The two most successful companies in the sharing economy: Uber is still burning cash — so how did Airbnb turn a profit and start preparing to go public?

For years, Uber was considered the more successful of the two.

Less than six months after Uber, Silicon Valley's most valuable startup, sold off its China business, the second most valuable one has now formally moved in.

Airbnb CEO Brian Chesky gave a speech on the sharing economy at Fudan University yesterday, saying the company would hire in China to build a localized product and give the local team decision-making power — "not just a Chinese outpost of an American company."

Most people, hearing for the first time about a service that lets you skip the hotel and rent a stranger's home instead, would have hesitated at least a little. On the strength of that idea, Chesky — a first-time founder — has built a company worth $31 billion.

Whether Airbnb can do better than Uber in China remains to be seen, but the future facing Chesky looks far smoother than the one facing Uber CEO Travis Kalanick.

In the past month alone, four senior executives have walked out of Uber, one after another. Since the start of 2017 the bad news has not let up. For getting a little too close to Trump, hundreds of thousands of American users deleted the app under the #deleteUber campaign. Then a female engineer's first-person account laid bare a culture inside Uber that tolerated sexual harassment…

A bigger problem than the scandals is the losses. Even counting the more than $100 million in cash it pocketed from selling its China business, Uber still lost $3 billion in 2016. And this company, which has already burned through more than $10 billion of investors' money, cannot go public anytime soon. To keep employees from leaving, Uber has had to let staff who have been there four years cash out 10% of their shares early.

Airbnb is in much better shape. Chesky announced last week that Airbnb is nearly halfway through the process of going public and could list next year. Since the last two quarters of 2016, the company has been profitable worldwide.

Nobody would have predicted this a few years ago. Uber and Airbnb are both poster children for the way Silicon Valley, in the name of the "sharing economy," has battered traditional industries. Both were founded in 2008 and took off in 2010. But for their first six or seven years, Uber looked like the more successful company by any measure. It raised money more easily and went global earlier; by 2014 its valuation had passed $40 billion, making it the world's most valuable startup. Airbnb was then worth only around $10 billion.

So why is Airbnb the one doing better now?

These two Silicon Valley icons started from very different places

For two companies out of Silicon Valley, Airbnb and Uber could hardly have had more different backgrounds.

Airbnb's story is simple and inspiring: two designers not long out of college, feeling their jobs were meaningless, hit on the idea of a website where people could rent out a room to strangers passing through.

Neither designer could write a line of code. They asked a friend to spend a few weeks getting the site online, launched it during a festival week, and got two bookings — one of which was their own.

At first they had no idea how startups or investing worked. Chesky has recalled that when another founder offered to introduce Airbnb to an angel, he thought for a moment the man meant an angel with wings.

This inexperienced team floundered for more than a year, at one point living off overdrawn credit cards. Only after joining Y Combinator, Silicon Valley's big incubator, did it gradually turn into a real company — and then, in 2010, it took off.

Uber never needed anyone to teach it anything.

Its two founders, Kalanick and Garrett Camp, were serial entrepreneurs who had each sold a previous company for tens of millions of dollars.

Kalanick in particular was seasoned. He founded two companies before Uber. The first was sued into bankruptcy by Hollywood over copyright, which taught him how to fight traditional industries and regulators. The second split apart internally and then ran into the dot-com crash; it took him six years to find a buyer. At the worst of it, Kalanick even tried to run for governor of California, simply so more people would hear about his company — the bid failed after he gathered only 45 supporters.

Uber has an official founding story: Kalanick and Camp were out at night by the Eiffel Tower, couldn't get a cab, and thought — wouldn't it be great if you could summon a car with your phone? So they started Uber.

In fact Camp chewed on the idea for months, and even drew up a list of 100 questions about the business model and paid people to research them. Before the first version of the app launched, Uber assembled a brain trust of a nuclear physicist, a computational neuroscientist and a mechanical engineer to work out how to predict where riders in a city would want cars, and to tune Uber's dispatch algorithm.

Investors understood Uber's business immediately — it was a service they would use themselves. Not long after the app launched in 2010 the company went out to raise money; some investors said no, but it quickly pulled together the $1.25 million it was after, and even the founder of AngelList, who was helping arrange the round, nearly failed to get in. A few months later Benchmark, one of Silicon Valley's most important venture firms, bought a stake.

Airbnb had a far harder time. By the fall of 2010 it was handling 700,000 bookings a quarter and was still being turned down again and again while raising its second round.

But now one is profitable, and the other is still losing enormous sums

Today both are global companies. Airbnb has 2.3 million rooms listed in 34,000 cities across 190 countries — twice the combined room count of Marriott and Starwood. Uber will get you a car in more than 400 cities across 69 countries, where taxi companies used to be a single-city business.

By gross bookings, both now push more than $10 billion a year through their platforms.

Uber's 2016 revenue reached $8.8 billion, and the company as a whole was still losing enormous sums.

In the first half of 2016, outside China, Uber riders worldwide paid the company $8.8 billion in fares. Uber handed 77% of that — $6.77 billion — to drivers as their earnings, keeping a little over $2 billion as revenue. Yet in those same six months Uber lost more than $1.2 billion overall, which means operating costs, driver subsidies and everything else came to more than $3.2 billion in half a year.

Airbnb, meanwhile, turned profitable in the second half of last year. By one estimate, it collected $1.7 billion in commissions on home rentals last year and began making money in the second half. That figure was up 89% from 2015, and analysts expect Airbnb's revenue this year to pass $2 billion.

Why is the gap so wide?

Airbnb doesn't have to burn cash, because rivals find it much harder to catch up

One big reason Uber loses money is that it has competition in every market.

At the end of May 2015, Kalanick told a small group of reporters in China that Uber was already profitable in the United States.

That did not last a year. Uber was soon burning cash at home again, because its American rival Lyft raised $1 billion in the second half of 2016, and the two went back to subsidizing riders and drivers and fighting a price war.

The pattern has repeated often in recent years. In Southeast Asia, the local rival Grab Taxi took 70% of the market, leaving Uber no choice but to subsidize drivers to fight for share. In India the same subsidy story played out against Ola. In China, Uber burned $2 billion in two years in a subsidy war with Didi.

Airbnb, by contrast, has few competitors with the same business model, and they are small. Even the largest, HomeAway, is worth only $3.9 billion.

There were short-term whole-home rental services in the traditional market, but most of them served vacation homes and resorts: HomeAway, founded in 2004 and acquired for $3.9 billion in 2015, or Tripping, a vacation-rental aggregator founded in 2010. These services mostly matched empty vacation houses with vacationers.

Putting travelers inside strangers' homes is an enormous privacy and safety problem for any company. Trust is the hardest thing to build and the slowest: if a crime occurs between host and guest, who is responsible? What if a guest wrecks the place?

That is also why raising money was so hard for Airbnb. Even Fred Wilson, the New York venture capitalist known for an open mind and an early bet on Twitter, passed on Airbnb, because the business model looked like nothing but problems.

To copy Airbnb you need more than a rental platform. You need a large operations team — to photograph the rooms, work out how to describe them, and set rules for how hosts and guests behave.

Once Airbnb had built its brand, the imitators that followed never reached scale. Their valuations added together still come to less than half of Airbnb's, and Wimdu, a European home-rental service, was bought before it ever grew large.

Competing with Uber in a particular market is comparatively easy.

Most people, most of the time, hail rides only in one city. Any company with enough money can take Uber on in one country or a few big cities.

Didi, for instance, has never really left China, and that did not stop it from getting ahead of Uber there and finally swallowing Uber's China business. Lyft, which doesn't cover every American city, has still kept Uber burning cash.

But most people don't stay in hotels in the city where they live. Airbnb covers the whole world, so a user can find a room anywhere. A challenger, then, cannot cover a few markets; it needs a global network before it threatens anything.

Subsidies also work less well in this market than simply pushing money at drivers. Sleeping in a stranger's home takes trust, and trust takes a brand, time and a strong operations team.

Every problem that slowed Airbnb down in its early years turned into the moat that now protects it.

The basic difference between the hotel business and the ride-hailing business means Uber's margins were never going to be good

Airbnb is up against the hotel market. Uber is going after taxis, dispatch cars and car rentals.

Uber's market is bigger, but until it beats the main competitor in every market it has to keep burning cash. So although Uber is worth twice as much as Airbnb, it has raised five times as much money to pay for the fight. All that burned cash will raise what investors demand of its profits whenever it does go public.

Ride-hailing is also a business with high turnover, small transactions and thin margins.

The point of a "ride-hailing" service — the stretch from opening the app and tapping for a car to sitting in one — is to assign whichever car arrives fastest, not to pick the more comfortable one. The model of car is a garnish. Under that arrangement, whether a driver's car is nice makes little difference to how much work he gets, because users have no way to filter by model.

Fuel, meanwhile, is a cost the driver cannot avoid, so cars that are cheap to run — electric and hybrid — become his first choice: a BYD in China, a Prius in the United States. None of this encourages a rider to pay more.

Finding a room on Airbnb is an entirely different process. Once the destination is fixed, what decides the choice is the room itself and the host's service, and users spend a lot of time looking at photos and reading reviews before they book. The better a host furnishes the place and the more he talks with guests, the more he can charge.

Transportation and lodging both look like "sharing," but there is very little room to invent in transportation, and a great deal in lodging.

A cheap traditional taxi in China or the United States, an Uber, a phone-dispatched "luxury" cab of the kind common in Europe — all of them take you from one place to another. Quality of service, quality of car and convenience differ along the way, as with Uber's core technologies of phone hailing and surge pricing, but underneath, every one of these services does the same thing: it moves you.

Airbnb's lodging service has far more give in it. First, a conventional business traveler who picks Airbnb over a hotel usually does so because it is cheaper and comes with a kitchen and a washing machine — a domestic setting that hotels simply do not offer. For a business traveler staying more than three days, Airbnb is not only cheaper than a hotel but more convenient.

Second, although everything Airbnb rents out is a "house," houses differ from one another far more than cars do. On Airbnb a guest can book a private château in France's Loire Valley for 7,000 euros a night — twice the price of a Fifth Avenue suite at the St. Regis in New York. And guests pay it gladly. An Uber driver, by contrast, can show up in a Rolls-Royce worth 10 million yuan and still only count as a luxury car, charging the same fare as a BMW and just a few times what a 100,000-yuan BAIC electric car charges. In practice nobody would drive a car that thirsty for Uber year round.

Because the rooms differ, the purpose of a stay differs too. A private château can be a purely experiential purchase: you go not to sleep but to enjoy yourself. Uber has run experiential services as well — hot-air balloon and helicopter rides — but every one of these exotic vehicles was a short marketing stunt, not a standing service.

The difference between houses and cars also determines how likely competitors are to appear. Airbnb got started by supplying beds during short spikes in travel demand, when those would-be guests had almost no alternative. As it signed up more and more rooms, it could serve a steadily more scattered, more ordinary clientele. And since there are far fewer houses than cars to begin with, and in theory far fewer people willing to share their home than people willing to pick up a stranger on the way home, breaking into Airbnb's territory will only get harder with time.

For now, at least, the new markets Airbnb is entering leave more to the imagination

In May 2016, when QDaily visited Airbnb's Beijing office, the new service Trips was already in internal testing; the Trips app finally launched in December 2016. The product came out of something Airbnb hosts were already doing on their own — handing guests local travel tips — which Airbnb sifted through and turned into a tour service.

The model looks a lot like Trip.com Group's city tour programs, but on Airbnb travel advice is part of what makes a listing competitive, so hosts take more initiative. Compared with the mass-produced packages travel agencies build around hot spots and traditional local sights, Airbnb's tours are bound to be more personal.

Airbnb, which started with air mattresses in an attic, has never confined itself to being a slightly unusual "hotel" company. Besides buying other small short-term rental platforms, it seems to have wanted to be a full travel site from very early on.

• November 2012: bought NabeWise, a city travel-guide site
• December 2012: bought Localmind, a location-based Q&A site
• September 2015: bought Vamo, a flight-search and trip-planning service
• September 2016: bought Trip4real, a Spanish travel-community platform
• January 2017: invested in Resy, an American restaurant-reservation site
• February 2017: bought Luxury Retreats, a Canadian luxury-home short-term rental site
• March 2017: announced it was buying Tilt, a payments company built around group fundraising

At its annual host conference in November 2016, Airbnb said its future strategy would be a differentiated travel business.

At the end of last year, Airbnb was reported to be building a flight-booking feature, and its investment in Resy will eventually bring restaurant reservations. More recently there have been reports that Airbnb hired McKinsey to assess a long-term apartment rental business.

Uber's new businesses have not been nearly as varied. After Didi announced on August 1, 2016 that it was buying Uber China, the news that drew the most attention to the company became "self-driving cars."

Before self-driving cars, Uber tried plenty of other things: the bike-courier service Uber Rush, the lunch-delivery service UberFRESH, the freight service Uber Cargo, and more. But these were essentially extensions of ride-hailing — whether the cargo was a parcel or a meal, the new business still ran on the technology and resources of "hail a car."

None of them went well, either. They operated in a handful of cities and amounted to add-ons to Uber's ride-hailing service.

If Uber could clear away its competition quickly, scale might turn it into a business of unprecedented size. Right now that looks hard. In the meantime, Uber is treating self-driving cars as the future it is betting on beyond ride-hailing.

But self-driving technology does not look likely to end up in one company's hands. On the day it arrives, Uber's operating costs will be lower — and its competitors will find it easier to join the fight. This time those competitors may be Google, Ford and Toyota.