Transforming the Accommodation Industry
The AirBnB Journey
People have been traveling for over 5,000 years for a wide range of reasons and have always needed accommodation. Depending on where they traveled or the purpose (trade, government business, general migration, leisure) there was always a range of options available and Bed and Breakfasts (B&Bs) was always one of the accommodation options.
Historically “B&Bs” addressed the needs of travelers looking for a room to rent for one or a few nights as they traveled across countries like Britain, Europe, or the United States. If you were traveling across a long distance on foot, horse, or cart and were covering 10 to 30 miles per day, short of sleeping under the stars you would need a lot of one-night stays along the way. This need was met by a host of accommodation options including staying in someone’s home. During the Great Depression, in order to bring in extra money, families offered rooms in their homes to travelers together with a modest breakfast before they continued on their journey.
In 1993 I organized 15 software developers to jointly exhibit our software at the annual CEBIT trade fair in Hannover. CEBIT runs for 8 days and gets 800,000 visitors which means there are never enough hotel rooms to go around. To fill the wide accommodation hole, the locals offer rooms in their homes or apartments to “strangers”. I arrived 2 days before the conference started at 9:00 pm and knocked on the door of my “hosts” apartment. It was opened by a lovely German woman in her early 50’s. Neither of us spoke each other’s language but for the next 9 days we managed to communicate sufficiently to enable us to navigate any issues and to enjoy the rare moments when I was in the apartment. Turns out the room that I slept in was her sons’ room. During big events like CEBIT he stayed with friends in the country while Mum made extra money renting his room.
In 1999 the wife of a software developer friend who had been traveling through Australia staying at B&Bs discovered that B&B owners had a hard time marketing to prospective travelers across the world. They wanted to increase their reach and attract international travelers. They all had trouble building websites, taking deposits, or receiving payments online. Marketing and promoting their property was very expensive and there were no guarantees. She brought the problem to her husband and myself (both technologists) to brainstorm ideas on how to address the problem. As is usual in a startup many ideas were generated, proposed, and researched. Eventually, we started to settle around the concept of building a B&B online directory (the general paradigm at that time !) with the ability for owners to register, create content, upload pictures, enable online reservations, and receive payments which would then be distributed back to the owners after we took our cut. As we turned our attention to design and engineering issues, we realized that there were still too many core technology gaps and hurdles in the way for us to pull it off.
In 2006 my wife and I decided to spend 3 weeks in Buenos Aires. We decided we wanted to live like locals so rather than stay in a hotel we decided to stay in an apartment. There were many websites based in that region that offered selections on apartments. Most were badly designed and organized, none displayed the inventory in a consistent manner, descriptions were inconsistent across properties and the photographs were badly taken. Only 2 sites had comprehensive apartment inventory which for us translated into wider “choices”. These sites specialized in short term accommodation in major cities in Argentina and not beyond. Since we did not know anything Buenos Aires or Argentina, we relied heavily on a friend who was born in Buenos Aires to guide us as in selecting the location to stay and what to do when we got there.
In 2007 we decided to spend 3 weeks in the South of France. Since our stay in Buenos Aires was a success, we decided to rent apartments in Nice and Monte Carlo. Our search for apartments went through the same experience cycle as Buenos Aires. Many badly designed sites with inconsistent layouts and descriptions and poor photography. We eventually stumbled on one site that specialized only in key locations in South of France and was well designed, had a large inventory to select from, had a standard look and feel, good descriptions, and extensive photographs. When we arrived at Nice, we were greeted outside the apartment and were handed the keys after a tour of the place. One big difference I noted with this company was that they managed the website and also managed the properties on behalf of the property owners who typically were investors living anywhere but the South of France. Since we were long-term stays the company would come every 4 days to refresh the linen, towels, etc. A ‘virtual’ hotel management model.
In 2008 we decided to spend 3 weeks in Positano and Rome. Again, our search for apartments went through the same experience cycle as Buenos Aires and South of France, with web sites being more like the ones found for Buenos Aires with 3rd party property management independent from the web site we made the booking through.
On returning from Rome it became clear that
EXPERIENCE: If you traveled to a place for longer than 3 to 5 days then staying as a local in an apartment gave a superior experience
FRAGMENTED: The number of companies providing information on properties to rent worldwide was large but each specialized in certain cities, regions or countries. Which means the industry was highly fragmented with endless variations in how the web sites were designed and operated and the additional services they offered
PAYMENTS: Payments required funds to be sent outside the web site process with the balance paid on arrival and in some cases in CASH !!
MARKETING: Promoting and advertising properties was a difficult and costly proposition
MANAGEMENT AND OPERATIONS: Managing the typical hotel process of arrival, payment, and maintenance of the property was ad-hoc and there was a huge variation in how properties were managed.
What became clear was that there appeared to be an opportunity to build a new business model around a class of accommodation. Traditional hotels aggregate rooms into a single infrastructure. They locate them strategically in places where there is perceived need (the need to be close to the airport, or close to a conference center, or close to large corporate offices, or close to key activities, etc). They have evolved different property “styles and patterns” that map to customer segments across different dimensions: Purpose, Price, Position, Quality, etc no different to the evolution of the car styles and patterns that emerged from the Model T to the wide range of car models offered today. The dominant accommodation model was built around aggregating “rooms” from small to large suites in a single infrastructure offering the obvious benefit of scale within a set of physical constraints.
The perceived new opportunity that started to swirl in my brain, was to provide accommodation using dis-aggregated “rooms”. In the US in 2009 there were at least 17,000 B&Bs serving 55 million guests annually, accounting for $3.4 billion in revenue.
All new business models throw up an infinite number of challenges and problems that need to be solved at every step of the way. Most of the problems will be new to you. Most of the problems will be unique because even if what you are attempting is not generally new your particular twist to the general pattern will have new elements.
Prior to Netflix doing Mail Order DVDs, thousands of organizations had been doing mass mail-outs of something (product catalogs, Credit card offerings, etc ). The particular problem Netflix had to address was
How to ship something across the US that would not get destroyed in transit and
How to keep the cost of the round trip below a price point to make it profitable
And these were only 2 of 10,000 + major or micro problems Netflix had to solve along their remarkable journey and that’s before you add the complex and myriad problems encountered building their global software platform !!.
Clearly, Airb&b did not invent B&B and clearly, they did not have any prior knowledge working in the tourism and accommodation space. So what happened?
Well…..
As in most cases, a number of life events conspired to drag them into the entrepreneur’s tunnel of hell. In trying to solve a problem, they had stumbled on an insight that was as faint as a distant star yet had the force of gravity that pulled them into the challenging and exciting orbit of ‘discovery’. Over time they started to see the contours and features of the problem. They began to understand its behavior and developed an intuition about the problem space as they slowly learned about the “phenomena” under their study. Like a bunch of excited scientists, they experienced all the emotional ups and downs as they explored what to them was uncharted territory.
What were the elements that conspired to lure them into the orbit of learning and discovery.?
The Search: They were in search of discovering something they just did not know what it would end up being. During the search, many ideas were thrown into the discovery pot and stirred.
The Problem(s): While they wrestled with many candidate problems, one problem triggered their interest which raised intriguing questions that they sought answers to.
Q1: IF there are more conference attendees than traditional hotel rooms then where do attendees stay?
Q2: IF there was a shortage of hotel room inventory would some attendees be OK staying in a stranger’s room in their apartment or home
The Initial Insight and Hypothesis: IF prospective attendees were unable to attend a conference due to lack of accommodation or IF the only choice was staying in a hotel 60 miles away from the event, then would people be “OK staying in a stranger’s room” in their apartment or home.
Testing the Insight and Hypothesis: To test the insight and hypothesis many creative options were explored and ultimately an initial accommodation model was arrived at shaped by the constraints of their apartment and the experience they wanted to create. So, test the hypothesis they did.
The View from Hindsight
To solve their immediate money problems, they could have all gotten jobs. And while that’s true it does not take into consideration their particular context, their background, personal goals, motivation and drivers, and what initially brought them together in the first place which was to start some business based on some idea or problem that someone somewhere was encountering.
Being grad students from a prestigious design school one can only imagine the number of wild ideas that were canvassed as potential ideas to pursue. And this is where the element of luck plays its hand in your life. The type of problem you select to pursue and the solutions you select from the range of solution possibilities will ultimately shape you, society, the organization, and the end result.
At the outset, none of the Airbnb founders were knowledgeable or passionate about the travel or tourism industry. Their initial insight was not even new or novel within the context of the history of accommodation. But like Netflix, a number of key technology elements emerged that would over time enable them to solve the wide range of problems they would naturally encounter that inhibited or constrained prior attempts to build a global, scalable alternative accommodation businesses