
Airbnb Has Arrived: Raising Mega-Round at a $1 Billion+ Valuation - sammville
http://techcrunch.com/2011/05/30/airbnb-has-arrived-raising-mega-round-at-a-1-billion-valuation/
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ChuckFrank
I've been waiting for some time to call out Airbnb, and I think this is the
right time.

Firstly, the idea of short term residential rentals is not new. Long before
Airbnb major cities, Paris, London, New York, and Toronto were dealing with
the issues and the problems of short term / nightly residential rentals. In
fact the latest condo boom in Toronto has been ascribed to international
investors buying condos explicitly for this quasi-hotel rental market. Many
cities have been passing local laws trying to prohibit this type of rental use
for residences because they carry a whole host of problems. Some of those
include -- emptying the downtown core of residences, artificially increasing
housing costs for residents, removing the stability and security that comes
from having permanent and community-invested residents, shorting cities on
their hotel taxes, providing unlicensed locations for short term illicit
activities, etc. So by increasing the market in these short term rentals, the
communities will also feel the increase in the unfortunate side effects of
these short term rental impacts. These are long term market problems that
Airbnb will have to address.

Secondly, it's not a new idea because in the recent past, these rentals were
managed by hotel brokers. So in that respect, Airbnb major idea is simply to
replace the traditional broker that used to handle the short term rentals with
a direct owner to renter model. Across the internet we see great success in
online services removing brokerage inefficiencies to various markets, and for
this they should be congratulated, but not overly so.

And finally, about their execution. Airbnb is not the market leader. In fact
--<http://www.vrbo.com/> is. This is what amazes me the most. Vrbo (I have no
professional relationship or otherwise) regularly get better reviews in online
discussion boards comparing the two services. Their price structure is much
more competitive, their review structure is much more robust, in fact aside
from Airbnb's more sophisticated visual design, Vrbo leads in many segment of
this space.

So, to what do I think Airbnb's success comes from? I think it's Airbnb's
marketing / hype / buzz that has been carefully choreographed to maximize
their valuation. And to this, I congratulate Airbnb on their latest success,
and to a dance well done.

~~~
revorad
Finally, someone had the insight to call out this company! I mean they've
_only_ managed to build a billion dollar business by turning ordinary
homeowners into businessmen, provided better accomodation to hundreds of
thousands of travellers across the world, destabilised an established old
industry with entrenched market leaders while taking on a myriad of social and
local government issues.

Seriously, they don't deserve all this hype and buzz.

~~~
ChuckFrank
Obviously that's a strawman argument. If I'm mistaken about calling Airbnb to
the table, address my points, as I will address yours.

1\. They haven't build a billion dollar business, they are only valued at
that. There's a bid difference.

2\. Ordinary homeowners have and had many other options to rent their
properties - Short term rental brokers and VRBO are just two of them.
Craigslist in another one. Airbnb alone cannot take that as their success.

3\. Perhaps they have provided better accommodations than their competitors.
Do you have anything to support that?

4\. The internet itself is destabilizing the entrenched markets.

5\. And here's the reason I responded, because I am most interested in the
work that they are doing to address the social and local government issues.
Please provide something to support that. Google doesn't have anything..

[http://www.google.com/search?q=airbnb+address+local+issues&#...</a><p>Nor
does Airbnb themselves<p><a
href="http://www.airbnb.com/help/search?q=local+government"
rel="nofollow">http://www.airbnb.com/help/search?q=local+government</a>

~~~
jerf
"4. The internet itself is destabilizing the entrenched markets."

This one is a bit unfair, though I don't know about the rest. "The Internet
(TM)" doesn't just destabilize industries in an abstract sense, it
destabilizes them by a set of real companies that take market share from
entrenched competition, and by allowing that entrenched competition to
sometimes improve themselves in the new market (which doesn't happen as often
as you'd think). It's not "The Internet (TM)" that gets credit, it's those
companies.

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olivercameron
I think a lot of startups put too much weight on what an investor thinks of
their idea. Airbnb is a prime example of carrying on in the face of rejection,
even if people are saying "it's a stupid idea". I know a lot of founders who,
after being told by many of the Valley's finest angels that their idea is no
good, would just give up.

It just goes to show that you can create a $1 billion company, even if no one
really gets it in the beginning, and in my eyes at least, they are actually
justifying it (making a lot of money in a lot of different places).

~~~
photon_off
I think there's something to be said about knowing when to fold, and not to
view these nobody-believed-in-us-but-we-overcame edge cases as motivation to
play a losing hand.

There will always be false negatives, ideas that are rejected by angels but
which later become enormously successful. However, if the industry's finest
angels are all passing, and you can literally find _nobody_ to invest, it is
probably a wise decision to give up. While angels are far from being 100%
accurate in choosing what to invest in, overall they have to have _some_ sense
of what's a good idea in order to sustain themselves. If they're all passing,
better off hitting the drawing board.

~~~
pg
I can think of cases where startups have found no one to invest, and have
ended up doing well. This is where something like YC can help, actually; we
can tell people candidly whether we think it's the investors who are wrong, or
the startup.

~~~
spicyj
Why are you more likely to be able to accurately judge a startup than other
potential investors?

~~~
pg
I have so much more data. I've been watching their trajectory for 4 months,
while other investors (especially those that chose not to invest) may only
have seen them for a few minutes at Demo Day.

~~~
robg
But without something as quirky as the cereal story, you would have rejected
them?

~~~
pg
No. We liked them as people. The cereal story was just evidence of the
qualities we sensed when we met them.

------
stevenj
"Don't worry about people stealing your ideas. If your ideas are any good,
you'll have to ram them down people's throats."

-Howard Aiken

<http://www.paulgraham.com/googles.html>

------
JacobAldridge
Fred Wilson was one of the VCs who passed on his opportunity to invest in
Airbnb - his musings on that opportunity, and learning from it, are well worth
a read - <http://www.avc.com/a_vc/2011/03/airbnb.html>

~~~
guynamedloren
I wonder if he's had an opportunity to invest since then?

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mrchess
This might be a stupid question but what do you do after you secure such a
large series of funding? Go on mass expansion? Would anyone mind telling me
how startups typically use this kind of money (closing Series with 100+mil)?

~~~
tptacek
Big ticket items:

* Mainstream promotional marketing

* Direct sales efforts (identifying target markets, staffing sales teams to pursue them)

* Business model changes to ramp up customer acquisition at the expense of profitability

* Rollups of related companies and acquisition of complementary companies.

* International expansion

* Lobbying

And there's just always something to be said for having a war chest; in
today's climate, if you can lock in a very long runway at favorable terms
because it's obvious you have a great shot at financial success, why not? The
saying goes, "when you're hitting your numbers, you're in charge; when you're
not, your investors are in charge". Even with more outside investors, Airbnb
probably isn't giving up control over their destiny.

~~~
nostrademons
Hiring as well. I remember that Twitter was about 25 people when I was looking
for jobs in 2008, just as they'd closed their mammoth $50M+ round. They're now
at 400+.

~~~
forensic
Everything he said involves hiring.

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rst
Techcrunch says, "On any given night in New York there are more people staying
in homes via Airbnb than there are rooms in the biggest hotel in Manhattan."
For comparison: Starwood Hotels (whose brand names include Westin, W,
Sheraton, and others) has more than 20 hotels in New York (some quite large),
and a market cap of about $11.3 billion.

FWIW, Airbnb's commissions are 9-15% of the rate (3% from the host, 6-12% from
the guest) according to their hosting FAQ[1]; no idea how that compares to
typical hotel profits on a room listing...

[1] <http://www.airbnb.com/help/topic/hosting>

~~~
moses1400
fyi, the Manhattan Hilton has 2,100 rooms so that means AirBNB is renting out
2,101 or more per night - thats's awesome.

~~~
monopede
In the video he mentions it's about 5000 per night.

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alex_c
Congrats to AirBnB!

The way I understand it, the biggest threat to Airbnb's model are local
governments starting to clamp down on this kind of (usually unlicensed?)
subletting. I'm curious how the high valuation factors this risk.

Of course, I suspect the high valuation means Airbnb is planning to expand to
hotels and travel in general?

~~~
olivercameron
Isn't the point of Airbnb that you don't stay in a hotel?

Edit: By hotel, I mean generic hotels like Holiday Inn's. I'm just going by
their mission statement: "We are a community marketplace for unique spaces".

~~~
waterlesscloud
No, the point is to rent spaces to people.

When you look at them that way, a billion may be low.

I was confused when I first heard of them, I thought they were just planning
to be what they are right now- spare private room rentals to travelers. But
then they explicitly stated a desire to directly disrupt the moribund hotel
industry by offering services that make hotel room pricing more dynamic.
Hotels are dynamic now, you can almost always negotiate the rate lower, but
the vast majority of people don't know that, or don't want to try. If airbnb
can somehow automate a chunk of that process, there's money for every in the
transaction. I think that's a hard problem, but solvable.

If they also move into subletting and temporary event space and so on... Big
markets.

~~~
maxwell
I don't know about the chains, but independent boutique hotels and inns
already do this.

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jhuckestein
Airbnb is in a prime position to expand into the market of web-based PMS (I'm
not kidding -- Property Management Systems) that are super expensive and still
run on old MS-DOS machines in many hotels. Give hotels a web-based solution
that interfaces with hotels.com and other sites (there's a rather involved
protocol that you need to license, but the name escapes me) and you're in
business.

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tpatke
I bet the guys behind CouchSurfing are kicking themselves about now.
[http://techcrunch.com/2006/06/29/couchsurfing-deletes-
itself...](http://techcrunch.com/2006/06/29/couchsurfing-deletes-itself-shuts-
down/)

Always keep a backup of your database! :-) In this case, I think it is pretty
clear the execution is worth a heck of a lot more than the idea.

~~~
Tomek_
Dunno, maybe that's the other one but as far as I know CouchSurfing is still
alive and kicking (see: <http://www.couchsurfing.org> \- they claim to have
almost 3mln users), it's just that it isn't a commercial thing.

------
lionhearted
Congratulations to everyone involved. This is way cool. Super inspiring.

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jpiasetz
I think this is the blog post from 2007 he references in the video
[http://www.core77.com/blog/events/airbed_breakfast_for_conne...](http://www.core77.com/blog/events/airbed_breakfast_for_connecting_07_7715.asp)

~~~
picasso81
I can confirm this is the original blog post via Core77.

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tmsh
_That's true. It's also true that there are quite a few marketplaces out there
that serve this same market_

<http://www.paulgraham.com/airbnb.html>

The difference is execution. Any skilled designer (and I'm not a designer but
I can respect design) would've looked at airbnb.com in the past couple of
months and realized: this is different. The way Facebook was different. All
those key design decisions add up and you get enough of an edge over
everything else that you redefine the whole sector by making the sector
suddenly interesting.

Anyway, I'm biased. I stayed at an Airbnb place over this weekend and it
worked great. It's bigger than EBay though, for my money. It's next generation
lodging that is OOM more efficient and the flood gates are probably going to
start overflooding (economy seems just right with enough consumer spending to
support some trips, but enough of a groupon-appreciating eye, for more and
more people, to avoid hotels where possible, etc.).

I sent in my resume to airbnb after deciding to try the site (while booking a
place for the night before Bay to Breakers). I didn't actually stay at a place
(until this past weekend) -- but I knew that whoever created that site was way
ahead of everyone. I found the answer to one of their programming challenges
on the interwebs and e-mailed about it (so haven't heard back -- I expect they
are pretty swarmed with interest now too). And honestly, I'm at the point
where I'm not that into working for a successful startup (would just confuse
things for my side projects, etc.). But I am a very happy customer. And Brian
Chesky is a new kind of entrepreneurial genius (his Startup School
presentation still reverberates). Cheers.

------
markbao
Huge congratulations to Airbnb. That's incredible.

------
nl
Random financial speculation:

Around 5000 rooms a night get rented (via the video).

The make an average of ~10% per transaction (3% from the host, the rest from
the guest: <http://www.airbnb.com/help/topic/hosting>)

Say an average of $60/night.

60 * 0.1 * 5000 = $30,000 revenue/day.

That's pretty decent money.

------
derrida
For all the talk of bubbles, I think AirBnb is actually undervalued at
$1billion. I want this noted. Before AirBnb space was being wasted. Now its
being used. That is something of fundamental value. The dubious valuations are
things like FourSquare, LinkedIn and GroupOn.

------
st3fan
What is their revenue? How much profit are these guys making? How big is their
team?

~~~
mtw
I'd like to know this as well (although $1 billion makes sense, they make a
cut on every transaction, as opposed to Facebook which doesn't make a revenue
on every customer)

~~~
Klinky
Given that they probably sell at least some of their advertising CPM, every
new customer probably does equal more revenue. How much, not sure, but it
could be pretty high when you consider how many impressions an active user
will make each day.

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pbreit
It will be interesting to see how AirBnB maintains the listing quality as it
scales which I would argue is currently its main advantage over VRBO,
HomeAway, Craigslist, et al. These types of sites tend to devolve into a
homogeny of bland, "professional" listings, hence HomeAway's boring rollup
strategy. What has made AirBnB somewhat unique and appealing has been the
interesting listings and the care and personality of the property owners.

------
naeem
All things considered, this is definitely fantastic. I was watching the
TechCrunch TV video of Ashton Kutcher earlier today about his surprise (at the
time) investment of Air BNB. Looks like this guy really knows what he's doing
when it comes to investing - skype, foursquare, not abnb. Pretty cool.

Anyway, congrats to the abnb team, much deserved!

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nostromo
I'm curious how well Airbnb is doing outside of New York. New York's real-
estate market is so out of whack it strikes me as fertile ground for p2p hotel
rooms.

One example: I wonder how many people are renting out rent-controlled
apartments on Airbnb at a huge profit, while the owner maintains the unit at a
loss?

~~~
kwis
If I caught the details correctly, they state that they do as many rooms in
the NYC region as the largest NYC hotel, which puts them at 2k+ rooms/night in
NYC.

Then I believe they claim about 5k rooms/night total, which means that >40% of
their global business is NYC.

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hxf148
Wow, congratulations.

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savrajsingh
Congrats guys! Great interview, Brian!

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creativeone
What's wrong with craigslist's vacation rentals??

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patrickgzill
Apparently $1B doesn't get you as much as it used to...

~~~
zitterbewegung
Well due to inflation it doesn't....

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forensic
When tech companies raise billions, it's a bubble.

When hedge fund CEOs are paid $600 million in salary... it's a recession.

Congrats to AirBnb and YC on joining the top .001% :]

