For Airbnb, Halloween started out festive—and quickly turned frightening.
Inside the company’s San Francisco headquarters on the morning of Oct. 31, employees wore costumes and smiles. Cofounder and CEO Brian Chesky was grinning in chef’s whites, handing out “Chesky’s Chips” cookies to staffers. One of tech’s best-known CEOs was role-playing as a pastry chef in a nod to an upcoming product launch—a new category of “Experiences,” centered around cooking, that travelers could book through Airbnb.
But even as they snacked, employees were hearing about an exposé published earlier that morning, one that was inching closer to virality with each furious retweet. The website Vice had uncovered an Airbnb scam that spanned at least eight cities and nearly 100 listings. A shady management company was relying on fake identities to con guests, booking them in attractive-but-phony listings and then redirecting them to flophouses. The article illustrated how easy it was to exploit Airbnb’s lax oversight and how little Airbnb did to help victims, logistically or financially. The reporter, Allie Conti, had been ensnared in the scam; she would later tweet that the FBI had contacted her about her article but that she “still [hadn’t] been able to have a meaningful conversation with a human being at Airbnb.”
The news would get far grimmer before Halloween was over. Just before 11:00 p.m. in Orinda, Calif., an affluent Bay Area suburb, inside a home booked through Airbnb, gunfire erupted during a party, leaving five dead and four others injured. The gathering had been promoted on social media as a “mansion party”; more than 100 people were present when police arrived. The home’s owners did not hide their frustration. “Airbnb does not release the customer information before they really book, so we have no way to know [their intentions],” Michael Wang told the San Francisco Chronicle. His listing included a guest limit and an explicit prohibition against parties, Wang continued, “but people lie.”
Concerns about fraud and safety have shadowed Airbnb throughout its rise. But the shooting and the Vice article, both widely picked up by other news outlets, dragged those issues into the foreground at a particularly inopportune time: Just six weeks earlier, Airbnb had announced its intention to go public in 2020.
With trust plummeting among investors and customers, Airbnb’s leaders scrambled. Over the ensuing week, while in New York City for a conference, Chesky canceled meetings and cleared his schedule. He spent hours on the phone with Airbnb executives and board members, along with some outsiders. “I was calling early customers, people I had known, people who had criticized us,” Chesky tells me. The agenda for each call: What Airbnb would have to do to restore confidence. On Nov. 6, Chesky announced the most sweeping changes to Airbnb’s rules since its founding in 2008. Among them: “100% verification” of the providers of Airbnb homes and Experiences, a 24/7 hotline for neighbors with complaints, and a clearer policy for rebooking and refunds for guests.
Many of those moves had been in the works, Chesky now says, but he acknowledges that some had been “many, many years away,” until the Halloween crisis forced the company’s hand. He tries to give that timeline a positive spin: “It allowed us to operate with more urgency than I think I could have naturally asked the company to do.”
The work has just begun—and the company is far from nailing down how it will do it. Considering there are more than 7 million Airbnb home listings, in roughly 100,000 cities and towns across almost every country on earth, this is a massive undertaking. And the fact that Airbnb has built a global brand, a $35 billion private-market valuation, and a business that analysts estimate will generate between $4 billion and $5 billion in revenue in 2019, all without having implemented most of those security steps, goes to the heart of the challenges it faces.
In the subject line of an email to employees days after Halloween, Chesky said that Airbnb is “in the business of trust.” The slogan cuts two ways. The company has built its rapid growth on a system that essentially requires hosts and guests to trust each other. Case in point: Under many circumstances, a would-be host or guest can list or rent a property on Airbnb without ever presenting a government ID or undergoing a background check. But now, as it seeks the validation of an IPO, Airbnb has to prove that it can be trusted to monitor its own platform and lay down the law.
Crime and fraud are problems for other home-rental services, too, as well as for hotels. But the negative effects of Airbnb’s home-rental business in many markets, including the gobbling-up of rental-housing stock by landlords and bad behavior by renters, have drawn particularly intense scrutiny, and have already spurred municipalities to clamp down on or even ban the business. “Now there’s the scrutiny of the public markets,” says Kathleen Smith, who has studied Airbnb as a principal at Renaissance Capital, a firm that specializes in pre-IPO research. “But they’ve been in business for a long time. That they haven’t done this so far is … astounding.”
Airbnb faces this trustworthiness crisis even as it seeks to show that it has a winning long-term business model. Underwhelming post-IPO performance by tech darlings Lyft, Uber, and Slack, and the pre-IPO meltdown of WeWork, mean that any Airbnb offering will be watched particularly closely. And Airbnb has strived for years to demonstrate that it can mature beyond budget home rentals.
In an interview on Oct. 23, Chesky told me he had wanted to wait to pursue an IPO until the company could give investors “a sense of the future.” His goal is to build an end-to-end travel service with varied revenue streams—where customers can book lodgings, transportation, meals, and excursions, all under one corporate umbrella. Experiences are a key element of this push, but hardly the only one. Over the past few years, Airbnb has expanded into luxury homes and conventional hotel rooms, while taking steps toward offering museum and landmark tours—bolstered by acquisitions of companies with relevant expertise (see “Way Past Couch Surfing” section below). But the expansion won’t succeed if consumers, investors, and regulators mistrust Airbnb—so the once-humble startup finds itself at a crossroads.
Airbnb has announced that it was profitable before interest, taxes, depreciation, and amortization in 2017 and 2018 (2019 results aren’t in yet). In the near term, policing itself more strictly will threaten the bottom line, both by reducing the number of listings and by boosting costs. But if the company is transparent about the effort, it should pay off, says Raymond James analyst Justin Patterson: “There will be upfront costs, but once that’s done, it then turns into a unique trust and safety advantage.”
Looming over this struggle is a philosophical question: As Airbnb scales up and commits itself to monitoring users more closely, does the company risk abandoning the “Live like a local” mantra that attracted independent-minded travelers in the first place? Kristin Luna, a Nashville-based journalist who’s been a high-standard “superhost” on Airbnb for almost six years, says she’s already seen changes for the worse: “It feels like a big corporation where you’re just another number.”
Chesky and his colleagues wouldn’t like being described that way—but growing up as a company may mean embracing the definition. (Story continues after next section on Airbnb’s recent acquisitions and investments.)
Way Past Couch Surfing
Since 2016, Airbnb has either acquired or invested in multiple smaller travel companies. The company aims to build a portfolio of companies outside of its original short-term, low-priced home-rental model, the better to pitch itself to customers and investors as a full-service travel company. Here are some of the key additions:
Luxury Retreats
Acquired in 2017 for a reported $300 million, its offerings reflected its name: At one point, they included an entire island owned by Richard Branson. Its portfolio is now the foundation of Airbnb Luxe, where rates top $1,000 a night.
HotelTonight
Airbnb bought this last-minute hotel-booking site in March for $400 million. It was the startup’s biggest acquisition yet, and one of its biggest departures from its couch-surfing roots, since its rooms are predominantly in conventional hotels.
Resy
Airbnb in 2017 led a $13 million investment round into Resy, the restaurant-reservations app. Their partnership allowed guests to book tables through Airbnb’s website or app. (Airbnb recently discontinued that service.)
UrbanDoor
Airbnb claims that 500,000 companies use its Airbnb for Work service. In August, it bought UrbanDoor, a company that focuses on corporate extended stays, for an undisclosed sum. The big prize: the housing UrbanDoor controls in some 1,500 cities.
Tiqets
Airbnb led a $60 million funding round for this ticket-technology startup in October. Tiqets specializes in connecting customers to traditional excursions like museum and landmark tours, a business in which Airbnb is eager to expand.
Airbnb’s maturation is as much about developing and expanding new businesses as it is about improving security on the original one. The week before Halloween, Chesky and a dozen colleagues were in a conference room, preparing for the launch of the Cooking category. The chief executive, wearing a faded sea-green T-shirt with tiny, tattered holes in the collar, stood up and moved closer to the wall-size screen. He was staring intently at a photo of people seated around a table of food, high on a plateau, overlooking a countryside at sunset.
Experiences are meant to offer travelers unique activities with local hosts; the one on-screen advertised “handmade pasta with Grandma” in Rome. Which is why Chesky was not satisfied with the gorgeous vista. The grandma in question, Nonna Nerina, was standing at the table, but she was not rolling dough. “Are there any images where she’s actually cooking, though?” It was the third time Chesky had raised this issue. The images promoting a Cooking Experience shouldn’t lose the idea of participation, he insisted—otherwise, how would it be different from just going to a restaurant?
Chesky has long been fascinated by the idea of offering not just places to stay but also things to do. Launched in November 2016, Airbnb Trips originally gave guests the option to coordinate a home rental with any of a range of 500 activities—while avoiding the hotels and clichéd excursions associated with the package tour label. The Trips’ off-the-beaten-path ethos dovetailed with Airbnb’s homes business. “You don’t sleep in a tree house to get a good night’s sleep, so to speak,” Chesky says. “You could just stay in a boxlike hotel environment to do that.”
But Trips didn’t catch on, and Chesky was forced to go back to the drawing board. Some inside the company wondered why its CEO was so gung ho about this side project. “A company full of bright people are going to ask difficult and smart questions,” says Dave Augustine, a software engineer who was an early member of the Trips team. The team would eventually find a winning formula by simply offering the activities à la carte. In 2017, the company rebranded Trips as Airbnb Experiences, under the leadership of Joe Zadeh, and relaunched. Two years later, there are about 40,000 Experiences in 1,000 cities and towns. Since June, the company has announced three categories: Adventures, Animals, and Cooking. Chesky says new categories will soon launch “on an almost monthly basis.”
Experiences remains a small business, and there have been rumblings that it still isn’t doing as well as hoped. Tech news site The Information reported that through the first three quarters of 2018, Experiences generated $15 million in revenue, a tiny fraction of Airbnb’s sales. This fall the company confirmed reports that Zadeh would step down as head of Experiences once a successor is named (which hadn’t happened at press time). But Airbnb characterized this as a lateral move, not a demotion, with Zadeh taking a broader strategic role. Zadeh tells Fortune, “We’ve gotten to a place where I think there are people that can take [Experiences] to the next level.” And Airbnb says the product is making strides: It says Experiences bookings increased nearly sevenfold year-over-year in 2018.
If the glitches get ironed out, Experiences could give Airbnb a foothold in a huge market. The tours and activities industry—a category that includes activities as diverse as staid big-bus sightseeing tours, freehand rock-climbing classes, and songwriting seminars—will generate $183 billion in revenue in 2020, according to estimates by travel research firm Phocuswright. And as cultural shifts lead more people to prioritize experiences over material goods, hospitality brands want to be associated with more than pillow-top beds and heated pools.
Indeed, this isn’t a new business, and Airbnb faces established competitors. Travel website TripAdvisor offers more than 250,000 “Experiences” listings; it brought in $125 million in revenue from experiences and dining in the second quarter of this year. Booking.com and Expedia are also players, and even big hotel chains are in the game. Hyatt, for example, specializes in health and wellness experiences through its “Find” brand. “Our guests tend to be higher-end customers [focusing] on their holistic well-being,” says Hyatt CEO Mark Hoplamazian. “There are many meta-search sites that allow you to buy the double-decker open-air bus tour. For us, that’s not really providing extra value.”
Beyond these players, though, remains a fragmented ecosystem of tour and activities providers—most of which have little digital presence. “One of the key features of the experiences marketplace is that about 80% of it is offline still,” says Dermot Halpin, TripAdvisor’s president of experiences and vacation rentals.
Reaching that untapped reservoir is a big opportunity for a company with Airbnb’s size, name recognition, and tech savvy. In October, Airbnb led a funding round, worth $60 million, to invest in Tiqets, a ticket-technology startup that focuses on mainstream attractions, such as museums and landmark tours. The investment signals Airbnb’s willingness to get involved with the standard tourist activities it used to shun, the better to become a full-service travel company. Chesky says Airbnb is developing an Experiences category based around “landmarks with a twist.” For example, he says: “What if there was a different way to see the Louvre, with an art history professor? And what if it’s at night now, without all the lines?”
Many Airbnb Experiences, like many Airbnb rentals, are operated by enthusiastic semi-amateurs. On an unseasonably hot fall afternoon, I joined one of them on one of the more popular offerings: Hidden Stairways of San Francisco.
“The best part about these stairs is that nobody really knows they’re here,” host Greg McQuaid told my group of four. Each of us had paid $34 to join him. Perhaps the heat had kept others away, but four people on an Experience is in line with Airbnb’s usual maximum of 10 guests, designed to foster intimacy. The staircase we were standing at the base of, in the Golden Gate Heights neighborhood, was covered by a colorful tile mosaic of sparkly flowers and fauna. Our guide offered to take each of our photos, and then we ascended to panoramic views of the city.
Some hosts have found that Experiences can be quite lucrative. Tia Clark runs Let’s Go Crabbing in Charleston, S.C., an excursion that lets users catch their own crustaceans by casting nets from a dock. She says she was able to quit her job as a bartender to operate her Experience full-time. Clark charges $75 per person, and if she books all 10 slots, she can pull in roughly $600 from every two-and-a-half-hour trip. (Airbnb takes a 20% cut of hosts’ earnings.) McQuaid, who used to work as a radio producer, also runs his walking tour as a full-time gig, though he says money can be tight at times; he says he likes Experiences because “people can make money out of their passions.”
Chesky has said that Experiences could emerge as a less fraught business than its core homes offering, one less likely to spark conflicts with local governments. But after its Halloween from hell, Airbnb isn’t taking anything for granted. As part of its sweeping overhaul, the company says it will verify 100% of Experiences.
Details on what that will entail remain unclear. Airbnb already requires aspiring Experience hosts to apply for acceptance by completing 24 online prompts that involve questions about themselves and their work. Specialized activities, such as operating certain vehicles, already require proof of licenses, permits, and certifications, and other “heightened review,” Airbnb says. Now it’s expanding that classification to include outdoor activities near bodies of water, high-altitude hiking, and backcountry skiing, to name a few examples. The company uses a third-party vendor to verify licenses. Most Experience hosts and guests are insured for up to $1 million under an Airbnb liability policy.
The importance of such precautions was illustrated this autumn by a tragedy in Puerto Rico. A young couple from the mainland U.S. were killed by a flash flood on Oct. 11 during an Experience hike in El Yunque National Forest. Airbnb’s connection to the deaths was first reported in late October; the fatalities were believed to be the first involving an Airbnb Experience. While no evidence has emerged of negligence in the incident, it underscores the legal and regulatory responsibilities to which Airbnb’s expansion exposes it. “Our hearts break for those who have been impacted by this tragic accident, and we have offered our full support” to the families, Airbnb said in a statement. It declined to answer questions about the host’s vetting or licensing.
It was 11 years ago that Chesky and cofounders Joe Gebbia and Nathan Blecharczyk first launched Airbedandbreakfast.com. Since then, the platform has facilitated more than 500 million “guest arrivals,” earning hosts more than $80 billion. With guests now checking in at a rate of six per second, homes remain by far Airbnb’s biggest business and the one where fixes matter most.
Airbnb says in the 12-month span that ended July 31, 0.05% of its trips had a safety-related issue reported by a host or guest. That’s a tiny share—but given that estimates peg Airbnb as hosting at least 80 million guest arrivals a year, that share represents at least 40,000 that reported safety problems. If you widen the definition of a “problem stay” to include issues like fake or misleading listings and last-second cancellations, the percentage likely rises much higher.
Chesky says addressing these issues is Airbnb’s “No. 1 priority.” He’s quick to point to steps the company had already taken, but he acknowledges, “A lot of these things, they needed more meat behind the bones … much more investment, much more training.” Until now, for example, the site has sometimes run background checks on hosts and guests. But they are limited to U.S.-based users. And Airbnb often doesn’t have enough data to run such checks.
Some of Airbnb’s new rules went into effect in mid-December. The looming challenge is “100% verification” of hosts and listings, which the company aims to achieve by the end of 2020.That will entail the review of photos, addresses, cleanliness, basic amenities, and above all the identity of hosts. Airbnb says it will do this using human review, technology, and “community feedback”—with the latter point suggesting that complaints from guests will get more attention. It will sometimes be impossible to completely verify information—particularly when a brand-new host lists a property for the first time. In that case, Chesky says, the company will explicitly tell guests what it doesn’t know—flagging that it’s a new listing, without enough data.
Other changes address “bad tenant” problems. Airbnb already operates neighbor hotlines for complaints in some cities: They will soon be worldwide, available 24/7 and staffed by real people rather than automated. The hotlines are now live in the U.S. and “will roll out globally” in 2020, Airbnb says. A new party policy will explicitly bar open-invite parties and events, as well as any large parties and events in multifamily residences. (Airbnb announced the party policy Dec. 5, only to see the news collide with bad publicity the next day, when 55 shots were fired and one person injured at a house party in Portland, Ore.)
Another significant change is the guest guarantee. It offers either booking in an equal-or-greater-value listing or a 100% refund in the event that a listing is subpar. That will include situations in which a host cancels a reservation within 24 hours of check-in, or switches guests to another listing without their consent. It also applies when a rental seems structurally unsafe or unclean or needs heavy repairs, Airbnb says.
Do the changes go far enough? Critics of the company say it’s too early to tell. Rep. Bonnie Watson Coleman (D-N.J.) led a group of House Democrats who wrote to Chesky after his November announcement to ask for more specifics. She calls the plans a step in the right direction but says she plans to keep a watchful eye on Airbnb’s progress.
Other observers see the changes as useful but late. Matthew Kepnes, a travel writer who runs the blog Nomadic Matt, points to past instances when Airbnb shut down problem rentals only after they drew media attention. “They’re very reactive, and I think they’re trying to become more proactive as they go public,” says Kepnes. “If they weren’t going public so soon, I’m not sure they would have taken these measures so quickly. What good is a public company that can’t operate in countries and cities around the world?”
Along the corridors at Airbnb’s headquarters, colorful posters depicting Experiences line the walls. There’s Pauline’s Fromage French (cheese), Kevin’s Tokyo Joe (coffee), Lofti’s Let’s Longboard (skateboarding). Photo portraits of hosts hang next to the posters, along with museum-like description panels. “I always had a passion for hospitality,” reads a quote from Pablo, from Salamanca, Spain.
Policing all these far-flung hosts will carry a price tag that could eat into future profits. Chesky says the new safety commitment will require an investment of $150 million over the next year—a figure that doesn’t include any revenue impact from lost listings. But he’s adamant that it won’t dent long-term growth. “[If] there’s a standard we can stand behind in a deeper way than before, I think more people will use Airbnb,” he says.
Chesky frames tighter safety rules as a way to enable Airbnb to push ahead—with safety and governance as well as growth in mind—by doubling down on its hosts. Verification, he asserts, will enable Airbnb to “make sure there’s a host’s spirit to the listing, that it’s actually people-powered.” It’ll be less about standardization than about relying on its hosts to mature with the company: “The hard work is trying to mobilize millions of people and level up their game.”
Back on Oct. 23, before trouble erupted, I had asked Chesky what it felt like to sit atop a company that was large enough to affect that many people’s lives. “You know how every day you stand in front of the mirror, brush your teeth, and don’t really feel like you look any different?” he replied. “And then somebody shows you an old picture, and you’re like, ‘Wow, I’ve really changed.’ ”
So has Airbnb. And to endure, it will have to keep changing.
Much Ado About Doing
Airbnb has made “Experiences”—activities and excursions organized by hosts—a major focus ahead of its IPO. In 2019, it rolled out these three categories:
Adventures
These are multiday trips, often with an outdoors element, that include meals, activities, and accommodations; Airbnb’s earlier Trips business fit this model. Examples include an “Epic motorbike trip through Vietnam” (four days, $379/person) and a “Malibu Beginner Surf Camping Retreat” (two days, $349/person). Adventures made their debut in June.
Animals
These tours and activities involve interacting with or observing critters. They’re operated under safety guidelines developed with the nonprofit World Animal Protection. Examples include “Groom and walk miniature ponies” (1.5 hours, $61/person) or “Learn to Track Wild Otters in Cape Point” (2.5 hours, $59/person). It launched in October.
Cooking
The newest category (it was launched in November) focuses on culinary activities involving guest participation and local recipes. Examples: “Soba noodle making in a traditional home” (two hours, $23/person); “Make Traditional Vermont Maple Syrup” (one hour, $25/person). Guests get access to an archive of 3,000 recipes from 75-plus countries.
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