So, what exactly is this urban Frankenstein in our midst, and how did it come about?
The creation myth, for sure, is a real corker, an-all American tale much like when Ben met Jerry and came up with that lovely vanilla bean ice cream. Airbnb’s founders, fellow students Brian Chesky and Joe Gebbia (soon joined by Nathan Blecharczyk), met at Rhode Island School of Design, moved to San Francisco, and began Airbnb serendipitously after they had the idea of putting people up during a local conference when the hotels were fully booked. They bought airbeds, produced a simple breakfast, asked for a modest payment, and, hey presto, a business was born. It’s a warm, re-assuring rags-to-riches story, and they’re now each worth over $4 billion.
In 2008 Airbnb had nil value – but it took off big time after being spotted by whizz-kid computer programmer Paul Graham, whose Y Combinator start-up incubator, for a slice of the action, introduced them to what we might as well call the ‘investment community.’
Its exponential growth has become the stuff of legend. As a commission-based internet booking service, it rapidly commandeered a yawning gap in the market and soon began to resemble a licence to print money. By February 2011 a million bookings had been placed and, within the space of four weeks, revenue had increased by a mind-boggling 65%. It helped, of course, that they’d just had $7.2 million injected by outside investors a couple of months earlier. By the first quarter of 2017 it was worth $31bn and the markets were getting excited. Jeff Bezos, the world’s richest man, had astutely invested $112m in 2011.
It wasn’t only the US investment houses which were scenting opportunity. Indeed, it was a subsidiary of veteran (1908) Edinburgh-based asset management specialist Baillie Gifford, which became really excited. The Scottish Mortgage Investment Trust (SMT), now a Footsie 100 company with assets under management of £218 billion, invested heavily in ‘disruptor’ stocks with high growth potential. Early picks included Google, Facebook, Spotify, and Amazon, as well as China’s Alibaba, Baidu and Tencent.
The investment ethos of SMT principals, James Anderson and Tom Slater, seems more akin to that of buccaneering merchant adventurers rather than douce Scottish money managers. One of their sure-fire hits is electric-car maker Tesla, of which they are the second-largest shareholder after CEO Elon Musk. They also adroitly piled into Airbnb when it was a mere unicorn offering a generous revenue stream without the burdensome inconvenience of massive payrolls and built assets. It seems a touch ironic that the glossy promotional corporate video in which Anderson and Slater enthuse excitedly about their investment philosophy is artily cut with scenes of historic Edinburgh – a city which their Airbnb prime investment is doing so much to exploit.
For the big players, Airbnb had to be a tempting investment. With commissions of 6-12% on users, plus 3% on ‘hosts’, the cash poured in. In May 2009 it acquired a rival company in Hamburg and established a European presence. By early 2012 it had taken 5m bookings which, within six months, had become 10m. By October that year, it had offices in Berlin and London, followed by Paris, Barcelona, Milan, Copenhagen, Moscow and Sao Paolo, Australia, Thailand, and Indonesia, while a Far East headquarters was opened in Singapore. This was the modern-day equivalent of Genghis Khan racing across the Steppes and conquering one empire after another – and all without leaving the desk.
Friends in high places
Airbnb’s hype stresses such buzzwords as ‘sharing’ and ‘community’ but this doesn’t so much presage a socialist dawn as obscure a business ethic equally as profit-driven as that of any hard-nosed US corporation. Its friends in high places include Washington Post owner Bezos, and former US Attorney General Eric Holder (its legal advisor), while in 2015 Barack Obama appointed Chesky ‘Presidential Ambassador for Global Entrepreneurship’.
The present administration is less enthused. Donald Trump was reportedly left fuming by the Airbnb advertising tag line: ‘Let’s open doors, not build walls’.
Among the words Airbnb likes to liberally sprinkle around, some, like ‘householders’, don’t necessarily mean what they would appear to mean – many allegedly in that latter category are, in fact, sassy real estate investors with capital to spare who’ve worked out that the Airbnb yield to value returns on, say, an apartment in Brooklyn, a modest terraced house in Hackney, or a flat in leafy Marchmont is tantamount to owning a goldmine concession in 1849 California. This can be bad news for those old-fashioned souls who’d like to buy a house in such areas to live in, given that your Airbnb rack-renter can clear upwards of three grand a month on the right investment, with luck and a fair wind. For those trying to get a foot on the housing ladder, or even just wanting to rent a flat in the usual way, this is a disaster.
Reduced availability of residential housing: In Edinburgh and the East Neuk of Fife the rise in [short term lets] was associated with the fall in resident population and school rolls, with fears about the long term sustainability of the community. Short-term lets – impact on communities: research, Scottish Government
While it is tempting to demonise Airbnb, allowance must be made for the fact that the original concept of connecting hosts and travellers with a view to spending a few nights in a spare room was not a bad one. Airbnb also played its part in finding accommodation for victims of Hurricane Sandy, and more recently for those flooded out of their houses in towns and villages like Hebden Bridge and Bewdley.
Floating on air
Name recognition suggests that Airbnb’s coming stock market initial public offering (IPO) later this year will outperform previous attempts by other tech disruptors, such as Uber, with a provisional valuation of $31bn. Even so, some are raising ‘red flags‘, given increasingly troublesome regulatory issues and simmering public anger in cities like Edinburgh and the deflated outcome for other unicorns such as WeWork. Those institutional investors who like to fetishise their supposedly virtuous corporate responsibility policies may yet have cause to hesitate. Though it now calls itself a ‘stakeholder’ company.
There are signs, indeed, that Airbnb itself may be comprehensively reassessing its business model with a view to expanding into less contentious areas. Last year it acquired the HotelTonight online travel app for $400m and made a deal with New York’s largest real estate developer to take over the top ten floors of the Rockefeller Center on 5th Avenue for conversion into 200 ‘luxury curated suites’. The disruptor, in other words, is moving into the very business which, at one time, it was seeking to disrupt. It is becoming a corporate hotelier.
If the Airbnb ‘sharing community’ really was the last of the hippy dreams, then that dream would seem to be well and truly over.
In Part One David Black analyses the global impact of Airbnb, not least in Scotland’s capital city Airbnb blitz is blighting cities
Short-term lets – impact on communities: research Research to assess the impact, positive and negative, of short-term lets (STLs) in Scotland, with a focus on communities, particularly on neighbourhoods and housing. Scottish Government