COVID19: Pre & Post Covid19 Airbnb
23 min read
23 min read
by Aleksandra Gagic
In our previous article from the Covid-19 series, we were covering the hotel industry, its history, the impact of Covid-19, and its reverberance in the upcoming months and years. Therefore, it seemed quite logical to continue in a similar manner – talking about Airbnb this time around. Airbnb may not have a history as long as hotels do but if you want to test out how widespread Airbnb is, next time you’re in public, just ask how many people stayed somewhere using Airbnb and you’ll probably see a lot of raised hands. Airbnb has had a vertiginous past, a curious start, and what looks like an uncertain future. Covid19 couldn’t have skipped Airbnb, there was no scenario in which a shared service would go through the global pandemic intact. In order to fully appreciate Airbnb, we need to start from its very beginnings. The story of Airbnb is incredibly interesting, it would be a pity not to talk about the company whose founders couldn’t make it to their next rent in 2007 and a decade later, they are the owners of the renowned home-sharing service, usually called the disruptor of the traditional hotel industry, with plans to go public and a valuation of $31 billion. In addition to the phenomenal history of the company, we’ll glance at its difficulties caused by Covid-19. Moreover, we will dive deep into the actual numbers in order to fully grasp the impact of the pandemic on the company’s business. Finally, we will also discuss the possible scenarios that may unravel for Airbnb, its hosts, and guests in the months and years to come.
It’s safe to say that Airbnb is a company that caused significant changes in traveling patterns nowadays. They even often advertise themselves explaining that traveling to a certain location doesn’t stop at simply visiting the place, but living there instead. Why not live in Paris, even if it’s for one night? Staying in a hotel can’t offer this experience to you with its limitations but Airbnb certainly can. With Airbnb, you can choose a home to your liking and quite literally live there for as long as you want to, doing anything you would normally do at home, really feeling like a local rather than just a tourist. If you think about it, who wouldn’t want to feel like a local, even if it’s just for one day? Bottom line is, Airbnb has changed the way we see travel and the way we perceive properties. Travel acquired a new, higher level of experience, and properties are now considered as legitimate businesses and sometimes even a main source of income.
Naturally, there are certain disadvantages of Airbnb, which is to be expected with such a wide service offering a wide selection of listings. So, while Airbnb boasts with endless options, maximum flexibility and a touch of the local flavor, it has certain limitations and shortcomings which may or may not end up being a deal-breaker. The most obvious disadvantage is the fact that what you see may not be what you get. There is a certain risk that comes along with booking Airbnb. Of course, the more high-end listings come with a lesser risk but that may not be just good enough. In this area, hotels are the ones taking the win with them. Additionally, the required minimum stay feature can turn out to be a deciding factor in whether or not someone will rent a particular place. So, in case you’ve fallen with a listing and you want to book it but you have a limited, 1-night stay, you may end up being disappointed if you find that the place you had on your wish list doesn’t allow such a short stay, which adds one more win to the hotels.
Still, even with all the possible setbacks, Airbnb’s popularity doesn’t seem to seize with time. In fact, their growth was trending upwards since the birth of the company. Now, let’s start from the beginning and see what it took to get to a place where Airbnb today has over 750 million guest arrivals all-time, over 2 million people staying in Airbnb’s worldwide per night, and over 7 million listings.
It all began in 2007 with two of Airbnb’s founders, Brian Chesky and Joe Gebbia, not having money to pay their next rent. And, if you think about it, the best ideas spring to you when you’re backed into a corner – which seems to be exactly what happened to the two RISD graduates, living in San Francisco. They knew that there’s an Industrial Design Conference in the city, which led to all hotels being overbooked and they thought about renting air mattresses to the attendees in order to earn some money to pay the rent. To make this offer more interesting, they decided to add breakfast to the mix, which led to the creation of the airbedandbreakfast.com website where they were advertising their apartment. They managed to get their first booking and ended up with three guests paying $80 per night.
Let’s take a quick digression here and look at this story from another perspective. Two guys having no money to pay their rent founded a company that ended up having a great impact on increasing rental costs in the area. What’s now known as the “Airbnb effect” is to a certain extent very similar to gentrification as it brings to a slow increase in the value of an area to the detriment of the local residents, who may even end up being pushed out thanks to these financial constraints. And, when we put it like that, there’s an undeniable paradoxical taste to the famous Airbnb founding story.
because their website had only two users, one of which was Chesky himself. So, they ended up launching again at SXSW, which resulted in having 2 new bookings.
In August 2008, they changed up their website and decided to launch again, just before the Democratic National Convention taking place in Denver. They knew that over 20,000 people were going to the convention and the hotels weren’t able to cater to all those visitors. They were excited to see that over 600 people stayed at Airbnbs but they knew this success will have a rather short shelf life since going back to the pre-convention mode would mean going back to having almost no guests. And, they were dealing with a funny cycle because hosts didn’t want to advertise their homes on Airbnb due to the low number of users, and on the other hand, they had no users coming to their site due to a low number of hosts. At that point, they were in a need of serious funding and that’s where things started to be even more complicated.
Initially, they have created a game plan and started reaching out to investors. However, the majority of investors didn’t manage to look past the “staying on someone’s bedroom floor” concept and they have all failed to get their piece of the hotel disruptor that Airbnb is now. Many of them didn’t even bother to respond or actually hear the pitch, and those who have didn’t seem to be buying the idea. In one of Brian Chesky’s speeches, he explains that they had to turn to the “Visa Funding” round, which actually meant they had a binder full of maxed-out Visa credit cards as they were trying to keep their business going. Just as they started running out of ideas on how to get some money to stay afloat, one night they thought about designing the breakfast cereal packaging to match the election theme. This led to the now known Obama O’s and Cap’n McCains, election-themed cereals that they have sold for $40 a piece and made a whopping $30,000.
Soon after the cereal adventure, Airbnb raised its first-ever funding, $20,000 from Y Combinator. At that time, they were still making only $200 a week so they have decided to use the funding, go to New York, and meet their users. And, this is when the first service makeover happened, as they decided to buy a camera and go door-to-door to take better pictures of the listings.
After visiting their users in the big apple, Airbnb, at last, managed to get some traction. At the beginning of 2009, Airbnb had 2500 listings and almost 10,000 registered users.
Over the course of years, Airbnb kept expanding the offer, rebranding and growing somewhat steadily. In six years from the founding, Airbnb users have hosted over 15 million cumulative guests through more than 800,000 listings across 34,000 cities in 190 countries and it has inevitably disrupted both the hospitality industry and all sorts of property laws where it’s not clear what is rentable or not. Going from self-funding by designing cereal boxes in 2008 to sponsoring the New York City Marathon in 2014 paints the picture of their exponential growth and the awareness of the service.
Along with the growth came the need to rebrand, so in 2014 Airbnb partnered up with London-based DesignStudio and launched the new Airbnb logo. The logo was named the Bélo, which represents four elements coming together: People, Places, Love & Airbnb. Much like those behind the S.O.S signal, the designers have created a universally recognized symbol. In fact, designers and critics tend to add that this was one of the most dramatic and confident rebrands the tech industry has ever seen. Since the post-2000 tech boom, blue has been by far the color of choice of the many Internet-based services (Facebook, Twitter, LinkedIn, Paypal, etc.). The reason behind this choice of color is what it stands for, which is a trustworthy, down-to-business mindset. However, Paul Stafford, the co-founder of DesignStudio expressed picking up a slightly less positive connotation from the blue color, saying that it looks a tad cold and distant, which is nowhere close to what Airbnb stands for. The new bright, warm color of the Airbnb logo shows that Airbnb is playful, warm, and trustworthy above all.
What Airbnb is really vocal about is that travel on Airbnb is powered by people and not large corporations. Airbnb provides experiences that are authentic and local, and, most importantly, Airbnb keeps most of the revenue spent in the communities where it takes place. There’s a significant number of low-income hosts sharing their own homes in order to make the ends meet. The company emerged out of the Great Recession as a platform that economically empowers hosts while providing authentic, local experiences to guests. Moreover, in order to facilitate a trusted community, Airbnb has built a system where both sides of the marketplace make two-way reviews, providing insurance, handling payments, verifying the identity of users, and requiring a commitment to promote belonging as such.
Airbnb has always been vocal about their service as a source of income for low-income families, welcoming travelers in their own homes in order to stay afloat. However, the more recent data shows that newer listings are purely commercial and entire home rentals are far more interesting to Airbnb users than shared spaces. There are plenty of hosts offering multiple listings and essentially having Airbnb as their primary, if not even only, source of income. Residents are upset over this growing trend due to homes being rented to tourists and an increasing cost of rentals. In some cities, such as New York, Airbnb is under the scrutiny of homeowner advocates, hospitality workers, journalists, and city enforcement. As a result, Airbnb ended up doing a purge in New York and adding severe limitations as to how many properties and for how long can be rented.
Airbnb charges guests a variable service fee while hosts are paying 3,00% of the price they charge for their space. The remainder stays with the hosts, who are the ones who decide how much they will charge, whether and when they will share their spaces, and how to engage with guests.
The enormous success of Airbnb over the years is absolutely undeniable. Still, there are always scenarios that can’t be predicted, such as the one that’s been unfolding since the very beginning of 2020 – the coronavirus pandemic that has hit almost every part of the world and, inevitably, caused all sorts of downturns in almost all business sectors. There are businesses that are actually thriving even during the pandemic, but let’s see how Airbnb is doing and what’s to be expected.
A certain number of readers have probably already been aware of Airbnb’s turbulent past. Still, with the purpose of catching the entire story behind this game-changing concept, we wanted to give everyone a chance to appreciate the hard work behind Airbnb. We can all probably agree on one thing, Airbnb hasn’t been a smooth sail. But, there’s a chance that even greater difficulties lie ahead.
This is our third article in the Covid-19 series where we discuss the impact it has had on different industries and businesses. The pandemic has been raging in almost all parts of the world for quite a while now, which makes it redundant to even talk about its emergence and try to paint a scary picture. The number of infections and the lethality rate is pretty self-explanatory.
Needless to say that the global pandemic that has shaken up the world has had a rather hard impact on Airbnb, too. This shouldn’t really come off as a surprise to anyone, knowing that the entire concept of Airbnb revolves around traveling, staying in a home away from home. Therefore, living in a world where there have been lengthy travel bans and there still are ongoing travel restrictions, Airbnb, like many other hospitality behemoths, will suffer to a certain extent. Before we dig into the actual numbers and dive deep into the losses, let’s talk about the place where Airbnb was in the pre-Covid19 world.
According to Airbnb, they reached more than 7 million listings and over 500 million guest arrivals around the globe as of 2019. One year before that, the travel and tourism sector generated over 10% of GDP and accounted for one in every 10 jobs created from 2014 through 2018.
Another important thing to factor in is that sector growth also outpaced the growth of the global economy overall in 2018, 3.9% to 3.2%, and that was the 8th time in a row. According to the UNWTO, in 2019, the global economy grew by 3% while growth in international tourist arrivals specifically grew at 3.8%. UNWTO projected a similar growth rate of 3-4% for 2020. In fact, the expected growth in international departures from January through April 2020 looked “particularly strong” at 10 percent, and the Tokyo Games and other big events were naturally expected to help drive demand throughout 2020. After being introduced to the coronavirus and all the implications this infection brings to the table, both the UNWTO and WTTC have issued grim forecasts for the ongoing year. The UNWTO ended up revising its earlier prediction of growth in international arrivals around 4% for 2020 to negative growth of 1-3%. At the same time, the WTTC has announced that international travel could be significantly impacted by up to 25% in 2020, which is the equivalent to a loss of 3 months of travel, further corresponding to a 12-14% reduction in jobs. As a result, the WTTC has estimated that as many as 40-50 million jobs around the world are now effectively at risk.
While Airbnb, which received a $1 billion cash infusion in April 2020, can promptly refocus its operations, many of the hosts who actually helped drive Airbnb’s growth over the course of years don’t really have an easy Plan B. They have mortgages to pay and their properties are sitting vacant, so, inevitably, many of them are struggling to survive.
During the first days of the pandemic, the numbers looked dreary across the board. In fact, back in March, short-term rental reservations dropped by an astonishing 80% in Europe, and revenue was down by over 50% in American urban destinations, such as New York City, Seattle, and San Francisco. Still, when looking at supply, it was clear that hosts haven’t given up hope and haven’t removed their listings.
Although the supply numbers are looking seemingly well, the visual representation of the revenue changes testifies to the harsh reality in which hosts found themselves in 2020.
The number of reservations has been trending downwards in both Americas and Europe.
When it comes to the United States, revenue is either just declining or sharply declining. Looking at the numbers between January and March paints a pretty clear picture of how big the impact on these cities was during the very first travel bans introductions.
Numbers speak for themselves, Airbnb is in an existential struggle as are many of its travel peers. 2020, when coronavirus is taken out of the picture, should have been a banner one for Airbnb with a probable stock market floatation. And, instead, Airbnb’s valuation has plummeted from $31 billion at its fundraising from a couple of years ago to $18 billion.
Airbnb has projected that its revenue will go down to as much as 54% this year to around $2.2 billion in 2020. Brian Chesky had already informed employees that he expects to cut $800 million from the company’s allocated marketing spend this year, which shouldn’t be extremely difficult because there are many major brands that have decided to go dark on advertising in 2020 while the coronavirus keeps raging.
Another chop is related to Airbnb but in this case, it’s hitting the workforce as Brian also announced the company is laying off 25% of their employees, which translates to nearly 1,900 employees that will have to leave (or have already left) Airbnb. In an open letter, Brian made sure to reinforce that those that are leaving the company will be treated in a compassionate and thoughtful way. Employees in the US will receive 14 weeks of base pay plus one additional week for every year they spent as part of the Airbnb team. Those that are outside of the US, will receive 14 weeks of base pay at the least, plus tenure increases that are consistent with their country-specific practices. Everybody that is departing, regardless of the length of their employment with Airbnb, is a shareholder. In the US, Airbnb will cover 12 months of health insurance for their now ex-employees, and outside of the US, they will do the same through the end of 2020. On top of that, they will also provide 4 months of mental health support for the employees that are leaving Airbnb.
As mentioned earlier, hosts are the ones who brought Airbnb to the very heights of the travel industry, so let’s look at how they are feeling about the pandemic and its effects on their income:
One big driver of this decline is both parties’ fear of continuing the business. Hosts are worried about having guests and guests are worrying about staying at someone’s place:
Research has shown that 1 in 5 hosts aren’t sure if they will continue listing their space after the Covid-19 pandemic. In fact, 21% of hosts that were involved in IPX’s research said that they have already listed their property on a long-term rental market and 21% of hosts are considering doing so. Moreover, 10% of hosts have already listed their property on market to sell, while 16% don’t exclude that possibility. And, 47% of hosts included in this research have modified their listings and are now offering month-long stay options.
According to the Airbnb hosts included in IPX’s research, they have lost an average of $4,036 since Covid-19 began to spread in the United States. Many are certain of further revenue losses during summer, which is normally a ripe time for hosts’ income. Overall, they anticipate a 44% decline in revenue from June through August. These losses have led 41% of hosts to find another job, for the time being, 47% shifted to offering longer stay options and 29% have decided to list their properties at reduced prices to front-line personnel, such as doctors and nurses traveling during the pandemic.
When it comes to cancellations, according to respondents who have been Airbnb guests, 64% of them said they have either already canceled or are planning to cancel their upcoming stay in an Airbnb because of Covid-19.
Although the veil of uncertainty remains around when travel will return to its pre-Covid state, both guests and hosts remain rather optimistic. Overall, 37% of hosts believe guests will return this
After the crisis, we are certain that there will be a lifestyle change lying ahead. Remote, or mobile work, will be accepted as the new normal. So we shouldn’t shy away from anticipating a boom in nomads carrying their laptops and steady paychecks, seeking long-term, fully equipped rentals where they can gush in lovely interiors while exploring the outside world during their downtime. In the times when physical distancing is crucial to not getting exposed to infection, residential rentals are leaning on their promise of privacy. Hotels are denser and will struggle more on this front, so Brian Chesky isn’t really wrong when he says that Airbnb business will fully recover but the changes that it will undergo aren’t temporary nor short-lived.
If you have already read some of our previous articles in the Covid-19 series, this section shouldn’t come off as a surprise. What’s the point of laying out the numbers and talking of revenue losses and workforce cuts if we leave you feeling desperate. That’s not how we like to tailor our message. Instead, we’re here to shed light on possible mitigation strategies that you as a host or guest can apply in order to get through the crisis as smoothly as possible.
We can’t say this enough. Travel will return. People are thirsty for seeing their family and friends, discovering new places, and exploring the world. Now here’s what you as a host can do in order to assure your guests of safety and cleanliness in your listing and keep the business going.
Your guests will expect a higher standard of cleanliness now more than ever. In fact, in one of Airbnb’s surveys, guests stated that their biggest concern is the cleanliness of a place, which translates to the biggest barrier to booking a stay. In order to cross that bridge, you should commit to Airbnb’s Cleaning Protocol broken down into five steps: prepare, clean, sanitize, check, and reset. Airbnb hosts are asked to read through an overview of this protocol and then take a short quiz to show they understand the guidelines. Eligible hosts who choose to commit to the cleaning protocol end up getting a special highlight on their listing page, so guests will know that they have agreed to follow an enhanced cleaning routine, which will make them feel comfortable booking your space.
By setting up a remote worker-friendly workspace, you will keep your listing competitive. Many places around the world have switched to a work-from-home culture, people are starting to rethink where they will work. Consequently, a change in how and where people travel now has been noticed across the board. In order to set up your space for guests who are working remotely, you’ll need to create a laptop-friendly workspace and delight the workers with extra amenities.
All in all, if you are inventive and creative and you stick to the cleaning protocols and keep yourself up to date at all times when it comes to what both the government officials and Airbnb have to say about policies and procedures during the pandemic, you should be just fine. Commit to a better, cleaner, safer space and expand the offer by investing in things that many end up bringing a new type of guests into your space. Airbnb, the privately held company that was planning to go public in 2020, hasn’t had it easy all these years. Still, they muscled through it and got to a point of being valued $31 billion, which is essentially more than Hilton and Wyndham combined, and closing in on Marriott. Regardless of the sacrifices they had to make, changes they had to introduce and losses they had to endure, we believe they will pull through the crisis and refocus their business in order to answer to the new traveler’s needs. A traveler in the post-Covid world won’t look the same as the one before the crisis clouded the world. Airbnb shouldn’t have issues proactively finding out what the new traveler wants and needs and doing whatever it takes to accommodate that. We believe that Airbnb will keep on disrupting the hotel industry in the years that are ahead of us, and while both hosts and guests will have to adjust to the new reality of hosting and traveling, as long as everyone is feeling safe and secure, there should be no reason to stop using Airbnb.