguls like Hilton, Wyndham, and Hyatt.