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Airbnb’s Hidden Challenge: Its Own Community

3p Contributor | Thursday January 30th, 2014 | 4 Comments
Airbnb's new HQ in the heart of the neighbourhood they're accused of gentrifying

Airbnb’s new headquarters in the heart of the neighborhood they’re accused of gentrifying.

By Emily Oliver

Since entering the mainstream, Airbnb has faced a host of challenges that could derail it from realizing the $1 billion annual revenue Forbes predicted. As well as legislators very publicly calling for enforcement of tax avoidance, commentators also accuse Airbnb of accelerating gentrification. But there’s a hidden challenge which could already account for significant hidden revenue loss. The Airbnb community itself erodes the company’s revenue by avoiding fees through “off-site” deals. But the motivation behind these deals could be transformed by altering Airbnb’s business model.

Ironically, doing so could also indirectly address those other challenges too.

Hidden revenue loss

Around 80 percent of people I’ve either hosted or stayed with on Airbnb have offered off-site deals, i.e. tried to avoid fees by organizing outside the platform. Almost all mentioned they’d done other off-site deals. As many were for longer trips than the original booking, they would have generated higher fees for Airbnb, so this represents significant, ongoing potential revenue loss. It also marks a breach of trust, purely spawned by differing profit interests between Airbnb, the company, and Airbnb’s community.

Airbnb’s response

Airbnb polices these off-site deals rigorously. I’ve received messages informing me that booking enquiries have been blocked because a user tried to contact me regarding an off-site deal. They clearly reminded me to abide by the site rules – and fees. Airbnb also automatically blocks any websites and email addresses from its postings.

I don’t entertain off-site offers for practical and idealogical reasons. Having helped to set up peoplefund.it (the first crowd-funding site for ethical projects in the U.K. and another peer-to-peer platform), I believe Airbnb has been very skilfully set up to facilitate trustworthy behavior — offering insurance, a help line and numerous verifications. I’m also a big fan of the the service model’s potential to shift value away from corporates towards communities. But I’m sure plenty of other hosts don’t share this perspective. So, off-site deals are likely to continue while the business model continues to focus on generating profit for its private and venture capital owners.

An alternative

Instead of the widely predicted IPO route, Airbnb could actually increase its revenue by becoming a Subchapter T, or co-op, a suggestion outlined by California lawyer Janelle Orsi. This would transform the motivation for off-site deals through surplus profit-sharing and a shared sense of owned responsibility. Like Orsi, I’d be thrilled to make an investment or contribute a percentage of every transaction towards community ownership.

These community-owned models aren’t new, marginal or incompatible with the type of revenues Forbes predicted for Airbnb. Both REI (a co-op based in the U.S.) and John Lewis in the U.K. (a High Street shop owned by its employees) have multi-billion dollar annual revenues.

Wider impact

Off-site deals are hardly the biggest challenge for Airbnb – but becoming a Subchapter T could indirectly address those seemingly bigger challenges, too. The shared sense of formal responsibility could encourage hosts to pay taxes on their rental income and discourage illegal sub-letting. This could check Airbnb rental incomes – which critics say are increasing property prices and gentrification in some neighborhoods.

While the wider impact is speculation, Airbnb shifting towards a triple bottom line model might not be as far off as it sounds. Wired recently featured Fast Co. editor Ariel Schwartz’s prediction that a public company would become a B-corp in 2014. Before January 2014 was up, Schwartz wrote an article on the first purchase of a B-corp by a public company. Campbell’s purchased a healthy baby food company that is bound by its corporate charter to maximize social and environmental responsibility.

Supporting infrastructure

Infrastructure is emerging to support these triple bottom line business models. The long-awaited Obama American Jobs Act aims to support crowd-sourced equity. This could support businesses transforming their ownership model, as well as provide a funding path for early- and mid-stage organizations to avoid the venture capitalist model Airbnb is built on. Education is catching up too; alternative economic models are now widely included in the syllabi of top universities.

But I have an inkling the most effective solutions for the challenges these business models are likely to face will come from outside the traditional education models. Massive Online Open Courses (MOOC’s) such as Udemy offer flexible and affordable online courses anyone can access. For more depth, the Institute for Leadership and Sustainability offers a rather maverick, experiential-learning approach in its PGC and MBA courses — summed up by its director who asks, “Why do academics make it so boring?” Its modules (like sustainable exchange – which includes peer-to-peer models like Airbnb) are taught both remotely and outdoors in nature. It can even be paid for in Bitcoins.

Sell out, loose out

Right now I’m still head over heels in love with Airbnb – despite the shortcomings I see in its model. I’m writing from San Francisco (Airbnb’s headquarters) on a trip made possible because I host and guest with Airbnb.

As well as helping me achieve a lifestyle I’ve dreamed of, I believe Airbnb could be part of a shift towards a flatter, fairer economic landscape. But, if Airbnb continues to pursue profit, or if was aquired, I’d think twice about accepting off-site offers. I wouldn’t wax lyrical about the platform – converting a dozen friends into regular Airbnbers. And it wouldn’t be hard for one of Airbnb’s competitors – or a new one — to take advantage of this by establishing a more trustworthy model. The extraordinary passion I’ve met amongst other Airbnbers has persuaded me that a significant, and highly active, section of the community, would very simply dump Airbnb on the spot too.

But I trust Airbnb. For now.

Image credit: Emily Oliver

Emily Oliver works on triple bottom line projects from renewable energy to the arts, with people who are genuinely focused on positive change from corporates to startups.


▼▼▼      4 Comments     ▼▼▼

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  • http://www.triplepundit.com Nick Aster

    Pretty interesting. I wonder how big a problem “off site” deals really are? I mean, it’s tempting to try to arrange something like that – however the appeal probably has very little to do with AirBnb’s fee and more to do with avoiding the IRS :-) If I can rent my place out under the table, that’s far preferable than going through Airbnb’s system because who’s going to know about my income?

    That said, it’s pretty risky to go outside the system with people you don’t know. I can’t imagine it being worth the risk to take people you don’t know into your home to save a few bucks.

  • Guest

    Interesting article. I like the idea of profit-sharing, as that would certainly help with hosts’ brand loyalty. However, I am surprised that you say that 80 percent of hosts have offered you “off site” deals. That seems like a very high number.

    Personally, I value Airbnb because I truly feel like they provide a service. For guests, if something is not right in the apartment (aka filthy/not as described), Airbnb will intervene. For hosts, if a guest is disruptive, destructive, and/or breaking established rules, Airbnb will intervene. Therefore, I think their fee is (mostly) justified. I say mostly, only because I think they are right on the line of over-charging for their fees (12% from the guest, 3% from the host).

    Clearly, the service they provide is most important for strangers–which is why I can understand that hosts offered you an off-site deal after you’ve already stayed with them once. However, for most people renting through Airbnb (tourists), it seems as if they do not stay in the same place over and over again. Correct me if I’m wrong.

    For a number of reasons (trust, safety, organization, etc.), I can’t see “off-site” deals becoming so popular that it would threaten Airbnb’s existence.

  • Elan Bailey

    Great article. I love your triple bottom line suggestion. There are two other seemingly inconsequential issues with Airbnb’s model that could be related or perhaps drivers of these and other system abuses. Both of these issues have personally stopped me from renting through Airbnb on a couple of occasions.

    1. The photography: I found the images of the homes (taken and “enhanced” by Airbnb staff are often misleading). After being disappointed by my first rental, I started asking to see properties in person before I would rent. Time after time, these properties proved to be less appealing in person then they were in the images.

    2. Hidden fees(??). These could be foreign exchange fees that are likely being charged by the banks or Airbnb’s merchant services provider, rather than padding Airbnb’s bottom line, but it disrupts the balance of trust. I negotiated fees with an owner in a foreign currency but each time they sent me a rental offer through Airbnb the monthly rental fee was about $250 CAD dollars higher. The owner and Airbnb lost out on a good chunk of revenue because we couldn’t get the numbers to work for both parties.

  • http://www.beyondpricing.com Ian McHenry

    Great post. This is why, in the hotel industry, channels like Expedia and Orbitz (OTAs) often require that the price charged to guests is the same via the listing site as via the hotels own site or any other channel for booking. Part of the problem is that, unlike Expedia which chargers a commission to hotels, Airbnb charges the users, this inventing them to seek an offline channel to save money.

    Eventually, booking an AirBnB or other vacation rental will be akin to booking a hotel and platforms like Beyond Pricing (www.beyondpricing.com) will help with hosts set the right price.