In mid-2008, just weeks before the collapse of investment bank Lehman Brothers triggered the Global Financial Crisis, Brian Chesky, his former design school roommate in San Francisco and another friend stumbled on a unique business idea — renting homes for short periods to visitors. A year earlier, San Francisco had hosted a design conference with attendees who found the city’s hotel rooms overbooked.
So, Chesky, then 26, and his friends borrowed money to buy three cheap air mattresses and rented out their own home, launching AirBed and Breakfast, as the firm was then called, on a wing and a prayer. The trio wanted to connect hosts who rent out their properties with guests seeking places to stay. They approached venture capitalist Sam Altman, who then headed venture capital firm Y Combinator. Altman, now CEO of OpenAI, the world’s largest artificial intelligence start-up and the creator of ChatGPT, the generative artificial intelligence (AI) chatbot, wrote a US$20,000 cheque for a 6% stake in Airbnb.
Twelve years later, at the height of the Covid-19 pandemic lockdown in December 2020, the online marketplace to book or list accommodations pulled off a successful listing on the tech-heavy Nasdaq bourse. Airbnb surged from US$68 a share on the IPO day to US$216.84 just nine weeks later. The stock has declined 41% from its peak but remains 51% above its December 2022 low. That US$20,000 stake in Airbnb today would be worth US$4.8 billion.
And, oh, Y Combinator is still a substantial Airbnb shareholder. Airbnb is now by far the world’s largest hospitality firm with a market capitalisation of over US$80 billion, way ahead of dominant global hotel chain operator Marriott International, which has a market value of around US$72.5 billion and Hilton Worldwide at US$59.7 billion. (Hong Kong-listed Shangri-La Asia, the largest hotel operator in Asia, is valued at just US$1.98 billion). CEO Chesky, who owns about 10% of Airbnb, currently has a net worth of around US$9.2 billion, according to Bloomberg Billionaires.
Airbnb has over five million hosts and over 200 million active users on its platform. Active listings in 220 countries worldwide last year topped eight million annually. It welcomes up to two billion guests every year. Gross booking value (GBV) — the dollar value its guests spend, including host earnings, service fees and taxes — grew 12% last year to US$82 billion. Airbnb keeps about 13% of the GBV through fees (or 15% excluding taxes).
Airbnb’s conundrum is that while it has eye-watering 78% gross margins, far better than some of the best software-as-a-service firms in the world, its revenues are now only growing by 6% per year, or more like a mature company. Airbnb has over 200 million active users. Uber, the ride-hailing and food-delivery giant, has only 161 million daily active users. While an average Airbnb user opens its app perhaps no more than once or twice a year, an Uber user opens its app every few days. Uber now has over US$1 billion in annual advertising revenues and far fewer active users than Airbnb.
As the biggest and most valuable hospitality firm on earth, Airbnb needs to look for new growth drivers. Investors look at Airbnb as a slow-growing company, which is one of the things weighing on its stock price. Chesky, now 43, believes that the best way for Airbnb to grow is to be more like the e-commerce behemoth and hyperscaler Amazon.com, which started out as just an online bookstore, expanded to become an “Everything Store” and has since morphed into an online marketplace for millions of sellers and hundreds of millions of buyers. Of course, Amazon is at the forefront of the AI data centre boom with its massive cloud service business, which is now its main growth driver and biggest money spinner. Amazon earned US$56 billion in ad revenues last year and is forecast to earn over US$75 billion this year.
There are a lot of ways a platform like Airbnb could grow. It can merge with a ride-hailing firm like Uber or Lyft. Or it could seek to partner with DoorDash, the biggest global food delivery firm. It could even merge with Booking Holdings, the biggest competitor of its main rival, Expedia, which owns VRBO (VacationRentals by Owner). Yet founder Chesky has rebuffed merger ideas before. He believes Airbnb can grow and thrive as a standalone company.
Borrowing from Amazon’s “Everything Store”, Chesky is pushing the “Airbnb of Anything” strategy. He recently unveiled a redesigned app with two new pillars: services and experiences. Together with the current core “homes” business, they will help Airbnb expand into a more diversified, well-rounded firm. The founder CEO wants his firm to become an aggregator of services beyond just a place to stay and capture a larger share of our lifestyles. He wants Airbnb to recreate access to amenities and tailored activities, from room service to guided tours. Chesky’s bet is that Airbnb’s next chapter is not just about booking a room wherever our travel destination, but more about us enjoying great experiences. That he believes will help turn occasional Airbnb guests into regular users of its new expanded experiences and services platform.
By adding an array of services and experiences, Airbnb is hoping that more of its users will open its app more often, which, in turn, would lead to higher revenues, including hopefully some from advertising and eventually higher profits. And, oh, in this new AI era, Airbnb doesn’t want to be known as a SuperApp.
Airbnb’s closest rival, VRBO’s parent, online travel agency Expedia, has growing diversified streams of revenue. Expedia makes almost as much in lodging rentals as Airbnb but derives the remaining 30% or so of its revenue from booking flights, car rentals and advertising on its platform.
So, what could you do on the new Airbnb platform apart from booking a room at your next destination? You could book a private chef for a dinner party at an Airbnb where you are staying or just a dinner for two. Or order a prepared meal from a restaurant or a cloud kitchen. You could book a personal trainer for yourself or a professional photographer to follow you on your adventure trail or hire a make-up artist. You could have a local cooking class even if you are not travelling. You could book a time for a massage therapist to come to you, a yoga instructor, even a hairstylist, or someone to do your nails. You could even book time at a spa.
Of course, if you go to a Four Seasons resort or a Banyan Tree resort, you could get all those things and more, but Airbnb promises services and experiences at an affordable price. Chesky’s aim is to seamlessly integrate an array of services within your trip and replicate a five-star hotel experience. Moreover, you don’t even have to book a room at Airbnb to access the services or experiences. You can use the Airbnb platform to order up those services in your own home. Most of the services would cost less than US$50 and Airbnb would take just a 15% cut, or exactly what it gets on homes.
As the platform operator, Airbnb will thoroughly vet all the service providers. Its focus is to guarantee quality, not just quantity, of services. Airbnb will book you a tour of museums, galleries and landmarks. Or cultural or food tours. Want a helicopter ride or see a live performance? Airbnb will arrange it for you. Want a personal stylist? Or go to a wine tasting in town or an art workshop or engage in water sports or wildlife experiences? Airbnb has everything covered for you, whether you want it in your own hometown or another city half a world away.
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If you are travelling and you want to go to museums and galleries, you will be able to see who else is in town and which galleries they are going to. Airbnb will have a small niche social network which you can join. If you are accessing services in your hometown, you might be able to see who else regularly attends cooking classes, tennis lessons or yoga.
If you want to learn to make ramen in Tokyo, cook a mean curry in Mumbai, try Lucha Libre wrestling in Mexico City, get a restoration architect to guide you through the newly restored Notre Dame in Paris or attend football practice with Arsenal’s Bukayo Saka, the Airbnb platform might take care of it. There are 20,000 hand-picked listings across 650 cities to start with and the platform will continue to add more. The idea is to aggregate one-of-a-kind experiences, says Chesky, who believes that revenues from experiences and services would eventually top US$1 billion a year.
Because most people use Airbnb no more than once or twice a year to book a vacation, Airbnb was limited in how much it could monetise each user, no matter how good their experience was. By adding services and experiences, Airbnb is making it a lot more than just vacations. Increasingly, it wants its users to be more active on its platforms. “We’re designing for a world where people use Airbnb every week,” Chesky said as he unveiled the strategy recently.
Airbnb has all the basics: global scale, a trusted brand and a massive user base that is still growing. Now, it wants to be more than just the place where you stay. Airbnb also has a compelling marketing pitch: real people, real services and real connections. Increasing lifetime value per user and reducing reliance on travel cycles is a natural next step that could de-risk the business and please shareholders. Yet, just adding a few extra services and some experiences might not do the trick. The company needs to create network effects that feel different from its core home rental business. Airbnb already has millions of users who trust it, a payment layer and infrastructure for identity verification. The new services and experiences need to plug into that same flywheel.
Airbnb could use AI recommendations to turn the app into a travel and lifestyle network. The real question is whether it can establish a strong new growth engine before rivals like Uber and DoorDash encroach on its territory or before VRBO begins offering a range of competing services and experiences.
Assif Shameen is a technology and business writer based in North America
