The world is changing fast and to keep up you need local knowledge with global context.
Airbnb, one of the world’s hottest internet companies, started with a madcap idea of offering a service to those willing to pay to crash overnight on blow-up mattresses in someone’s lounge (full name: Airbed & Breakfast). The concept evolved into a portal featuring more than a million homes all over the world whose owners offer strangers rooms-to-let at half the price of hotels. This flagbearer of the “shared economy” has been so successful it is now valued at $13bn – and has triggered a spirited response from hotel groups in the same way as organised taxis are tackling Uber. In this superb interview, fast talking Airbnb co-founder and CEO Brian Chesky explains how it all began and what he feels about the growing challenges from The Establishment. An inspiring entrepreneurial case study. And confirmation that the internet really does change everything. – AH
At the time, letting out an inflatable mattress to someone you’d met over the internet sounded to many like a crazy idea. But, as they say in San Francisco, if it didn’t sound crazy, someone else would have done it already.
In setting up the company, which was named Airbed & Breakfast, Airbnb for short, Chesky, together with roommates Joe Gebbia and Nathan Blecharczyk, hoped to make enough money to cover the rent. Today, Airbnb’s value has soared to more than $13bn, with 16m people using its website and app to arrange short-term and holiday accommodation this year alone.
On the day we meet, I arrive first and nab the last free table (it is only 12.30pm but San Francisco rises early and lunches start early, too). Citizen’s Band’s scruffy appearance belies an establishment that specialises in high-quality ingredients, whose origins are spelt out in exhaustive detail on chalkboard menus. At the next table, a group of men – check shirts, hoodies and beards – are eating burgers and planning a trip to one of northern California’s hot springs; a waft of marijuana smoke drifts through the open door from the street – a familiar scent in this part of the city.
Chesky bounds in, grinning: he is wearing jeans and a ribbed T-shirt over a frame that has clearly been honed by many hours in the gym. Although the day we meet is also his 33rd birthday (his girlfriend is taking him for dinner later), he seems pleased to be here.
“This is a cool place. Do you know this place?” he asks, as we order tea – his hot, mine iced. “I live right round the corner. I usually come here for dinner, not lunch. The caramelised cauliflower’s great. The mac and cheese is legendary – it’s the thing everyone gets when they go here. Everyone likes the burger, I don’t like to get burger. It’s probably all good. I have only had half of the stuff here . . . ”
Chesky likes to talk fast. A few weeks later I would attend an event in San Francisco where the assembled Airbnb hosts were warned: “If you’ve never seen Brian in person, get ready, you’ll see a lot of adrenalin on stage.”
He went on to deliver a barnstorming speech that was more like a political rally than a corporate affair, with standing ovation to match. “Every day you open up doors and in turn you open up people’s minds,” he evangelised at the Airbnb event. “What you’re doing is creating a world where people can belong anywhere, and it’s incredibly, incredibly powerful.”
In person, Chesky is a ball of loosely contained energy, prone to hyperbole but not quite as pumped up as when he is performing on stage. Despite being a paper billionaire, he still lives in the same apartment around the corner. “I’ve been to tons of restaurants around the city but I always end up at three,” he says – his other favourites, Radius and Rocco’s, are also in Soma. “It doesn’t matter how successful I am, I’m still going to be eating breakfast at Rocco’s every day.”
“No, I go once or twice a week. Usually weekends . . . my girlfriend and I will go, or, if it’s early morning, [it’s] a place to zone out and work on a laptop.”
There are so many entrepreneurs and wannabes hunched over laptops in San Francisco cafés now that many coffee shops have removed their WiFi networks in an attempt to move people along faster. Chesky, however, is clear about the importance that Silicon Valley’s hothouse atmosphere had on the development of Airbnb.
Once the idea that anyone could rent their home caught on, it grew far beyond Chesky’s living room. Airbnb now hosts properties in almost 200 countries, from Morocco to Myanmar.
The original 2009 investment came from Y Combinator, the Silicon Valley incubator that also financed the cloud-storage company Dropbox, and the video-gaming community Twitch, recently bought by Amazon for $1bn. Yet this investment was as much down to chance as anything else. Chesky only happened to meet Y Combinator because when Blecharczyk moved out of the shared apartment, someone working at Twitch moved in and introduced Chesky to Justin Kanand Michael Seibel, Twitch’s co-founders.
“They [Kan and Seibel] basically brought us into the Valley, showed us the ropes, mentored us,” he says. “We were these crazy people, three guys with three airbeds in the living room. People thought this was the worst idea. They were the only people, I think, who believed in us.”
Ever-larger funding rounds followed: $7m in 2010; $112m in 2011; $200m in 2013; then, earlier this year, $500m.
It is a demonstration of the sort of networking that makes Silicon Valley so powerful for start-ups but, I suggest, it can also make the place seem a bit incestuous to outsiders.
“I totally disagree with all that,” Chesky says. “There’s something that’s very special here, which is that there’s a community of people that are rooting for you, and that is very different [to] any other part of the world that I’ve seen for many industries. I don’t think this could have happened anywhere else.”
Not everyone views Silicon Valley as so accessible, especially given that women and ethnic minorities are so under-represented according to diversity reports produced by the big technology companies. Since Chesky is one of three white male founders – interviewed here, I should add, by a white male FT journalist – I ask if diversity is something he is worried about. He says he is “mindful of it” but is more concerned about social mobility.
The friendliest people in the world? 1300 top rated Airbnb hosts. Most middle aged. pic.twitter.com/HsWRUygf2b
— Jeremiah Owyang (@jowyang) November 21, 2014
“One of the challenges is that not a lot of people come from poverty and then come into the Valley,” he says. “There’s this weird self-selection that happens before you get here. There is an element of people coming from privilege to the Valley, not that everyone does, but that has a way of creating a bit of homogeneity.”
Chesky’s own background was comfortable rather than privileged: he is the son of two New York social workers whose main piece of advice to their son when he graduated from Rhode Island School of Design was to make sure he got a job with good health insurance.
My mac and cheese arrives, with three huge, deep fried onion rings tottering on top. Chesky, who says he “tries to eat healthy”, looks a touch jealous at my selection: his medium-cooked steak is accompanied by peppers, sweetcorn and asparagus.
Part of Airbnb’s appeal is that each property is different; a backlash against mass production is core to its appeal when compared to that of traditional identikit chain hotels. It can also be considerably cheaper: typically half as much for a private room on Airbnb as one in a hotel, according to one study last year by Priceonomics. Yet it is not just price-sensitive travellers who are switching from hotels to Airbnb: luxury properties are also available, including a Las Vegas penthouse for $1,900 a night, a $1,669 18th-century Umbrian hilltop villa and a 1,000-acre farm in Brazil, with six bedrooms, costing $3,778 a night. With about one million properties to choose from, Airbnb now far exceeds the biggest hotel groups; InterContinental Hotels (IHG), the world’s largest by volume, has close to 700,000 rooms.
Along with Uber, the driver-hailing app, Airbnb is at the forefront of the so-called “sharing economy” – a catch-all term for the growing collection of businesses that are providing additional liquidity to traditional markets by making use of underused assets (Uber for cars, Airbnb for homes).
Airbnb hosts can face problems, such as damages to their property, which led to the company introducing a $1m insurance policy per home after a particularly notorious incident in 2011. Other hosts have returned to find their homes used for sex parties. The company has, though, persuaded millions of consumers that – thanks to its community rating system and identity verification – they can trust Airbnb and each other. However, convincing lawmakers that its short-term leasing service is entirely legal has been a tougher challenge.
The most high-profile case involving regulation has been in New York, one of Airbnb’s biggest markets, where a campaign by Eric Schneiderman, the city’s attorney-general, against short-term letting websites led to a deal when the company handed over details of thousands of listings that the authorities claimed were operating illegally and failing to pay appropriate taxes.
Airbnb seems to be addressing the tax issue city by city, agreeing deals to collect and remit occupancy levies in San Francisco, Portland and Amsterdam. But hoteliers still want it to go further. At a trade conference in New York this summer, Richard Solomons, IHG chief executive, demanded a “level playing field” on regulation, and accused Airbnb of “doing nothing to create jobs in the lodging industry”.
Regulation has become, Chesky admits with uncharacteristic understatement, “a pretty big topic”. Summing up recent events, he says: “It was good last year and then it was really bad with the attorney-general’s subpoena. Then it got good, then it got really bad again when we went to court. Now it has calmed down, so I am optimistic.”
Our conversation took place a few weeks before Schneiderman released a report that declared three-quarters of Airbnb rental properties in New York to be illegal. He also found that just 6 per cent of its hosts made up more than a third of its total revenues, with one host operating 272 units in the city.
Airbnb’s response was that the report relied on outdated information and did not reflect the deletion of listings it had removed for violating the company’s policies. Despite the threats, Chesky remains bullish: “I haven’t encountered a city yet where they present issues to me and I’m like, ‘There’s no way forward for us.’ ”
— Katie Couric (@katiecouric) June 1, 2014
I realise that although he has been doing all the talking, Chesky has cleaned his plate, while I am still making my way through my second onion ring. We briefly acknowledge this conversational imbalance before he continues.
That Airbnb’s lobbying has been more successful beyond New York could be down to Chesky’s conciliatory approach, which contrasts sharply with the combative style of Travis Kalanick, outspoken chief executive of Uber. Airbnb has produced economic impact reports for several cities, such as Amsterdam, Berlin and Sydney, to demonstrate the benefits it says it brings.
Chesky begins to enthuse about a concept the company is piloting in Portland, Oregon, which aims to return the city to a place where “local mom and pop shops flourish once again” and space is shared, not wasted. In a blog post in May, Chesky outlined his wish that Airbnb should “enrich” the areas in which it operates, how it sought to be “good neighbours” and “bring back the idea of cities as villages”.
Yet in its home base of San Francisco, the company has faced criticism for its role in aiding and abetting the geek-led gentrification of the city. Rents have jumped 30 per cent in the past year, which critics say has been driven by landlords evicting long-term tenants to make way for short-term rentals, constraining housing stock in an already overcrowded city.
“I think we’re unfairly blamed for the housing crisis in San Francisco, frankly. I am not saying that 100 per cent of our community is good but I think 98 per cent of it is. When people aren’t good, we want to work with the city to remove that activity.”
In Chesky’s view, Airbnb is actually helping less-well-off residents because the money they get from renting their spare rooms can go towards paying the mortgage. “It is actually funny because the vast majority of our community . . . depend on us. Without us, I’m not sure how else they [could] stay in this city.”
Our mostly empty plates are still in front of us, when Chesky realises he is running late for his next appointment. “I will wrap it with a little bit of vision,” he says, ignoring my observation that we’ve already heard quite a lot on this subject already. But he is anxious to push home his thoughts on where Airbnb is going next. Having taken on the hotels, he now has the rest of the travel industry in his sights. “We are starting to spend a lot more time thinking about the entire trip,” he says, including the “experiences” people have on holidays.
“We really, really care about this deeper idea of bringing the world together,” he continues, uninterruptible. “I think that’s really, really important for us. And you can be cynical about it – like it’s a San Francisco ethos – but I think that was the idea of the internet and the virtual way: to connect the world together.”
He insists it is these, purer, motives that drive him on, rather than wealth: “I never got into this to make money. If I did, I sure as hell wouldn’t have started this company.”
* Tim Bradshaw is an FT correspondent in San Francisco
(c) 2014 The Financial Times Limited
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