Welcome to our Second issue of Focus series at the duologue. The reading time to finish this one is around 7 mins.
The Duologue is a concerted effort by Vivek and Bheem to make sense with a unique lens. Now, on to the post!
Hey Bheem,
Rafat Ali is the founder of travel industry publication Skift. He had an interesting tweet thread that summed up a few of my feelings about the company we are focusing on in this issue.
People are with the view that this pandemic we are facing will pass miraculously and we can resume to ways before. But even then once all of this ends, it is certain that the companies pre and post-pandemic will not be the same. Let us shift our focus on one such company that thrived the last time our world economy collapsed, Airbnb.
Gig Economy: Before Pandemic
Every analyst and reporter covering this beat has been mentioning about the hardships that people are facing doing deliveries of groceries and food. We feel for them. [1]
We also have started tipping these workers who are risking everything at the moment either out of necessity or out of alternatives. It will be an alternate tangent altogether to cover these issues, how about some other time.
There is another set of gig workers who are more affluent in terms of assets. These people rent their place to strangers through the internet. They are part of a large set of community that cropped up organically to make money on the side with Airbnb back in 2009. The founding story of Airbnb is well documented. If you haven’t read it yet, you should go do that first. [2]
3 enterprising founders started offering space on the internet in their house with air mattresses to sleep on. They did this as the financial crisis left them with no job and money to pay their own rent. So Airbnb ( though back then called as Air bed n breakfast ) began. They were turned down by the whole set of VC’s multiple numbers of times. Still, going on to build a company once valued over $30 Billion, impressive.
Back in those days
In 2009, out of cash and out of money, people got hooked on to the value addition and extra cash that they pocketed. The whole Gig economy boomed across the globe because after the collapse there were no more permanent jobs. People were doing multiple part-time jobs and Airbnb offered an asset they owned which recently had a complete collapse in value, their house, to be used as a vehicle for additional income. VC’s didn’t get it but people got it. Hence, began the journey of an online rental marketplace.
Once the initial barrier to this human behaviour surpassed societal acceptance than all the VC’s flocked as well to fund this marketplace. [3]
Interestingly, this gig economy boom didn’t happen in India. It could be associated to us not being affected by the global financial crisis. Our politicians lauded themselves for this, that’s how I remember it. Amidst all of this, there was an Indian company that wanted to mimic what Airbnb did all over the world in India, back in 2011. You get no prizes for guessing. Still, let me give you a hint, both yours truly and Softbank have been obsessed about it for a while, not for the same reasons though. [4]
Golden Rule: Marketplaces Evolve
After, the initial traction in the US, Airbnb expanded across the globe. It even blossomed in China and holds a healthy lead against local competitors. It gave a fresh lease of life and turned the entire travel industry more affordable for everyone looking to travel.
The value proposition and mechanism of Airbnb is simple. Allow me to let the company only describe its origins and also its size at the moment. [5]
Airbnb was founded in 2008, amidst the Great Recession, when two of our co-founders couldn’t make their rent in San Francisco and opened up their living room to guests visiting the city. In the time since, Airbnb hosts have welcomed hundreds of millions of guests in more than 100,000 cities around the world. We are proud of the economic lifeline our platform has created for millions around the globe – more than 50 percent of Airbnb’s hosts in the United States rely on the money they make to pay their bills and afford their rent or mortgage – and we will continue to support our host community to protect this vital source of supplemental income.
How did a company, that started renting out air mattresses to meet rent, reach a situation where more than 50% of hosts heavily depend on making money through Airbnb?
Allow me to explain, like all marketplaces which are focused on aggregating both demand and supply, their focus was on the ‘jobs-to-be-done’ framework for both their segments, hosts (suppliers) and guests ( renters), which eventually leads to the evolution of the marketplace. Yours truly has covered the difference between aggregator and platforms in the past [6]. (You can read that post to understand marketplaces and jobs to be done framework)
It wouldn’t have reached a situation of these sorts without few gig workers going Pro. Pro Gig workers started their business on top of Airbnb. Instead of renting a bed and extra rooms, they started renting entire places, then moving on to multiple assets and then to a chain of assets. This practice and business got a term called short term rentals. People give out classes to you on how to get better at this. [7]
Sheffield based entrepreneur Alex Milburn claims to have made “£1,000,000 in Airbnb sales in 12 months” and now markets his “rent to rent” strategy in one-day seminars costing £997 (plus VAT). He promises, in YouTube videos, he can teach others how to make six figure sums “with very little or none of your own money”.
Market Maturity: Development of an Ecosystem
Airbnb has been maturing at a steady rate with indulging all of its offering surrounding staying and travel. This info-graph shows their progress and the shift of value signalling that they achieved throughout their journey.
Airbnb has been a good company: deliberate, considerate and reactive to crises. It had its fair share of regulatory hurdles where cities reacted to surge of houses prices due to the lucrative business of short term rentals. Their executive have been forthright to combat any reported misbehaviour on their model.[8]
Added to this, they were future-proofing themselves to become a public company with decent cashflows. But, all along they stuck to the segment of travel alone. Not a bad strategy in normal times, but we no longer live in normal times. So, what now? The entire travel sector is brought to a standstill due to Covid-19.
We will take this up in our next issue of Focus to cover what unfolds and does Airbnb even stand a chance in the shifting environment, circumstances and human behaviour changes being witnessed in masses.
Regards,
Vivek
References :
[1] : How the gig economy hurts the small guy
[2] : Airbnb CEO went from $25000 in debt to running a $30 Billion company
[4]: Oyo: Over Your Own - The Duologue Newsletter
[5]: Update on Listings Around the World
[6]: Platforms Vs Aggregators - The Duologue Newsletter
[7]: Ultimate 1 Day R2R Training
[8]: Shooting, Sex Crime and Theft: Airbnb Takes Halting Steps to Protect Its Users - WSJ
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