I’m in a dark bar lit primarily by the bluish glow of arcade screens, looking for a man in a two-toned cowboy hat. The room is noisy with laughter and a cacophony of digital theme songs signaling the beginning of a game for some, victory or defeat for others. I find my host, a lanky fellow wearing mismatched prints and a backpack, talking with the bartender. During the day, Chris Wren is an engineer on Airbnb’s growth team, but on certain evenings he’s the host of an arcade tour he hocks as an Airbnb Experience, one of 5,000 tourist activities available on Airbnb’s ever-growing travel platform.
A giant video monitor looms overhead as Wren and I join Killer Queen, a bee-themed “social game” in which 10 people compete to stock up on nectar, escort a giant snail to safety, or kill the opposing team’s queen. My head spins with rules as our team rapidly loses, but we are still laughing–mostly at a member of the other team who roars bearishly every time he scores.
As my team lost, Airbnb was charting toward profitability, exceeding financial projections for 2017 and looking ready, some said, to begin the process to go public. Nevertheless, it is at a sort of crossroads. The company must prove that it can make the leap from homestay provider to mainstream travel platform in order to live up to its $31 billion private valuation.
More than a year after its push into Experiences, Airbnb recently took a step toward conventionality with the announcement of Airbnb Plus, a new category of inspected homes meant to guarantee a certain level of cleanliness and service. Plus is meant to establish Airbnb as a platform for everyone. Airbnb also debuted a luxury tier of rental homes called Beyond by Airbnb, and broadcast its intention to more prominently feature bed and breakfasts and boutique hotels in its app. While Airbnb has catered to a range of consumers, from adventurous deal seekers to wealthy vacationers looking for extravagant home rentals, it hasn’t provided the same assurances a hotel could at similar price points.
CEO Brian Chesky says the future of Airbnb lies in more than just accommodation. “I want to make sure—and we’re certainly on that path—that we are not just a home sharing company. That we can take big bets and be an end-to-end travel company,” he told me last fall. But his vision doesn’t stop there. He wants Airbnb to be an app that people use every day, not just when they’re traveling. The question is, do enough people want that Airbnb lifestyle?
Airbnb’s brand ethos has been built around Chesky’s compulsion to take big bets. It is the reason Airbnb pressed into home sharing despite early criticism that people wouldn’t want to share a space with strangers. But Chesky’s ambitious visions are also a source of some of the company’s recent growing pains.
In January, The Information called out tensions between Chesky and his CFO Laurence Tosi over which direction the company should go. The report claimed Tosi was trying to model Airbnb more like an online travel agency in preparation for a public offering later this year. Chesky, meanwhile, was ruminating on a grander vision in which Airbnb not only connected service providers and customers, but shaped all aspects of the travel experience. For example, Chesky even asked his designers to mock up planes decorated with the Airbnb logo for a fantasy airline service, according to The Information.
A week after The Information report came out, Tosi stepped down. At the same time, the company promoted chief counsel Belinda Johnson to COO. In her acceptance of the position, Johnson noted that she believes that, when it comes to listing on the stock market, the company has an “infinite time horizon” with a promise to take a “long view.” Reinforcing her statement, Chesky said, “We are not going public in 2018.”
Last year, Airbnb evaluated a wide swath of potential new ventures, narrowing a list of 100 ideas down to a dozen services the company may launch in the near future. What has so far been realized is a series of products aimed at reaching customers who might be wary of booking a stay in a random stranger’s home. In addition to more thoroughly vetted homes, Airbnb is rolling out categorization tools to help travelers find the right kind of home, whether they’re traveling on business, as a family on vacation, or for a wedding. For example, travelers can now peruse “Collections” of homes designated by characteristics like family-friendly or business traveler-ready.
One product under discussion that didn’t get the green light (at least not yet) was focused on matching travelers with ground transport. Tinkering with how people get around while on a trip may better reflect Chesky’s knack for turning convention on its head. But in order to launch the next leg of its community enabled end-to-end travel platform, Airbnb needs to prove it has a large enough audience that actually wants it.
Chesky says there are four steps to planning a trip that everyone goes through: inspiration, planning, flight booking, and accommodation booking. “By the time you came to Airbnb, you already had your flight, you already knew where you were going to go,” he says. The question he wants to answer is how he gets travelers to go to Airbnb before they’ve decided where they’re going. Additionally, Chesky told me, he sees an opportunity to rouse people “to go to cities they wouldn’t otherwise travel to.”
Can Airbnb inspire travel? Last year was a big test for Airbnb, its first expansion beyond the home-sharing market. One of the first services it rolled out was Experiences, a reimagining of the wine tastings and sightseeing cruises you’ll find on wooden brochure tables in hotel lobbies. Airbnb’s offering consists of everything from dance classes to mini-concerts to pickle tastings, and is aimed at uncovering active–and sometimes underground–communities.
Then the company revamped its app to include ideas for places you might visit, restaurants you might book, and Experiences in 60 cities, most recently Porto in Portugal. It also launched a travel magazine (again).
Airbnb’s attempt to create a new revenue model in the travel space “isn’t better, it’s just different and creates opportunities for Airbnb,” says Bjorn Hanson, hotel industry consultant and dean of New York University’s hospitality school. From a customer perspective, he says, Airbnb is trying to establish, “I’ll decide what I want to do before I decide where I want to stay” as a dominant order of behavior.
“That’s reversing the old model, which is, I’ll decide where I want to stay, and then I’ll plan my activities around a base,” says Hanson. In other words, Airbnb wants its platform–with its array of activities, attractions, homes, and restaurant suggestions–to influence you when you’re choosing a travel destination, and perhaps even convince you to visit a place you’ve never thought of before.
Today, Experiences is still small-scale, though the company plans to bring on 25,000 Experiences in 1,000 cities by year’s end. The plodding growth, so far, is due in part to heavy-handed curation by Airbnb; unlike its original marketplace for homes, which allowed anyone to list their home for rental, not everyone can offer up their services as an Experience. Airbnb sought out specialists and sifted through thousands of Experiences applications, approving only what it deemed to be the most quality acts. Over 50,000 applications have been submitted for Experiences ranging from $150 cooking classes to $25 walking tours. More than 80% of all Experiences applications are turned down, the company says (sometimes, admittedly, simply because the applications are incomplete).
“We’re purposely constraining the growth,” Chesky told me in September, when Experiences launched in New York. “Part of the lesson I learned from homes was: curate the marketplace, manage it more, people have to qualify, we have to prove everybody.” As it narrowed in on its earliest Experiences applicants, Airbnb placed bets on activities it thought would sell–and even helped coach chosen hosts.
A recent story from the Wall Street Journal suggests not all of Airbnb’s Experiences picks were winners. The report claims some Airbnb Experiences hosts did not earn enough money to make the endeavor profitable for themselves. The same report said Airbnb Experiences only generated $10 million in sales for the company in 2017, or roughly $2 million in revenue. A company spokesman denied this figure as “inaccurate,” claiming that Experiences will have an annual run rate of $200 million by December this year. Airbnb takes a 20% cut from each Experience sold. If that’s the case, Experiences will deliver $40 million in revenue for 2019, assuming monthly revenues don’t fluctuate throughout the year.
The company also told me that, on average, people who host an Experience four times a month earn $6,000 annually. People who host more Experiences make more money, the company says—as much as $150,000 annually. Chesky tells me 90% of Experiences have five-star customer ratings; by contrast, five-star ratings for homes are 20% less frequent. An internal email shows Airbnb expects to hit an annual run rate of 1 million Experience bookings by the second quarter of 2018. By 2019, the company anticipates Experiences will be profitable.
Last July, inside Airbnb’s loft-style Paris office, I attended a gathering of Airbnb employees, hosts, and Experience guides. Little plastic cups of wine were set out among scattered plates of thinly sliced meats, cured sausages, and nice cheeses. The group gathered near the food table, chirping like birds at a feeder.
One man, named David, started out as an Airbnb home host several years ago and was later offered an opportunity to teach travelers how to play the steel ball game petanque. Before Experiences launched, Airbnb employees reached out to members like David to see if they might craft an experience together that really resonated with the types of travelers who are attracted to a city like Paris.
As Experiences grew, the platform also attracted people like Shiry Avny, a graphic designer and street artist. She has never put up a home on Airbnb, but applied on a whim to host an Experience. Avny’s Experience is both a tour of Paris street art and a spray painting workshop. She lets her guests tag city walls in the neighborhood of Belleville and supplies the paints and the stencils. Technically, spray painting buildings is not legally condoned, “but it’s okay—I’ll tell you to run if the police is coming,” she jokes. The wall she takes visitors to is famous for its graffiti and authorities generally don’t concern themselves with the artists–and tourists–who mark it.
An element of risk can play an important role in attracting customers. Avny’s street art workshop, for example, offers travelers a chance to play the vandal, giving her Airbnb activity a sheen of authenticity. Such unusual tours also open up the opportunity for other unique experiences. After I admired Avny’s haircut–her hair is buzzed short on one side–she explained that her friend had cut it and that he could do mine, too, after her tour. I pictured the scene: me going under the shears in some industrial part of Paris while in the background a local artist marks a wall à la Banksy. That’s the kind of magic moment Airbnb is hoping Experiences might engender.
But while such an experience appeals to me, it might turn off less adventurous customers.
One of the perennial questions surrounding Airbnb’s growth is whether the platform is safe enough to attract a wide following. Over the last few years, Airbnb’s multiplying user base indicated to investors that consumers were becoming more comfortable staying in another person’s home rather than in a hotel. New research suggests there may be a cap to how many people are truly at ease with such an arrangement. For example, some potential customers may have concerns around home cleanliness, surveillance, and trustworthiness of hosts.
Adoption of Airbnb in the U.S. and Europe is slowing, a November Morgan Stanley Alphawise survey reports, attributing Airbnb’s stagnating growth at least in part to a growing concern about safety. “Privacy/safety are material and growing barriers to adoption,” the survey says, noting that the number of people who are concerned about these issues went up 10% in the U.S. and 25% in Europe over the last year. “This, in our view, could speak to two potential truths: 1) How Airbnb/sharing lodging could be more niche than previously expected, and 2) How the lobbyists/opponents of Airbnb may be gaining traction.”
That second reason is important. Morgan Stanley is suggesting that hotel industry groups may be curbing Airbnb’s growth through various lobbying and marketing campaigns. Perhaps the most visceral example of this work is an ad that ran last summer that insinuated platforms like Airbnb aid terrorism. It’s not just the hotel industry, either. Last year, TripAdvisor gave money to a disgruntled former Airbnb guest to research fraud on the platform.
“The percent of non Airbnb users who cite privacy as a concern grew ~700bp to 36%,” according to the Morgan Stanley research. “Safety also remains a hindrance to growth, with 13% of non Airbnb users listing safety as their reason to not use the platform.”
Chris Lehane, Airbnb’s head of global policy, responded to the Morgan Stanley report during a press briefing. He said that although the U.S. and Europe makes up 40% of the company’s “activity,” the report doesn’t speak to the company’s growth in China or other emerging markets.
In the news and on sites like Airbnbhell.com, there is no shortage of stories about Airbnb stays gone awry. (Here are two horror stories from December.) The company is often quick to point out that such incidents are relatively rare–but that they happen at all might deter new people from signing up for Airbnb.
To ameliorate perceptions that its platform is unsafe, Airbnb runs background checks on hosts against global watch lists and sex offender registries, and in the U.S. it keeps hosts with felony convictions and certain misdemeanors off its platform. In April 2017, Airbnb began using machine learning to pull scam listings off the site and published an advisory alerting guests to only pay hosts via Airbnb—not via an alternative payment method suggested by the host.
As it launches new products, the company is looking for opportunities to build safety in from the beginning in a way that it didn’t with its home-rental program. Airbnb verifies Experience host’s identities and asks they abide local laws. For higher-risk activities, the company asks for additional documentation to make sure they are properly licensed for, say, operating a helicopter tour or teaching bungee jumping. The company says that like home hosts, Experience hosts are covered by $1 million liability insurance in the event that something goes wrong.
Meanwhile, many Experiences food offerings take place in restaurants or industrial kitchens run by certified professionals, though there are some culinary adventures that take place in unlicensed home kitchens. An Airbnb spokesperson says that food-related offerings vary from location to location, but all hosts are asked to stay compliant with local laws concerning food safety. That said, Airbnb doesn’t necessarily ensure that all food hosts are operating legally.
In the early days, Airbnb staff tested Experiences before putting them on the platform. As Airbnb scaled this segment of its business, individually piloting each Experience became untenable. The company says it is experimenting with having members of its host community try out new Experiences before they go live to the broader public.
Airbnb is also taking steps to reduce any unpleasant surprises guests might encounter; an important endeavor as it goes after business travelers. Airbnb Plus homes have a veneer of extra security since each must meet 100 different criteria and undergo third-party scrutiny (notably, contractors will be reviewing homes, not Airbnb employees). As these homes go through the in-person evaluation, they have to meet certain criteria, like providing clean sheets, a stocked fridge, and a kitchen outfitted with pots, pans, and cooking utensils. People who book an Airbnb Plus will also get expedited customer support from Airbnb. It’s similar in concept to the hotel-apartment complexes the company is developing with landlords and developers, which allow the company to play with creating a more uniform experience.
The new Plus review process was inspired by Luxury Retreats, a rental platform for extravagant homes which Airbnb acquired last year. Luxury Retreats has a 300-point checklist that must be met before homes can be handed over to customers.
The Morgan Stanley report predicts Airbnb will increase advertising spend to banish the specter of risk that looms over it, and the impact of that will be “critical to the company’s forward growth.” But these efforts may have limits. Airbnb cannot guarantee that all travelers will be safe in Airbnb homes–or even during Experiences. Background checks can fail, as they did for one Airbnb traveler who says the host who attacked her had previously been convicted of assault. Airbnb can help with rebooking, refunds, and reimbursements. But if a guest is in jeopardy, Airbnb cannot easily be called upon to intervene should a victim attempt to call the company for help. A guest or host can call Airbnb support, who will suggest calling local police. Unlike a hotel, there is no Airbnb front desk in a home, no attendant to come over to your room right away.
As lack of safety, or the perception of it, continues to gnaw at Airbnb’s overall business, hotel industry bookings are booming. Demand for places to stay is still ahead of overall supply growth, according to PricewaterhouseCoopers. “The U.S. leisure travel market notched its fourth straight year of 5% growth in 2015, reaching $341 billion. Stronger growth (closer to 6%) is projected for 2017, pushing the market closer to $381 billion by the end of 2017,” according to a Deloitte industry report.
Though Airbnb’s overall share of hotel revenues remains small, the home sharing site offers more rooms than the top five hotel chains, according to the Motley Fool. In “The Airbnb Story,” released last year, Leigh Gallagher wrote that investors expected Airbnb to reach $2.8 billion in annual revenue in 2017. There are dueling narratives on whether or not Airbnb is indeed profitable. In January, Recode reported the company was profitable by $100 million, but more recently the Wall Street Journal has alleged the company took a $75 million loss on $2.57 billion in revenue last year. Still, it seems to be edging close both to profitability and revenue expectations for 2018.
Airbnb is also showing that whether or not it can change the way people book travel, at the very least it’s adept at anticipating changing tastes. Even as Airbnb attempts to become more hotel-ish, hotels are trying to become more Airbnb-ish. Like Airbnb and its Experiences venture, hoteliers are investing in party tricks.
“Community is the foundation of JO&JOE,” the website for AccorHotels latest property reads. Launched in 2017, Jo&Joe is hostel-like, with a focus on communal spaces. Jo&Joe also hosts events: concerts, cocktail crafting lessons, yoga, and surfing, among others. Ian Schrager’s PUBLIC, with its neon-lit escalators and silver-dipped light bulbs, hosts theater performances and film screenings. Meanwhile, Renaissance Hotels also offer a selection of events open to travelers, including DJ sets and buffets.
Hanson says these kinds of events have been a part of hotel marketing for years, particularly during lean times, as a way to stoke occupancies. “Occupancy and rate generates most of the profits. These other activities are events and marketing to support,” he explains.
This latest increase in onsite events and other activity-based marketing at hotels is due to a recognition that tastes are changing, says Hanson. Hotels feel that they must invest in these kinds of activities to attract guests in the 21st century. Not that long ago, he says, travelers actually preferred uniformity in their accommodations. That standardization within hotels defined what it meant to be a brand. “That’s actually a negative now,” says Hanson. “So brands are really struggling now with what it means to be a brand.” These days, hoteliers believe, many younger travelers are more drawn to travel services that puts them in touch with a region’s people, food, and music. They want to do as the locals do. They want unique experiences.
This is where Airbnb tends to have an advantage. While hotels often write down events as marketing costs meant to drive room rentals, Airbnb can earn money on an Experience whether or not a guest rents one of its rooms or homes. Additionally, while many hotel events take place on campus, Airbnb’s network of Experience guides help travelers venture away from their rental and get in touch with a local culture.
Chesky says he told his team some time ago that the company’s focus on building a networked community of mini bed and breakfasts gave it something of a lead against traditional hotels. “We add the equivalent of a major hotel chain every six months and [in Q2] we added 500,000 incremental homes just in 12 weeks,” he says. But he knows that whatever lead the company may have over hotels, it won’t last forever. “We always have to be launching the next thing to push the community.”
Hotels aren’t Airbnb’s only competition. It is also competing with online travel agencies. Like Airbnb, online travel agencies (OTAs) offer a range of accommodations–including home rentals–at rates that are on average lower than booking directly from a hotel. And like Airbnb, Expedia and TripAdvisor are vying for tourist activity sales. An increasing portion of TripAdvisor’s business comes from restaurant, attraction, and vacation home bookings. In the fourth quarter of 2018, TripAdvisor’s non-hotel revenue represented 23% of its consolidated revenues–and that revenue is growing rapidly, according to fourth-quarter earnings.
Meanwhile, Expedia has been pushing its “things to do” category since 2015, which is when it invested $6.4 million in advertising for this segment of its business. Last year, Trip Advisor CEO Ernst Teunissen noted, “There is no large OTA of attractions, and with the acquisition of Viator, we actually bought the most significant player in that space.” TripAdvisor boasts some 83,000 bookable activities. The company’s non-hotel businesses, including attractions, restaurants, and vacation home rentals, contributed 23% of its total non-consolidated revenue in 2017.
Tours and attractions don’t yet make up a significant portion of Airbnb’s revenue. Nevertheless, Chesky believes that for Airbnb, they will in the future. At a luncheon for the New York Economic Club in March last year, Chesky said, “Most of Airbnb by 2021 or so will probably be new things that were shipping as of 2017 on.” He also said he expected accommodations to account for less than half of Airbnb’s revenues by 2021. But Airbnb’s overall strategy isn’t about competing on tours and attractions and homes alone; it’s about building an ecosystem of travel products around community.
“Something we’re also thinking about is how to get you out of the city this weekend,” says Joe Zadeh, a seven-year veteran at Airbnb and its head of product. Focusing on local–and hyperlocal–opens up Airbnb to more than fanny-pack toting vacationers. A quick scroll through Airbnb’s app reveals intimate concerts held in living rooms and cafes, sunset salsa lessons in community centers, and yoga on the beach—tourist fare that can easily be recast as a directory of date-night ideas.
“We’re getting good at knowing what kind of Experience to show to someone who is a local,” says Zadeh. Airbnb’s app also serves up guides to parks, cocktail bars, and restaurants. You can even use Airbnb to book dining reservations.
Airbnb’s attempt to lure you into quick local trips and nights out in your hometown points to one of the company’s biggest goals. “We’d love it if Airbnb was a daily app that people tapped into everyday,” Airbnb’s CMO Jonathan Mildenhall told the Economic Times in June. Indeed, short trips and local excursions might seem less intimidating–and more fun–to people who have never rented an Airbnb and are circumspect about staying in someone else’s home.
Hanson believes Airbnb is redefining what it means to be a travel agent, and is in the process shaking up the traditional economic model the travel industry is built on. “It’s not thinking of the travel agent business as being hotel occupancy, airline, and car rental, but just how people spend their leisure time whether they’re traveling or not,” he says.
Certainly that is the case for both me and Wren, my game night host during my business trip in San Francisco. After our team loses at Killer Queen, Wren and I check out some other games in the arcade. He opens his backpack to reveal glow sticks, shutter shades, and assorted favors from Party City. As he puts together a pair of glow stick glasses, I ask him if he has participated in many Airbnb Experiences as a customer rather than a host. He speaks quickly, so much so that I had a hard time keeping up in this loud bar. He says yes, he loves them. On a recent trip he took to Miami, he arrived knowing nothing about the city or anyone in it. He signed up for an Experience, something related to gaming–and ended up meeting a whole bunch of people he now calls friends. He’s taking another trip to Miami soon just to see those people again.
While Wren seems to have found the companionship he was looking for through Airbnb Experiences, I was not so lucky. The night I joined him, the other guest who signed up didn’t show. It was just me and Wren chatting superficially and hopping from game to game, as if we were on a blind date—an experience that was almost too personal. Airbnb may be building more assurances into its travel offerings, ensuring some homes are clean enough, and that activities are cool enough. But Airbnb will always be a more intimate way of traveling; if it wasn’t, it wouldn’t be Airbnb. Open a drawer or riffle through a medicine cabinet, and you’ll learn something about your home host. Such personal experiences require a certain vulnerability on the part of the traveler. The question for Airbnb is whether that kind of travel experience can ever truly be “for everyone.”