Welcome to a Sharing Economy
JWH: This is a terrific read by Tom Friedman, New York Times
July 20, 2013
Welcome to the ‘Sharing Economy’
By THOMAS L. FRIEDMAN
IT all started with air mattresses.
Brian Chesky’s parents wanted just one thing for him when he graduated from the Rhode Island School of Design — that he get a job with health insurance. He tried that for a while with a design firm in Los Angeles, but he got fed up and packed up his Honda Civic and drove up to San Francisco to crash with his pal, Joe Gebbia, who agreed to split the rental of his house with Chesky. “Unfortunately, my share came to $1,150 and I only had $1,000 in the bank, so I had a math problem — and I was unemployed,” said Chesky. But they did have an idea. The week Chesky got to town, in October 2007, San Francisco was hosting the Industrial Designers Society of America, and all the hotel rooms on the conference Web site were sold out. So Chesky and Gebbia decided, why not turn their house into a bed and breakfast for attendees?
The problem was “we had no beds,” but Gebbia did have three air mattresses. “So we inflated them and called ourselves ‘Airbed and Breakfast,’ ” Chesky, 31, recalled for me in an interview. “Three people stayed with us, and we charged them $80 a night. We also made breakfast for them and became their local guides.” In the process, they made enough money to cover the rent. More important, though, it spawned a bigger idea that has since blossomed into a multimillion-dollar company and a whole new way for people to make money. The idea was to create a global network through which anyone anywhere could rent a spare room in their home to earn cash. In homage to its roots, they called the company Airbnb, which has grown so large, so fast that it is now the equivalent of a major global hotel chain — even though, unlike Hilton, it doesn’t own a single bed. And the new trend it set off is the “sharing economy.”
I first heard Chesky describe his company two years ago and thought it was a quaint idea that would find limited traction with niche travelers. I mean, how many people in Paris really want to rent out their kid’s bedroom down the hall to a perfect stranger who comes to them via the Internet? And how many strangers want to be down the hall? Wrong. Turns out there is an innkeeper residing in all of us!
On July 12, Chesky told me, “Tonight we have 140,000 people around the world staying in Airbnb rooms. Hilton has around 600,000 rooms. We will get up to 200,000 people per night by peak this summer.” Airbnb has 23,000 rooms and homes listed in New York City alone, and 24,000 in Paris. Worldwide, “we have listings in 34,000 cities and 192 countries,” added Chesky. “We are the largest short-term rental site of its kind in China today, and we have no office there.”
Chesky then fires up his iPad and shows me on Airbnb.com the rooms and homes being offered for rent: “We have over 600 castles,” he begins. “We have dozens of yurts, caves, tepees with TVs in them, water towers, motor homes, private islands, glass houses, lighthouses, igloos with Wi-Fi; we have a home that Jim Morrison used to live in; we have treehouses — hundreds of treehouses — which are the most profitable listings on our Web site per square footage. The treehouse in Lincoln, Vt., is more valuable than the main house. We have treehouses in Vermont that have had six-month waiting lists. People plan their vacation now around treehouse availability!”
In 2011, Prince Hans-Adam II offered his entire principality of Liechtenstein for rent on Airbnb ($70,000 a night), “complete with customized street signs and temporary currency,” The Guardian reported. You can rent any number of Frank Lloyd Wright homes — and even a one-square-meter house in Berlin that goes for $13 a night.
While it sounds like Chesky is just a global rental agent with more scale, there is something much bigger going on here. Airbnb’s real innovation is not online rentals. It’s “trust.” It created a framework of trust that has made tens of thousands of people comfortable renting rooms in their homes to strangers.
To rent a yurt in Mongolia, you go to the Airbnb Web site, sign up for it and pay Airbnb by credit card. It takes 6 percent to 12 percent of the fee from the guest and 3 percent from the host. The fee is paid to the renter after the first night. Through Airbnb, guests and hosts can verify each other’s driver’s license or passport, e-mail address and phone number, and connect Facebook profiles. No one is anonymous. They work out their own exchange of keys.
Afterward, guests and hosts rate each other online, so there is a huge incentive to deliver a good experience because a series of bad reputational reviews and you’re done. Airbnb also automatically provides $1 million in insurance against damage or theft to nearly all of its hosts (some countries have restrictions) and only rarely gets claims. This framework of trust has unlocked huge value from unused bedrooms. “In the last 12 months in Paris, we’ve generated $240 million in economic activity,” Chesky said.
Airbnb has also spawned its own ecosystem — ordinary people who will now come clean your home, coordinate key exchanges, cook dinner for you and your guests, photograph rooms for rent, and through the ride-sharing business Lyft, turn their cars into taxis to drive you around. “It used to be that corporations and brands had all the trust,” added Chesky, but now a total stranger, “can be trusted like a company and provide the services of a company. And once you unlock that idea, it is so much bigger than homes. … There is a whole generation of people that don’t want everything mass produced. They want things that are unique and personal.”
There’s more. In a world where, as I’ve argued, average is over — the skills required for any good job keep rising — a lot of people who might not be able to acquire those skills can still earn a good living now by building their own branded reputations, whether it is to rent their kids’ rooms, their cars or their power tools. “There are 80 million power drills in America that are used an average of 13 minutes,” says Chesky. “Does everyone really need their own drill?”
More than 50 percent of Airbnb hosts depend on it to pay their rent or mortgage today, Chesky added: “Ordinary people can now be micro-entrepreneurs.” Jamie Wong, co-founder of Vayable.com, a platform through which locals anywhere can become custom tour guides of their area, told me: “I moved out of my apartment in central San Francisco, rented a cheaper annex in a friend’s home, and ‘airbnb-ed’ my apartment for $200 a night and earned about $20,000 in a year. It enabled me to bootstrap my start-up. Airbnb was our first round of funding!” And just think how much better all this is for the environment — for people to be renting their spare bedroom