It is 16 years since Brian Chesky and Joe Gebbia hit on the idea of renting out air beds in their living room for $80 a night, to help pay the rent on their three-bedroom San Francisco apartment. A year later, with co-founder Nate Blecharczyk, they launched Airbedandbreakfast.com, soon shortened to Airbnb.
Andrew Edgecliffe-Johnson, the FT’s US business editor, met Chesky in New York last week as Airbnb launched Airbnb Rooms, a return to its roots offering space in people’s homes. This week, Airbnb announced record first-quarter revenues of $1.8bn, up 20 per cent year on year, but its shares fell as it cautioned that price-sensitive customers would make for tougher second quarter.
In this interview, Chesky discusses the impact of inflation, the limits of diversification, the uses of artificial intelligence, and the difference between social networks and social media.
AE-J: You’re introducing Airbnb Rooms to encourage more people to stay in someone’s houses. It sounds like it’s back to where you started.
BC: Totally back to the start.
AE-J: Why do that now?
BC: I would have done it sooner, but the pandemic was going on. So why now is because of a couple of reasons. One, it is one of the most affordable ways to travel. The average price per night of an Airbnb Room is about $67. It makes sense [given] the rising cost of travel and inflation. People want affordable ways to travel. By the way, fun fact: Airbnb started during the 2008 Great Recession . . . obviously, in many ways, it’s different to 2008. But there are some banks collapsing, the small ones. Things are precarious: fundraising for a lot of start-ups has dried up, there’s a lot of lay-offs, there’s a lot of economic uncertainty. It’s obviously not the Great Recession but it feels like the most financially insecure period since 2008. So that’s the first reason, mainly affordability.
The FT’s top reporters and commentators hold monthly conversations with the world’s most thought-provoking technology leaders, innovators and academics, to discuss the future of the digital world and the role of Big Tech companies in shaping it. The dialogues are in-depth and detailed, focusing on the way technology groups, consumers and authorities will interact to solve global problems and provide new services. Read them all here
The second is, I think a lot of people have been in some version of a lockdown for three years. And, even if they left their house, maybe they haven’t seen people as much as they used to. They did spend a lot more time online. You know, the mall is now Amazon; the theatre’s now Netflix, the office is now Zoom. And I think a lot of people want to take a big trip, they want to go somewhere new, they want to have a local experience with culture.
And I’ve been yearning to bring us back to our roots for a long time. For many years, I had this feeling like we were drifting a little away from that original idea. I’m proud of all the things we did. I just wish we had done a little more of the original thing.
AE-J: Does this change your business model or your addressable market?
BC: I think it attracts a new generation. Especially for Gen Z travellers, people that were like the person I was when I started the company. I was 26 when I started [Airbnb] . . . and most 26-year-olds don’t have a lot of money and they’re pretty open to meeting new people.
I think it’s not a change in business model, certainly not a change from where we started. It’s probably more just an expansion. We ultimately wanted to have something for everyone and I think that we were missing a robust offering at the more entry-price point for younger travellers. We had this product, it’s just, it wasn’t invested in . . . and also, we hadn’t talked about it. And, because we hadn’t talked about it for 10 [or] 12 years, I think there was an assumption like: well, do we care about it? And the answer is, yeah, we care about it. I mean, honestly, this is where the soul of the company is.
AE-J: Did you simply need more supply to keep the growth going? And, if you weren’t getting those rooms in people’s houses, you were cutting off all that potential supply?
BC: A year ago, there was a question: are we going to get enough supply? We didn’t really add in 2020; I think we actually shrunk. We didn’t add a lot of supply in 2021. And there was a big question last year: what if we don’t add more supply? We added almost 900,000 incremental listings last year. So supply is totally good. I mean, we’re crushing on the supply side. At the same time, there’s a lot more empty bedrooms than there are empty homes in the world.
Average price per night of Airbnb Rooms
I think this is like the most underrated part of Airbnb. Airbnb Rooms are by far the most underrated offering we have. They’re the best value — $67 a night [on average] globally. You stay with a person: that’s not a bad thing, per se, it could be a great thing. Because you can meet them, you can hang out with them, they can provide service — let’s say there’s some problem at your home, the person is there to help you. The average [number of] five-star reviews for Rooms is really high. They’re higher than [reviews for] property managers on Airbnb that are professionals. They’re higher than the professionals.
AE-J: I’ve heard you say in the past, that [rising prices] were partly driven by supply constraints. So was that part of your thinking, that prices were out of whack?
BC: Yeah. Prices have increased 30 per cent since the beginning of the pandemic. They had to increase at least some of that because of inflation. No doubt adding rooms will help moderate ADR [average daily rate] and keep the offering more affordable. That being said, that wasn’t the primary motivation to do this because we have really good momentum around adding entire homes to Airbnb . . . and the average daily rate has not materially increased in the last year on Airbnb, while it has in hotels. I think I read something like the average hotel in the United States has increased in price about 15 per cent in the last 12 months and the average Airbnb is about flat.
AE-J: Were you noticing customers were much more price sensitive as inflation started to bite?
BC: Absolutely. We were noticing a more price-conscious customer. I also think . . . this is maybe a possibly more important point: I don’t want Airbnb to be like the symphony where young people don’t go to it and you age with the audience. The biggest risk most brands have is they miss the next generation. I want us to be relevant to young people. And, to be relevant to young people, we have to be affordable to young people.
AE-J: You started the company because you needed to pay the rent. Are you expecting that more people are going to be in that position as we head into tougher economic times?
BC: I think so. I don’t see things getting better in the next 12 months. In so far that things are not markedly better, then it suggests to me that people are going to be desperately needing supplemental income. And AI could massively increase productivity, but also can lead to job displacement. So that’s going to cause some uncertainty as well.
AE-J: Are you deploying AI heavily inside the company?
BC: As heavily as one could imagine.
AE-J: Where is it proving most useful?
BC: Three vectors. Vector one is just productivity engineers. Think of it like this: 130 years ago, only a few people knew how to use a camera and so there weren’t a lot of photographs. Now, everyone can use a camera, and there’s a lot more photographs. That same analogy is true of software. Soon, it’s going to be like a camera, everyone’s going to command it. Now, there will always be specialists . . . but general software interfaces are going to be things that can very easily be able to control natural language. And that’s going to create a lot more software in the world. So the first thing we’re doing is productivity. We’re trying to get as many engineers as possible on [GitHub] CoPilot [a Microsoft-owned AI tool].
The second thing is customer service. We’ve got like 72 user policies . . . some of these are 100 pages long. So, imagine you work in a call centre, you’ve been trained for two months and then suddenly a customer in France calls you, English is their second language, and they have an issue with a host in Germany, and you’re adjudicating one of 70 policies with 100 pages. Oh, and they want their problem handled, not in two minutes [but] two seconds.
The third thing is information summaries. You can give it a corpus of data, and it can summarise it really well. So, let’s say you go to an Airbnb property [listing] and you can’t read all 200 reviews but GPT4’s really good at summarising what they say.
I’ll give you one more example . . . the fourth is matching. I think there’s some pretty advanced things you can do with AI to be able to match people, understand their preferences, and connect them to things they like. I think you’re going to see some light integrations in November, and some giant integrations next year.
AE-J: On the flip side of this, you had identified experiences as a $1.4tn addressable market. Recently, you’ve paused new listings of experiences to focus on the core service. Are you rethinking the potential of that market?
BC: Yes, definitely. We don’t have anything to announce but the only reason we’re pausing new experiences is because we are rethinking how we want to approach that.
AE-J: Do you think it’s going to be a smaller part of the overall offering than you had thought a year or two ago?
BC: I think somebody could build a company the size of Airbnb [by] only offering experiences. We did close to $65bn in bookings last year; somebody could build a $65bn a year experiences business. I don’t know if it’s us. I don’t know what’s going to happen.
One of my first investors was Marc Andreessen and Marc Andreessen had a saying: ‘There’s not bad ideas, just ideas that are too early’. Like the [Apple] Newton [handheld computer] was too early; the iPhone was just the right time. The metaverse is probably a little early. And so experiences in 2016 were a little early. So the question is: when is the world ready for them? And I think it will be ready eventually. And so we are working on some ways to rethink it.
AE-J: More broadly, as you refocus on the core, does it make you think differently about future diversification?
BC: Yeah. Imagine that we were on a highway and we got off on this exit in 2016, called travel. We’re going to do experiences, we’re going to do flights, we’re going to do a travel magazine, we’re going to do business travel, we’re going to do all this stuff. And then the pandemic occurred, and we had to kind of get back on the highway and say, ‘OK, we can’t take those detours’.
We’re now back on the highway and I think we’re choosing to get off at a slightly different exit. And that exit is about people and community. We’re still about travel, we’re still about homes. But, more than travel and homes, I’d like us to be about people and connection. That’s how it started and I kind of think you should put out to the world whatever they need most. There’s a whole lot of great inventions to capture more and more of our time staring at a screen. There’s a diminishing number of opportunities to do things in the physical world. And I think we need more innovation in the real world.
AE-J: You’ve been called a physical social network.
BC: I think that’s a very good description. And I hope we earn that title in the future. I think we have to build more features to do that but I love that idea.
And by the way, there’s almost no social networks left. I would argue that social network companies have pivoted to social media. Social networking became social media when your friends became your followers, and when your friends became your followers it wasn’t about connecting. It was about performing. And then, suddenly, that wasn’t real connection.
Instagram is moving more and more to an algorithmic feed. A lot of the things you see in your feed aren’t even people you follow. TikTok is not even who you follow. It’s like some global algorithm. And so you don’t even often know the people you’re following, and you’re not having an intimate connection to them. Fewer young people are even on Facebook so, more and more, these online networks are not gateways to the physical world.
I think that the loneliness epidemic is a real thing. Those are the words of the surgeon general of the United States, and the loneliness epidemic is going to kill probably a lot more people than the pandemic. So I am getting concerned about the trajectory that we as a society are going on. I like screens . . . I just don’t think we evolved to have our dopamine triggered like every 14 seconds.
AE-J: Not to be facetious, but could you see Airbnb and a dating app coming together for the romantic weekend in Paris? Or are you thinking more of groups of friends organising get-togethers?
BC: I think . . . your brand has to have permission to go into things. So, when Apple had a Mac, an iPod kind of made sense. And an iPhone made sense because of the computer. I don’t think I’d wear Apple shoes. I don’t think I’d eat a Nike pizza. I don’t think I would wear Amazon sneakers. Your brand has to have permission to go into things.
I think our brand has permission to do things that bring people together in the real world, like we’ve done experiences, things like that. And if we did those things, I think maybe people would use them to meet people. Dating is a question. It’s pushing the boundaries and I don’t know.
AE-J: Cleaning fees have been going up. Why? And what are you going to do about it?
BC: There are a number of reasons. The first reason I think in the pandemic, people were really nervous about their place, and they had to clean their place. The cost of cleaners went up. I think that’s the most innocent answer.
I think the second thing is, for a period of time, we had a supply constraint [and] I think that had an impact on appreciation of some prices, which I think led to the third problem, which is that it became — for some people — a little bit of a workaround: it almost like a loophole where you could advertise a low average daily rate and hit them with a cleaning fee.
I think that most of the hosts had innocent intentions. I can’t speak for everyone. A lot of hosts are compassionate people. But we had found that they weren’t always putting themselves in the shoes of the guests and realising, well, if you are on vacation, do you want to pay $100 a night for a cleaning fee? When you put it to them like that, they’re like: “Oh, I guess I wouldn’t”. But they just didn’t think about it.
AE-J: You went public in December 2020. What’s been the biggest change for you running public company?
BC: Do you know what’s so crazy? It’s hardly changed at all. Everyone warned me about what it was going to be like to be a public company and maybe the only changes are the quarterly earnings and a daily stock price.
I thought the stock price would affect me — but, when something’s changing every minute, every day, you can kind of only pay so much attention to it. And I kind of don’t pay attention to it. I try to pay attention to things that I can control. It doesn’t change how we run the company. It’s not that distracting.
Anyone who says it’s hard to run a public company, I’ll tell them it’s much harder to run a travel company in a pandemic. I’d also honestly say I think it’s easier to run a public company than to run a late-stage private company. I do not advise running a $30bn private company. You’ve got anxious investors; everyone thinks you’re hiding something; journalists are always poking around thinking you’re not giving them the full story and there must be more there; employees are anxious for liquidity; everyone’s kind of impatient; your financials leak because you have so many shareholders so your finances aren’t actually private, but you don’t even have an organised way to put the financials out.
When you’re a late-stage private company, you seem to have all the downsides of being a public company, but you don’t have access to capital, you have worries about expiring options. I’m sure if you’re an old-school private company, like Bloomberg, it makes sense. But if you’re a tech company with a lot of stakeholders, it’s probably just easier to be public.