Airbnb has captured the imagination of the world like no other company, especially in the travel domain. The company has skyrocketed to a valuation of close to $100 billion on its trading debut. The market value of share was $146 per share at one point, before closing at $144.71. The Airbnb had a market capitalisation of $86.5 billion on its first trading day. The Airbnb success story is the stuff dreams are made of, it has been a journey that has changed the world, it has changed the way people travel and connect with each other.
Renting out your apartment, your home to strangers sounds crazy enough and Airbnb managed to build a company with a market cap close to $100 billion with this. The rental accommodation site started by Brian Chesky, Joe Gebbia & Nathan Blecharczyk in 2008 has become a synonym of the shared economy. Jokingly, the founders call Airbnb the worst idea that ever worked. Many sceptics and experts wrote them off when they started.
The Airbnb idea was conceived when Brian Chesky and Joe Gebbia moved to San Francisco from New York. They had trouble paying their rent, at the time they weren’t employed. There was a design conference in San Francisco that attracted many visitors. But the hotel rooms recommended for the conference were all booked. So, the duo decided to share their Air Beds and breakfast for $80 per night. They received three guests for their service. And that is how the idea of rental accommodation was conceived.
Joe & Brian then created a very simple webpage that provided Air Beds and Breakfast booking options for people. They received three guests for their services with this simple website. The conference week validated their business model and showed them the potential in their idea. They asked local bloggers for backlinks, used craigslists hacks for acquiring their user base & created a smooth user experience that ensured growth for Airbnb.
Focus on Design & User Experience
The Airbnb success story has been built of user experience and design has played a key role in it. People who wanted to rent their accommodation uploaded photos that weren’t exactly attractive for the users. The people who wanted to book the accommodation were not able to see clearly what they were booking. Joe and Brian went as far as clicking pictures of apartments themselves and having professional photographers to upload pics that resonated with the users.
The Airbnb team used the portal and booked accommodation services to see the details of how everything works for the end users. They picked up small but important aspects that made a big difference to the user experience.
Reid Hoffman mentions in his Airbnb reflections that the founders of Airbnb approached things from the ground up. They worked towards improving the user experience and not just the Airbnb website. For e.g. the first thing someone does in a new place is look from the window. So, what can you do to make a good first impression? A window treatment doesn’t change the view, but a clean frame can improve the experience better.
The Struggles
Earlier this year, Airbnb had the toughest times it faced probably since its early days. As per Brian Chesky, “We spent 12 years building Airbnb business and lost almost all of it in a matter of four to six weeks.”
Airbnb is a travel based business and with Covid came its sternest tests. Earlier this year, the Airbnb bookings dropped between 41% & 96%. The company had to lower its valuation from $31 billion to $26 billion. It also considered delaying its IPO. The cancellations on the site made matters worse. In May, the company decided to let go 1,900 employees or 25% of its workforce spread across Americas, Asia & Europe.
The company helped its employees to find new jobs for many of its employees that were laid off. Airbnb had a series of cost cutting initiatives that included down sizing, suspending new hiring, reducing marketing, cutting down executive pay to save $800 million this year.
Bouncing Back Strongly
The company has bounced back strongly with its IPO in December 2020. The company had a targeted price at $68 per share. The company ended up raising $3.5 billion as the stock closed at $144 on its opening day. Airbnb has been able to defy the odds, it was one of the most widely awaited IPOs this year at the US Stock exchange.
While Airbnb was looking to sell 51 million shares at $56 to $60 per share, it ended up doing far better. Initially they had a target of $44 to $50 per share for Airbnb. This was also the biggest IPO at the US exchange in 2020.
The travel bans, COVID restrictions and precarious state of affairs around the world in 2020 didn’t deter Airbnb from registering a resounding entry at the Nasdaq. Infact, Airbnb had raised $1 billion in April at a valuation of $18 billion.
The valuation of Airbnb at $86.5 on its opening day makes its market cap greater than the top three hotel chains combined. Marriott, Hilton, and Intercontinental are the world’s top three hotel chains and their combined valuation on 10th December 2020 was $84.1 billion.
Infact, as per Business insider, Airbnb has more total listings worldwide than the top five hotel brands combined.
The Secret Sauce
The company has come a long way since its early days in 2008, when it was forced to sell cereals. Airbnb was low on cash and the founders had to resort to selling cereals and breakfast using designer boxes. The theme was based on the US presidential election with Obama & Mccain on the cereal boxes. It helped the startup raise around $40,000 much needed at the time.
The company now provides accommodation services through its portal and app in 200 countries around the world. It covers more than 81,000 cities and is making a serious economic impact with its presence. Airbnb has promoted cultural tourism, strengthened bonds enriched the travel experience of millions. It has also made travel cheaper and is eating into the revenue of the biggest hotel chains.
Reid Hoffman, Founder, LinkedIn & early Airbnb investor mentions, “Airbnb story is that it demonstrates how when you win a winner-take-most market with strong network effects, it can be not just industry-transforming, but world-transforming.”
Airbnb’s success story is one to savour. With so much that has gone off track in 2020 for the travel and hospitality sector, Airbnb emerges as a strong player. It shows resurgence, hope and novel ways people will travel, connect and explore the world in the future.
