To Prepare for an IPO and Keep Growing, Airbnb Shifts Its Focus From "Experiences" Back to Hotel-Style Standardized Service

How to balance more listings with more distinctive experiences. This question has run through Airbnb's first decade, and looks likely to keep running.

Ten years ago, Brian Chesky and Joe Gebbia rented out the air mattresses in their apartment to a designer visiting Los Angeles. From that start, Airbnb grew explosively on the sharing-economy model and became one of the biggest threats to the hotel industry in recent years.

Just as the hotel industry, thrown into disarray, scrambled to respond and imitate, Airbnb revealed ambitions to become a "travel services platform". But what it now prefers to emphasize has shifted back to competing with hotels — rolling out standardized service the way hotels do.

At a recent strategy event in San Francisco laying out its vision for the next decade, Airbnb announced a new growth target: serving 1 billion guests a year within ten years. In an hour-long speech, Chesky returned to one line again and again: "Airbnb needs to reach everyone."

Toward that goal, Airbnb launched a stricter curated-listing system called Airbnb Plus — a label that verifies the quality of a listing against more than 100 detailed criteria.

The first Plus listings, launched in 13 cities, require hosts to provide standardized service

Wi-Fi, toiletries, a hair dryer, a coffee maker, a full kitchen — these are needs Airbnb distilled from guest reviews. Now they have all been added to the list of amenities a Plus listing must have.

Airbnb, which emphasized personalized experiences from the start, is now asking hosts to meet standardized service requirements — exactly what the hotel industry does best.

The benefits of becoming a Plus listing are obvious: priority promotion on the platform, plus perks like a dedicated support line and on-site professional photography.

Only 2,000 Airbnb Plus listings have gone live worldwide, across 13 cities, but open the Airbnb app or website today and the listings tagged "Plus" are the ones at the very top.

Amber Cartwright, who runs the Plus business, told QDaily that they had spent nearly a year preparing for it.

Earning the "Plus" label means meeting more than a hundred requirements, covering comfort, cleanliness, high-speed internet, a fully equipped kitchen and more. According to Chesky and Cartwright, quite a few hosts on the platform already do what Plus asks.

Not having canceled a booking in the past year, high ratings and the like are only the bar to apply. After a host applies online, the platform sends a dedicated team to inspect the listing in person.

That review takes anywhere from a few weeks to more than a month. "Some problems are easy to solve — if the place has no coffee maker, you just add one. But if it's a matter of comfort or design, we'll bring in our own interior design team to advise the host, and that takes longer," Cartwright said.

In practice this demands more professionalism from hosts, and stresses standardization over personalization — which puts Airbnb in more direct competition with the hotel groups.

The day after Plus launched, Chesky announced on Twitter that in the hour after Plus officially went live, they received 1,000 applications from hosts.

Airbnb had in fact started offering hotel-like service years earlier. Hosts could apply to have their listing marked as a "business travel" property and earn a badge for it, on the condition that the place had certain standard amenities, such as a hair dryer and Wi-Fi.

Airbnb now also lets hotel-industry professionals onto the platform — property developers, commercial real estate managers, boutique hotel operators and others. At this event, Airbnb announced four new listing types: Vacation Home, Unique, B&B and Boutiques. Before that, users could filter Airbnb listings by only three types: entire home, private room and shared room.

A listing type like Boutiques adds at least several dozen rooms with every hotel it brings in, and giving it a category of its own is, of course, also meant to encourage professional hotel operators to put their rooms on Airbnb.

Airbnb also introduced nine trip types, letting users filter listings by the kind of trip they are taking: family trips, honeymoons and business travel all have different needs, and as both listings and guests keep multiplying, Airbnb is trying to use product design to make filtering more efficient.

The biggest change of the past year is preparing for an IPO — and Airbnb has changed its tune

Two weeks before the event, Chesky changed his tune on taking the company public.

He said plainly that the company will not list this year: "We'll prepare for going public and make IPO-related decisions on our own timeline." At a New York Stock Exchange lunch last March, Chesky had said Airbnb's listing was a two-year plan already half done — meaning a listing as early as 2018.

Now Airbnb's IPO has slipped from 2018 at the earliest to 2019 at the earliest. Laurence Tosi, the CFO brought in from Wall Street to lead the listing, has left Airbnb to return to his investment fund, Weston Capital Partners.

Chesky and Tosi did in fact disagree on the timing. They also disagreed, on a good many points, about running the business, developing new lines and managing the company's money. After Tosi took the job, the company used its funds for more acquisitions and for financial products, and even built a hedge fund inside the finance department to buy stocks, currencies and fixed-income securities.

Chesky wanted to build new businesses — ones that make no money for now — through in-house product development rather than acquisitions.

Beyond, a high-end luxury business about to launch, is the latest attempt. A year ago, Airbnb acquired Luxury Retreats, a platform for sharing luxury homes. Besides short-term luxury rentals, Luxury Retreats also offers concierge service, finding guests a private chef, bartender or masseur — much like the Experiences service Airbnb had launched earlier.

Beyond by Airbnb will go live this spring with high-end listings, exclusive experiences and premium service, tailoring every leg of a guest's trip. The business is aimed mainly at the high-spending travelers Airbnb has not yet reached.

Racing toward an IPO, Airbnb learns more from the hotel industry it once disrupted

Under IPO pressure Airbnb has done a great deal — switching from in-house chefs to outsourced ones, cutting customer-service staff. Now it is asking hosts to provide chain-hotel service.

This runs against many of the ideas Airbnb started with, but the company now needs growth that comes from how often existing users book, not only from new users (who of course still matter). And standardized service is easier to scale.

So Airbnb is also pulling more hotel professionals onto the platform. Last September, Airbnb teamed up with a property developer on boutique apartments: tenants lease a room by the year, and whenever it sits empty it goes straight to Airbnb to sublet, with the rent split among Airbnb, Newgard and the tenant. The apartments and vacation properties run by Hilton, Marriott, Hyatt and Four Seasons all work the same way.

Plus is the more direct example — it moves Airbnb a step closer to becoming the world's largest hotel chain, without Airbnb having to own every room the way a traditional hotel does.

The hotel industry, for its part, had been learning from this fully digital rival. A Morgan Stanley survey found that at the time, nearly half of Airbnb's lodging demand came from former hotel customers.

Launching their own booking apps, staying active on social media, offering guests more travel information in the app, even designing more communal space and courting the young when renovating — these are all things the hotel industry learned from Airbnb.

The more aggressive hotel groups, within their means, bought up as many Airbnb-like boutique hotels and home-share businesses as they could, or launched similar sub-brands of their own.

For Airbnb the situation has now reversed. "We want to change the shape of travel," Blecharczyk said, repeating the vision Airbnb set out a year earlier. But to reach 1 billion guests a year, the company has pulled its focus back to the business it was built on: lodging.

It hasn't abandoned its ambition to be a travel services platform, but Airbnb's focus right now is still growth

Airbnb changed its tune on the IPO for reasons that had nothing to do with its finances.

Its performance over the past year can fairly be called good. The company took in $2.6 billion in revenue and turned a $93 million profit. It also has at least $5 billion in cash to spend.

For a startup, profitability alone already sets Airbnb apart from the other startup giants. But that does not mean everything about Airbnb has gone smoothly.

A Morgan Stanley report published in November 2017 showed that, compared with a year earlier, Airbnb's threat to the hotel industry had begun to shrink. Morgan Stanley surveyed 4,000 Airbnb users in the United States, the UK, France and Germany; the share who had used Airbnb within the past 12 months fell by 3% to 25% from the year before.

This does not seem like much of a change.

But Airbnb's former CFO, who had left a few weeks earlier, said in an interview that the 85% and 90% annual growth of the core business used to come too easily.

As governments began issuing short-term-rental rules, this company — which had never burned money to expand — ran into a problem subsidies could not fix.

Airbnb built its business by offering somewhere to sleep during short-term surges in travel, when its potential customers had almost no alternative. As it signed up more and more rooms, it could serve a more scattered and ordinary set of customers.

Airbnb now has 4.5 million listings. But in popular destinations like Paris and New York, the rules have started to bite. Last year, Airbnb's listing growth in hotspots like Paris, Rome, Amsterdam, London and Barcelona was still running in the double or even triple digits; once local governments began introducing new rules after 2017, that growth fell off at once.

Airbnb has not yet run into such rules in China. Blecharczyk said 70% of the bookings Chinese users make on Airbnb are for stays outside China, and the domestic market has grown well over the past two years; they believe China will become Airbnb's largest market in the world. Shanghai is one of the first 13 cities to get Plus listings, and two more Chinese cities will get Plus before the end of this year. But set against its standing and influence worldwide, Airbnb's progress in the emerging Chinese market is not yet anything to praise.

How do you solve the supply problem and stay distinctive?

One question from Douglas Quinby, vice chairman of the travel research firm Phocuswright, gets quoted again and again: "Airbnb's biggest struggle has always been how you solve the supply problem without diluting your own core brand value."

In other words, how do you keep the personal while chasing the standard? That, after all, is the biggest thing separating Airbnb from the hotel experience, and an important part of what draws younger travelers.

In its ninth year, as it grew up, Airbnb launched Experiences, a "tour guide" platform connecting travelers with locals at their destination. On Airbnb's website and app, Experiences sits alongside listings as a parallel search category.

But 15 months after its launch, in Chesky's hour-long speech, the Experiences business — once called Airbnb's "biggest product innovation since 2008" — did not appear anywhere in the ten-year strategy.

Nathan Blecharczyk, Airbnb's chief strategy officer and China chairman, did still bring up Experiences in an interview after the event, saying 2018 is an important year for it. The plan this year is to expand Experiences to 1,000 cities, up from 60 today.

"If people want a unique experience, they have to come find it on Airbnb, not on the OTAs [online travel agencies]," he said.

The day after the event, Airbnb held a separate, smaller press event to describe how Experiences is doing.

Over the past year, bookings for Experiences grew 25-fold. Airbnb's global head of policy and public affairs compared the growth curves of Experiences and the lodging business over their first 64 weeks; the Experiences curve was of course far steeper — but the two started from different places. One was Airbnb in its ninth year, the second-biggest internet startup in the United States; the other was Airbnb at its founding, when the two founders were maxing out their credit cards to scrape by.

Not long ago, The Wall Street Journal reported, citing people familiar with the matter, that the business had already burned through more than $100 million, and that some hosts offering Experiences had stopped because they got too few bookings.

Airbnb has not disclosed any performance figures for Experiences. But for a newly opened line of business, even 25-fold growth in a year is not much to boast about when the base is so small.

Airbnb keeps investing in Experiences, in line with the ideal trip Blecharczyk described to QDaily: "When you get to a new city, an Airbnb host will open up a side of it nobody knows — the side you can't find by searching the internet." At that press event, Airbnb also announced two new Experiences categories: Concerts and Adventures.

Concerts was built to let travelers see small local music shows, usually for audiences of 15 to 100 people. The platform also helps musicians and hosts line up a suitable venue in the city, performance licenses and the like. Concerts has already launched in 25 cities, including San Francisco, Los Angeles, Tokyo and New York, and James Beshara, who runs Airbnb's music business, is aiming for 50 cities by this December.

Beshara told QDaily: "We're going to help artists find venues, and not just the usual places like recording studios and bars — after all, nobody knows better than we do where the usable space in a city is."

This looks more like Airbnb using what it knows about a city's spare space to get into the live-music market, city by city.

Upgrading Experiences is plainly meant to set Airbnb apart from other platforms. But Experiences still contributes little to growth. The new Concerts and Adventures categories will also take a lot of money and people.

The flight-booking service announced alongside Experiences, meanwhile, has simply vanished from Airbnb's homepage. According to a tip The Information received, Chesky had even considered running an airline of his own.

Also missing from the ten-year strategy is the restaurant-booking service that launched not long ago. All of these were Airbnb's attempts to become a travel services platform.

"Airbnb for everyone" came up constantly over the two-day press event, from Chesky and other Airbnb executives. The string of new measures Chesky introduced at the launch also shows Airbnb's determination to go on competing with the hotel industry: the Super Guest loyalty program and the upgraded Superhost program are both meant to keep listings and users on the platform; the launch of Plus and the changes to search require Airbnb hosts to learn standardized management from the hotel industry, while making browsing, filtering and checking in more efficient for users.

Judging by where things stand now, Airbnb has put its bigger ambitions away for the moment and pulled its focus back to competing with the hotel industry for more listings and more bookings.

That's just not as cool.

Cover image taken at Airbnb HQ