A look at Airbnb’s marketing and its language conjures images of a harmonious online community. Its guests “share experiences” while its hosts contribute to “people-powered” tourism that boosts local economies. Unfortunately, this wholesome rhetoric doesn’t always correspond with the headlines.
Since its inception, Airbnb has been implicated in everything from out-of-control parties and highly organised scams to human trafficking – made possible, some argue, by its lax policies. But over the past two years, Airbnb has been on its best behaviour: through 2018 and 2019, the company announced a slew of new initiatives, including tax collaborations with governments in Europe, a partnership with UK fraud expert Get Safe Online, a collaboration with anti-trafficking charity Polaris, and the distribution of tens of thousands of carbon monoxide alarms to its hosts to improve safety.
All of this comes in preparation for one major event: Airbnb’s initial public offering (IPO), which is currently under threat due to the sprawling impact of COVID-19, but is still expected to go ahead in the near future. To reassure investors in the lead-up to going public, the company is improving compliance with local governments and boosting efforts to detect fraud on its platform. But the question remains whether it can do enough to win them over while remaining profitable.
To reassure investors, Airbnb is improving compliance with local governments and boosting efforts to detect fraud on its platform
Airbnb was founded in 2008 when CEO Brian Chesky and two friends began renting out air mattresses in their San Francisco apartment. From these humble beginnings, the business went stratospheric: according to its website, Airbnb has hosted more than 400 million guests and has 31 offices around the world.
When it announced its plans to go public in 2020, market analysts heralded what they thought could be an outlier among tech IPOs – finally, one that might not disappoint. Valued at $31bn in September 2017, Airbnb has a stronger financial track record than Lyft, Uber and WeWork, all of which have seen IPOs flounder after failing to prove their profitability. Airbnb also claims its earnings were positive before interest, taxes, depreciation and amortisation in 2017 and 2018.
But the coronavirus pandemic has since put that IPO in jeopardy, with travel bans causing bookings to plummet. Consequently, Class V Group founder Lise Buyer doubts it is still on the cards this year. She told The New Economy: “As the markets are on the volatile side and, of course, given the travel-related business the company is in, I would think this may be a rather exceptionally challenging year for a home-sharing business to make its public debut.”
It’s been a far from ideal start to what was supposed to be a big year for the company. That said, anxieties around Airbnb’s IPO predate COVID-19; in the first nine months of 2019, the home-sharing company posted a loss of $322m, according to The Wall Street Journal. In the same period a year earlier, it had made $200m. This drop in earnings reflects the ongoing challenges that have followed Airbnb since its launch.
One explanation for this operating loss is that Airbnb spent heavily on acquisitions at the start of last year. In its bid to corner the hotel market, Airbnb invested $100m in the hotel chain Oyo and bought the hotel-booking site HotelTonight for over $400m. Another explanation is the company’s increased investment in safety.
The very thing that made Airbnb so successful – the trust it fosters between guests and hosts – is vulnerable to exploitation. Scams are uncovered with disturbing regularity on Airbnb’s platforms (most recently by Wired, which found fraudulent Airbnb accounts with more than 200 listings in London and 2,100 reviews in February this year), and there are inevitably risks with welcoming strangers into one’s home. Airbnb banned open-invite party events at its locations last year after five people died at a house party in California.
Airbnb in numbers:
Amount pledged to safety initiatives (December 2019)
Sayan Chatterjee, Professor of Design and Innovation at the Weatherhead School of Management, believes these challenges have become harder for Airbnb to tackle as the company has scaled. “Airbnb started out with… Chesky living at the host properties as a guest,” he told The New Economy. “They took to heart the principle ‘focus on things that do not scale’. In other words, focus on little things, like how to customise the marketing of each property to help attract the appropriate guest.”
In the formative stages of the business, the founders of Airbnb took care of the photography for properties and made a point of personally meeting hosts in Manhattan. Since then, Airbnb has grown to such an extent that individually checking properties and screening hosts is a huge logistical challenge. “It is almost a given that it is not possible to do it with the same thoroughness as before,” Chatterjee said.
Surprisingly, these security risks haven’t seriously affected bookings. Despite the scaremongering headlines, guests keep going back to Airbnb. “Because of its popularity, guests cut Airbnb a lot more slack,” Chatterjee explained. Nonetheless, these incidents can strike fear into the hearts of investors. As such, Airbnb announced a $150m investment into safety initiatives in December 2019, including 24-hour hotlines for disgruntled neighbours and the provision of noise detectors. It also pledged to verify all seven million properties listed on its website by December 2020.
Room for manoeuvre
In a public letter posted to its website in January, Airbnb promised to make a “positive contribution to society” and create a “company that serves all stakeholders”. When outlining the latter, the company explicitly named local communities as stakeholders. This represents a change in tone for Airbnb, which hasn’t always been local communities’ best friend.
Around the world, city-dwellers claim that the presence of Airbnb’s properties accelerates gentrification and hollows out communities. The evidence would seem to support this: a 2019 study published in the Harvard Business Review found a correlation between the number of Airbnb properties in a city and the price of rent. With income from an Airbnb property potentially so steady, landlords are encouraged to move long-term rentals into the short-term market.
As a result, many local authorities are considering toughening regulations around short-term rental platforms. Leading the charge are Berlin and Barcelona. The former has already enforced restrictions against short-term lets on platforms such as Airbnb and requires landlords to obtain a permit if they want to rent 50 percent or more of their main residence as a short let. Meanwhile, Lisbon recently capped the number of licences for short-term accommodation in some of its neighbourhoods.
While Airbnb claims it wants to help local communities, compliance with local laws could hurt its business model – something it is determined to stop from happening. According to Chatterjee, Airbnb is adopting a much more aggressive legal strategy than the one it used previously: “Initially, Airbnb kept a low profile and tried to be accommodative. Next, it got its customers to battle for them… Now it is using its size and clout to take cities on frontally.” According to Bloomberg, more than half of Airbnb’s lawsuits and appeal cases have been filed since 2018.
In February, as concerns around the spread of COVID-19 mounted, Chesky said that Airbnb would succeed “irrespective of the economy”. But economic conditions are not the company’s only worry: to win the confidence of investors, Airbnb has to strike a delicate balance between proving it can be profitable for a sustained period and demonstrating it can operate responsibly.