How Airbnb Grew from a SF Loft into a World Leader

Airbnb, Inc. is a marketplace that allows people to find and list short-term rental accommodations around the world. The platform is accessible online or from a smartphone or tablet. Places to stay range from a simple room to entire apartments, houses, villas or even castles spread across 34 thousand cities in 190 countries. The story behind the company is one of the most remarkable of our time: an idea borne out of necessity to pay rent, followed by a lengthy period of uncertainty before the business finally began to explode into a disruptive force felt around the world. 

Renting Air Mattresses in San Francisco

The story of Airbnb begins in the fall of 2007 in San Francisco with Brian Chesky and Joe Gebbia, friends from their days as industrial design students at the Rhode Island School of Design. At the time, they were struggling to pay rent and had the idea of turning their loft into a bed and breakfast, taking advantage the lack of accommodation during an Industrial design conference. The plan was to offer three air mattresses on the floor and breakfast in the morning. 

They made the first version of their website, called airbedandbreakfast.com, in 24 hours and drew attention to the inexpensive accommodation by emailing top design bloggers, several of whom posted about the available space. The initiative resulted in three customers paying $80 each. The young entrepreneurs saw that the idea had potential, and in spring of 2008 they asked Nathan Blecharczyk, a technical architect and Harvard graduate, to join the venture. 

Initially the focus was on capitalizing on the lack of accommodation at conferences. After catering to the South by Southwest (SXSW) conference they only received two bookings. The site was updated and launched again in August of 2008 and geared towards on the Democratic National Convention in Denver, with the idea of Obama supporters opening up their homes to other Obama supporters. This effort achieved more bookings, but overall the project was still struggling and the founders had racked up substantial debt.

"Obama O’s" and "Cap’n McCains"

Still strapped for cash in the fall of 2008 the founders created limited edition breakfast cereals called "Obama O’s" and "Cap’n McCains" in an effort to fund AirBed & Breakfast. After being interviewed on CNN, orders came flooding in and within two months they had sold 800 boxes of cereal at $40 each, making over $30,000. 

Paul Graham and Y Combinator

2009 turned out to be a turning point for Airbnb. After meeting Y Combinator co-founder Paul Graham, the founders applied and were accepted at prestigious incubator. They joined the 2009 winter class for three months of training and received $20,000 in funding. At this time, Graham famously tried to convince venture capitalist Fred Wilson, co-founder of Union Square Ventures, to invest in Airbnb. Wilson listened but never ended up taking the plunge. Graham published their exchange of emails regarding Airbnb on his blog. In the spring of 2009, the name Airbedandbreakfast.com was shortened to Airbnb.com.

Improved Earnings

Still making only $200 per week, the founders flew to their largest market, New York City, to meet users and promote the site. An important discovery during their time in New York was that improving the quality of images had a substantial positive impact on bookings. During this time the founders reportedly went door-to-door and took photos of listed properties. The company has since launched an initiative to connect hosts with free professional photographers.

In spring of 2009, the company received a pivotal $600k seed round of funding from Sequoia Capital, and by the summer 15 people were working from the founders' San Francisco loft. Growth continued to improve during this period, and in November 2010, the company raised $7.2 million in Series A funding from Greylock Partners and Sequoia Capital. 

In 2011, Airbnb acquired a German competitor, Accoleo and in doing so launched their first international office in Hamburg. In October of the same year, the company established its second international office in London.  

Billion Dollar Club

In 2011, Airbnb received $112 million in a Series B round from multiple investors including Andreessen Horowitz, Digital Sky Technologies, Jeff Bezos and Ashton Kutcher. The latest $1.5 billion round of funding in 2015 values the company at $25 billion, larger than the market capitalization of Hilton Worldwide Holdings Inc. (HLT), which currently stands at $21 billion.

Challenges

In the summer of 2011, an Airbnb host named EJ returned home to find it severely damaged, with valuables stolen. Initially, Airbnb did not provide assistance but later apologized and announced a $50,000 guarantee to hosts to cover any damages. In 2012, they went further and introduced a “$1 million Host Guarantee.” (For more, see: Airbnb Insurance: Is It Reliable?)

Airbnb has also faced regulatory challenges, notably in New York and Barcelona, both cities among their most popular destinations. In New York, by law, a “permanent resident” must be present to sublet an apartment for fewer than 30 days, creating a conflict with the Airbnb business model. Additionally, Barcelona’s mayor Ada Colau is threatening to fine Airbnb for marketing apartments that are not on the Catalan tourism register. (For more, see: Top Cities Where Airbnb Is Legal Or Illegal.)

The Bottom Line

Airbnb is a pioneer in the sharing economy, allowing users to offer services directly to each other through an online platform. With total guests numbering over 40 million and worldwide listings exceeding 1.5 million, the service has gained staggering momentum. By creating new sources of supply, Airbnb has disrupted the traditional hotel business and changed the way people travel in the 21st century. (For more, see: How To Make Money With Airbnb: Risks & Rewards.)