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What to expect from Airbnb in 2017 and 2018

Posted by David Adams on Apr 12, 2017 7:35:00 AM
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Airbnb* is one of the most valuable startups in the world and shows all the signs of continued success. Reports peg $12B of gross bookings in 2016 on the way to a mega-IPO in 2018. Airbnb Open, their cult-like annual conference, gathers tens of thousands of faithful converts each year to celebrate their “super brand”. Reports are swirling of many new initiatives - trips, long term housing, business travel, luxury, even airlines? Meanwhile, hotels are mustering efforts to stop its inexorable advance into their market and neighborhood advocates are organizing to fight its commercialization of their neighborhoods. It’s one of the most fascinating business stories of the last decade and it’s just getting started.

I have no inside information on Airbnb, I’m just another interested observer with some experience as founder of Homesuite, a corporate housing startup. With those credentials, I am going to do my best to predict what is going to happen in the Airbnb story next. To do this, I will use Brian Chesky’s decision criteria and Airbnb’s corporate strategy to guess arrows they will put wood behind in 2017 and 2018.

Brian Chesky’s Decision Criteria

Based on available information, Brian Chesky has three key decision criteria that he uses to assess opportunities. He will look at the best business strategy decision, combined with his strong belief in the value of building Airbnb’s brand and his personal passion for travel.

  1. Business strategy: Airbnb shows all the signs of solid business strategy. When Chip Conley joined one of his first tasks was spinning up a formal strategy team. Now in their recent funding, they have a plan through 2020. The last sign of strategy is that they have retained McKinsey at least once to help them analyze decisions.
  2. Brand: Brand is a soft thing, but undoubtedly it is one of the key drivers in Airbnb’s success. It was obvious early with his focus on PR, catalyzed through their first PR crisis and has grown exponentially with the company itself. They hired a visionary CMO from Coca Cola and are now talking about themselves as a super brand.
  3. Passion: Brian’s clear passion is the travel space and much of Airbnb’s success has been driven by the passion of the founder. This is a significant influence on his decision making.

Airbnb Corporate Strategy

When the Wall Street Journal reported Airbnb’s $1.5B funding round in June 2015, they included an interesting tidbit that gives us a good framework for Airbnb’s corporate strategy. In their funding materials, Airbnb said their strategy was to go from 1% of the global lodging market to 10% of the global lodging market. To get from 1% to 10% of the market, Airbnb will need to find growth vectors.

Applying a classic business strategy framework, you can come up with this strategy 2x2 for finding those growth vectors:

 Airbnb strategy graphic.pptx.jpg

Now we have tools to assess what Airbnb is doing. Let’s look at what is happening in each of the growth vectors and see how Brian would assess it.

Existing products, existing markets

Improve the reliability of their inventory: Airbnb’s value proposition is cheap, unique lodging. Their biggest drawback is the reliability of the service. In order to take more share from hotels, Airbnb needs to make their inventory more reliable. Take a look at Airbnb’s recent product releases; they are all oriented around improving the reliability of their inventory - new review flow, new host tools, host mobile app, host controls and messaging. Beyond product work, Airbnb has other major initiatives to clean up the image of its inventory. Airbnb is aggressively suing and settling lawsuits with cities around the world to ensure that it’s inventory is legal - an issue that has dogged them for years. They are also updating policies to reduce racial discrimination, which has recently been highlighted on the platform through viral incidents, such as this one. Airbnb has significantly increased its investment in lobbying as it seeks to shape future legislation in the space.

This effort is core to Airbnb’s existing product and market - it makes business sense, it supports Airbnb’s brand and Brian is passionate about it. Supply quality is highly likely to be a large focus in 2017 and 2018.

Existing products, new markets

New geographies: Global expansion is a well-known playbook for growth. Airbnb has long been much larger in Europe than in the US. Where else is Airbnb expanding globally?

  • China: Airbnb has been very active in China with repeated rumors of acquisitions of Chinese copycats and frequent partnership announcements and even brand localization.
  • India: notably absent as a top line priority, although Brian did visit recently. Less than 1% of Airbnb’s listings are in India and their local copycat recently shut down.
  • Africa: Brian has gone on record to speak of Airbnb’s aspirations in Africa
  • Other: Airbnb has been remarkably quiet in other areas of the world, such as Southeast Asia and South America

Geographic expansion makes business sense, it aligns perfectly with Airbnb’s brand and creating a global travel brand is a direct hit for Brian’s passion. Global expansion is highly likely to be a major focus in 2017 and 2018.

New products, new markets

New customer sets: Airbnb’s bread and butter is the millennial backpacker type, but to get to 10% of the travel market, they need to expand to new customers. They have had two major roll outs of new customer initiatives in the last two years:

  • Airbnb for Business: A major PR push at raising awareness that Airbnb can be used for business travel as well, designed to go after the $300B business travel market.
  • Luxury Retreats: Airbnb bought Luxury Retreats for $300M just last month.

Airbnb for Business makes a lot of strategic sense. One could make an argument that it is re-defining business travel to fit into Airbnb’s brand. It is unclear to me whether this kind of travel fits into Brian’s area of passion. This could explain why Airbnb for Business has been a secondary push for Airbnb. Based on this, it makes sense that this would be an area of investment going forward, but it may be a secondary focus in 2017 and 2018.

Luxury Retreats is a good fit on all counts. It is a high margin segment (although market size is a question), it is a boost for Airbnb’s brand and it fits into Brian’s passion for travel. This is highly likely to be a major push in 2017 and 2018.

New products, existing markets

This is an interesting category, since Airbnb defined their corporate strategy by the product - lodging. Any new product to their existing market wouldn’t fit with the corporate strategy. However, with the launch of Trips and other rumored considered products, Airbnb may be transgressing here. There are three reasons they would diverge from their stated strategy:

  • The divergence is just testing the water and not a major initiative.
  • Airbnb is beating its targets in lodging and so expanding its aspirations.
  • Airbnb is lagging on its targets in lodging and so looking to hedge.

Trips: Trips is Airbnb’s recent big press push. According to Brian, this has been his major focus recently. Trips makes a lot of business sense. It is a highly fragmented market that plays to Airbnb’s strength of grassroots organization to provide unique experiences. However, as any totally new product, there is a lot of risk here, so I would not be surprised to see Trips require some iteration to get right. It is a bullseye for Airbnb’s brand and Brian’s passion. I expect that Trips will be a major focus in 2017 and 2018.

Airbnb Sublets: Airbnb sublets is an existing business for Airbnb. Recently there were reports that Airbnb had retained McKinsey to explore doubling down on their sublets business. Airbnb could leverage existing product in this space, however, the fact that their sublets product has never really taken off may be a red flag about the product-market fit. Sublets would fit very well into Airbnb’s brand, since nightly sublets are already their bread and butter. I doubt Brian’s focus on this space, given that it is outside of the travel space and it has not historically had much development. I would not be surprised if there was incremental development here in 2017 and 2018, but perhaps not a major push, such as Trips.

Airbnb Flights: Airbnb Flights is reportedly being worked on inside the company. The airline business is not a great business for distribution or for the providers themselves. It’s low margin and competitive. Airlines are not unique and fun and community-oriented, so becoming an airline distributor could challenge Airbnb’s brand. How would Airbnb feel about being associated with an airline PR disaster like the recent United fiasco. Based on things I have heard and his stated vision, I believe that Brian is very passionate about airlines. I would not be surprised to see a product announcement here, but I would be moderately surprised to see truly invest at scale in this segment in 2017.

Conclusion

Based on all of this, I filled in the strategy 2x2 with our best understanding of Airbnb’s strategy:

Airbnb strategy graphic.pptx (2).jpg

I would love to hear your thoughts and predictions on Airbnb’s strategy in 2017 and 2018. What did I miss?

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Anything we missed? Leave us a comment with your thoughts.

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About Homesuite

Homesuite is the leading provider of monthly furnished rentals for business travel. We are differentiated by combining the comfort of home with the professionality of a hotel. Our customers include Google, Facebook, Microsoft and thousands of smaller businesses. In addition to our business offering, we also serve individuals traveling for work and personal reasons. Founded in 2014, we operate across the United States with specific focus in large urban markets.

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Topics: business travel, sharing economy