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lntroduction
.. This experience got Chesky ar"rd Gebbia thrnking
there might be a bigger opporltrnrty here. They made
it all started Lrecause ti,vo aspiring designers needed
money to pay their rent. lt was October 2007, and Brian good money, about $t,OOO, rentrng their space for the
Chesky and Joe Gebbia were sharing an apaftrnent in conference. They also got to meei three anrazing \:ii:\\i\

San Francisco. There was an international design designers in the exact same field they aspired to enter.
conference coming to town. The two noticed that on tlre They also started thinkrng about the ieedback their
conference's Web site, all the hotels that were listed guests had provided regarcling staying in their N-N

were sold out. The thought occurred to them that they apafinrent. They had liked the social element of the .\\\\\

could make extra money by renting out space in their experience. lnstead of being in a sterile hotel, they got (s
apaftment to people attending the conference. to stay with other designers who knew San Francisio
They proceeded to pull out a couple of air beds they and were eager to shcw thenr around. And they saved
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had in a closet and said to each other, ',This is it. We,re a little money to h:oot. i.ri\sL
i.::.s\-\
going to be the air tred and breakfast*at least for the iii\\\\\\\

weekend." They quickly designed a Web site, put it up, lnitial Business Model I\S\NN
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and filled the three spots tlrey had available in their \.....1
Chesky and Gebbia started talking to friends and family
tli apartment. They figured they'd get a couple of guys in
airout their idea. They knew if they wanted to formulate
their twenties who decided to attenci the conference at
a business they'd need programming help, so they {
the last minute. They ended up with three people who approached a good friend and experl programnrer, Nate
broke all their assumptions-about the business, the
market, everything. The first person was a guy fronr -Blgcharczyk,-who
agreed to sign on. The next big \\\
ll conference lvas South by Southwest in Austin, Texas,
t.: lndia, who just couldn't believe they put up a Web site
:::
in February 2008. South by Southwest is an annual filnr. NN
offering space in their aparlment. The second was a
t:f
3S-year-old woman fronr Boston. And the third person
music, and emerging technologies confererrce. Chesky
and Gebbia wantecj a more robust site than the quick
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was a 4S-year-old father of five from Utah. site they put up for ihe clesign conference in San ::,\\o\
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2A4 PART 2 DEVETOPING SUCCESSFUL BUSINESS IDEAS

Francisco. So they worked night and day to build the Gebbia, and Blecharczyk, the programn"ler who became
site and get it up. The business model at this point was parl of the teqaiust before South by Southwest, ioined
srmple. Air Bed & Breakfast, as it was now called, was a Y Combinaioi. Y Combinator is a stafi-up inc,Ubator'
way to help pbople firrci lrousrng. at a private restdence located in $ilicon Valley, which in exchange for about
rgthellhan a hotel, when attending a conference' Air 6 percent equity in a stafi-up provides a small amount
Aed A Breakfast didn't accept money. Similar to of seed-stage funding and three months of intense
Craigslist, people woulcl simply exchange money when mentorship. lts run by Paul Grahanr, a very experienced
they nret each other during the stay' Their own revenue investor and entrePreneur.
model nrasn't worked out in that they weren't quite sure At that time, the majority of business Air Bed &
at this point how to charge for the service. Breakfast was getting was from New York City' Graharyl
There v,ras one intetesting tr,vist to their Web site at told t6e Aii Bed & Bieakfast team to go to New York .
this point that differentiated themselves from two sites, City, idher than sit in California, a1d get to know their
Couch Surting ancl Craigslist, which were providing a customers. So they started shr"rffling back and fotlh from
similai service. On Couch Surting you saw a photo of the California. to attend Y Combinator events, to New York
person you'd be staying with. On Craigslist you sa\'v a City, to meet their customers. They set out to meet
photo oi the place. On Air Bed & Breakfast you saw the every single one of their users in New York City. They
person, the place, and it focused strictly on conferences took pictures of their customers' places. They hosted
arid events. So the social element was stronger' Al, least parties for their customers to talk about the service. Two
you'd be staying with someone rq'ho ttras attending the ihings started to happen. First, booking in Nelv York
same Cohf6rence or event you were attending. started to go up. Apparently, their customers
appreciated being asked for their feedback and started
talking up the selice. Second, every time they luent to
Iteration 1-Motivated by Using Their Own $ervlce New Vork they used their own service' They statled
reali2ing that many things they thought about their
Encouraged by ttreir reception at South by Southwest
selice were not as good as they thought they were.
{they hooked up 30 to 40 people)' Qhgeky and Gebbia
tried a third conference, in April 2008, and this time They'd try to book a room on their Web site and thtnk,
"This is annoying." They also realized that the pictures
decided to use their own service. Tt"rey picked a place to
of the rooms for rent neeOed to be bigger. They'd look at
stay, and their host offered to pick them up at the airport
the snrall picture of an apadment listed on their site and
because his girlfriencl was nraking them a Vietnamese
dinner. Things lvere going Ereat unlil the host turned to
then actually go to the place and think "Wow' this place
is beauti{ul-lwould have never knor,ryn from the smali
them and said something like, "OK, wlrere is my
photos." As a result of their experiences as customers
money?" The mood changecl and Chesky and Gebbia
realtzed that exchanging cash in person is awkward' lt
of their own business, they put a lot of effort into
redesioning the site.
felt a little shaciy and they realized that they couldn't
Spending time with their users caused the Air Bed &
have people all over the worlcl exchanging money in this
manner. Air Bed & Breakfast had to handle the moqey'
Breakfast team to think about a piece of advice that's
often given to start-up entrepreneurs Often,
This was also the revenue model they were looking for'
They would take a transaction fee for facilitating entrepreneurs who are trying to build a big business are
payment through the site' Handling the money this way told to not try to visit or speak to users one-on-one
because it "doesn't scale." The thinking is that if you
rvouid also improve the user experience'
They realized sonrething else during the April 2008
want a rrrillion users, you can't get out and talk to
everyone, so it's best to develop systems to interface
event. People staded saying things like they'd love to
use the site next month lvhen they're in London, but
with customers. Paul Graham, their Y Combinator
mentor, told them L talk to users anyway' He said that
they weren't atiencling a conference or event' $-o they
while they were still small was the opportune time to
started thinking, "Maybe this is biEger than
meet users and learn fronr thenr. Looking back, the Air
conferences." At that point, there was no way to Iist-a
Bed & Breakfast team now thinks that meeting users in
room for rent other than for a conference or event'
New York City in the spring of 2009 was the -
The site was set up for conferences and events and
fundamentalthing that changed their company for the
once the conference was ovbr, the opportunity to list in
better. Not only did they talk to their users, they booked
the location of the conference was taken down'
rooms with them, slept in their homes, hung out with
These two insights-Air Bed & Breakfast should
them, and picked tireir brains for hours on end for
handle the ntoney and the site is bigger than
advice. lt shapeci their business, shaped the design of
conferences*transfornred the company Jhe business
their Web site, and shaped the policies of their
model quickly iteraled to Air Becl & Breakfirst handling
i company. lt goes back to a basic Paul Grahanr quote,
the paymenti and broadening beyond conferences and
, "Make something PeoP!.e wqnt."
events.

Iteration 2-Motivated by Joining Y Combinator tteration 3-Meeting Barry Manilow's Drummer

and lnteracting with Users At this point, the summer of 2009, the business q1o.de.!,
Was sei, or so the Air Bed & Breakfast tean'i thought' The
ln early 2009, things were going well but not great for Air
site was reclesigned. the revenue model was in place, and
Bed & Breakfast. The teatrr, cqnsisting of Chesky,
 CHAPTER 6 I.I PSYEIOOING AN EFFECTIVE BIJSINESS MODFL 205

the firm's business model had establlshecl a ciear niche- On Febrr-iary 24, ZO1i, Airbnb announced a
rramely. Air Bed & Breakfast helped people {ind spaces in milestone: Since its launch, one million nights had been
people's homes while on a trip. and helped people who booked through its service. lt now has bookings
had rooms or other spaces to rent frnd travelers to rent to. available in 170 countries. Here is a set of fun stats
Then, while on a trip to New York City, the Air Bed & related to this business {as of February 201 .l): Longest
Breakfast team met a guy who had a beautiful apartment single reservation: 200 nights; Most expensive listing:
across the street from Carnegie Hall in New york City. $10,000 per night: Most reservations by a single guJst:
!l
tylry$lgf ryg.Fstrv-L{aLrilsrvis.dr-ummer,,an,is{vldual 28; Number of marriage proposals betlveen guest and
nrho was traveling with Bany Manilow several months a host: 1.
year while Manilow was or"l tour. He loved Air Bed &
Breakfast's service but didn't want to rent out a room or
Epilogue
two occasionally; he wanted to rent his whole apartment
for several months a year. That was an idea, and an entire ln hindsight, each of the iterations of Airbnb,s
malket. the teanr had never considered. So they business model seems obvious. How could the
rlgesigned their site again to add the abrlity torent an founders not know that facilitating payment was an
entiie house oi aphrtment, rin a weekiy or monthly basis. obvious revenue model or that some people would be
This type of rental arrangement is now a large parl of Air interested in renting their apartments or homes for
Bed & Breakfasts business. weeks or months rather than lust days at a time?
But in fairness Airbnb's entire business, in hindsight,
Current Status is obvious. Why didn't someone start tt before Clresky.
Gebbia, and Blecharczyk dicl? This is the magic of
The Air Bed & Breakfast team recently changed the firm,s entrepreneurship. With hindsight. eBay, Facebook,
'-
Ju1yz01U,to sei lo l{now -hiS udera - and even Walmart. use obvious business models to
"q-m{1g4lp.!ib._jI
even better, Chesky moved out of the three-bedroom serve customers in ways that create value for them.
i\
apafiment tnihere the Company started, and announced While it's easy to look backr,vard, it,s more difficult to
ii he'd be "living on Airbnb" until the end of the year. look forward.
.i He used his own site to book rooms rn the San Francisco Not all business mociels follow Airbnb's path-some
area for two to three nights a piece, and moved from coalesce more quickly, others take longer, still others
place to place for the rest of 201 0. ln Novenrber 2010, never come together at all. !t's a judgrrrent call on the
the company raised $7.2 millron in Series A venture part of a firnr's founders. ln Airbnb,s case, it,s forlunate
capital funding to fund global expansion, hrre sta{f. that the founders didn't stop and say, ,,We,re done,,,
' * !
translate tHejr serviCe ihto mutiiple- languages, and offer after iteration 1, iteration 2, and probably iteration 3.
i q{oLlio1glpgymgri!opligns,. '
lnstead, they kept engaging, watching, listening, and

i
Progression of Airbnb's
Business Model
. Help people find housing when
kaveling to conferences or events

. No revenue model in place

-,'" Br*aden beyond tonferences

and euents and help people {ind
WN
' .N"ad\"fi
and(q,nenQ
nd cont*rences
aq$gek p eaple $ho
ipi$hgBhilelravd)ng lui alry ,
purp0se. Purpose. r (
'',
" {harg* a transacliqn lee ior handling chJlge a tranryctiqp fqg{or tqndting
paymefits"

. Add bigger pictures, more detailed . Add$lgger piciurel more detalled

explanations, and more functionality blplanations, aud rRore {uncrioniihv
to Web site. lo Web ste r ,

. to weelig and mo$thly hsntals.

$n
(continuec!)
246 pART 2 - DEVELoptNG SUccESSFUL BUSTNESS IDEAS

remaining open to change-actions that are typically trip to London, would you feel comforlable booking a
required for a business model to be successfully room at an individual's private residence? How does
developed. Airbnb help assure people who may have concerns rrr
this area?

/t.,Comment on the propensity of Airbnb's founders

'-- to solicit customer feedback. Based on the
information in the case, do you think they did it
too often, not often enough, or just right? Is
there anything in their approach to obtaining
feedback that you think you'll emr-rlate if you
start a busirress?
2. Comment on each of the four elements of Airbnb's
business model. Spend some time lookinq at Airbnb's
Wetr site and do sorne outside reading on the
company if every element of its i:usiness model is not
apparent from the case.
There's an old saying that "all of us are smarter than
any of us." ln what ways does this saying remind you
of Airbnb's approach to its business?
4. ls there anything in Airbnb's approach to business that
you're Lrncomfortabie with? For example. if you took a