[Music] airbnb should never have worked the ceo knew nothing about business the idea had been done before and was actually illegal in many cities and even the company's founders didn't think it would work and yet just by everything airbnb has become a billion dollar company and one of the greatest business success stories of the digital age they're the largest accommodation provider in the world yet they don't own any real estate so how the hell did they do [Music] brian and joe were on the verge of getting evicted from their apartments rent was due and they were broke however they knew a popular design conference was coming to town in a few weeks which meant thousands of people would be descending on the city and hotels would quickly get full at that point we just had this idea we said well designers need a place to stay we literally have no money in fact i don't know how i'm going to make rent so we thought what if we just created a bed and breakfast for the design conflict they had three airbeds they could blow up and so they figured they'd try to charge people to stay at their apartment for the weekend to advertise this they created a basic website called air bed and breakfast using a free wordpress template and unsurprisingly almost nobody took them seriously but since hotels did fill up as expected ryan and joe managed to get a few people to pay to stay with them and weirdly it was great they showed their guests around the city took them to their favorite restaurants and everyone had a great time brian and joe made around a thousand dollars from the four-day conference enough to pay their rent which brought them some extra time to try and come up with their real business idea airplane and breakfast was not the big idea we thought it would pay the rent so we had enough time to think of the big idea so brian and joe began trying to think of what their groundbreaking new business would be since airbnb was never meant to be a serious long-term thing however whilst trying to come up with new business ideas brian spoke to his mum who was concerned he didn't have a job mum i'm an entrepreneur brian explained but she just said no you're unemployed and she was right brian and joe didn't have any groundbreaking new business ideas so they instead went back to their airbed idea which had been a lot of fun and so they figured maybe other people want to make money renting out airbeds in their apartments too so rohan and joe recruited their old roommate nathan a computer programmer who would help them make a more legitimate and professional looking site where people could make money renting out airbeds in their apartments and so they relaunched their bed and breakfast advertising it as a new lodging service for sold out conferences but most people were very skeptical in fact they only got two paying customers one of which was brian himself the biggest problem was people didn't want to list their homes many people thought the whole thing was some weird social experiments however the three founders believed that if enough people actually tried it they'd see it could be a great experience so when they heard that 75 000 people were coming to the democratic national convention where obama would be giving a speech they decided to relaunch airbnb once again to try and drum up some publicity and this brings us to weird business lesson number one from brian chesky if you launch it no one notices you can actually just keep launching and so we just kept launching like we've launched in like people would keep writing about it as if we launched and it worked right before the conference they contacted every single blog and journalist they could to tell them about this new service they were launching called airbed and breakfast because it was quite a quirky idea some people wrote about what they were doing which caused some big newspapers to pick the story up as well soon they had so much traffic that their website crashed and paypal banned their account for receiving too many payments too quickly as people rushed to book apartments for the weekend that the conference was happening but once they got those problems resolved they were excited hundreds of people were listing their rooms on the site and other people were booking them they had proof this could actually work the only problem was that as soon as the conference ended people stopped booking rooms they were back to square one with no customers they needed to find a way to get people using the service all year round not just at big conferences or events but they were still very low on cash so brian spoke to one of his friends he told me that there were these people called angels and the first thing i thought was oh my god this guy's insane he believes in angels and he goes no they're angel investors brian had never heard of angel investors but his friend explained to him that they could give him money to help grow the business in exchange for owning part of the company and so brian set up meetings with different angel investors which went horribly one investor they met at a cafe literally just got up halfway through and walked out of the meeting the big problem was that their idea sounded so risky letting people rent out space in their house to total strangers sounded like it would end in disaster and their business model involved taking just a small transaction fee on each deal if you heard that investment pitch back in 2008 you probably wouldn't have invested either so one after another investors turn brian down little did they know if they had invested 150 000 back then which is what brian was looking for today their investment would be worth multiple billions of dollars it was literally one of the greatest investment opportunities it's just nobody could see that yet so brian and joe had to take on credit card debt instead just to keep the business afloat they really felt there was potential with the idea but seemingly nobody else did they had a service nobody was using and it was going to take something incredibly unlikely to save the company for me this is rock bottom we're totally in debt we don't know what to do we're desperate late at night it's midnight when one in the morning and joe and i think maybe we're airbed and breakfast the air beds aren't working out maybe we could sell breakfast i mean everyone needs to eat so as crazy as it sounds they decided to focus on the breakfast part of their bed and breakfast instead and in order to capitalize on the upcoming election they created two limited edition cereal brands obama o's and captain mccain's brian found a fellow college alumni who had a printing shop and agreed to print 1 000 cereal boxes for free if they gave him a cut of the sales brian and joe then went through every local supermarket to try and find the cheapest cereal they could and then bought 1 000 boxes of it so they could put it into their new designer packaging back in their kitchen they got to work hand folding the cereal boxes and gluing them shirts brian remembers thinking to himself that mark zuckerberg had never had to burn his hands hot gluing cereal boxes to launch his company so the fact they were having to do this probably wasn't a good sign but believe it or not this weird cereal gimmick actually worked they sent some of these cereal boxes to journalists who inevitably wrote about them and people started buying the boxes for ridiculously high prices because they branded them as rare collectible items as a result they ended up getting national media attention and even mentioned on cnn joe gebbia and brian chesky they had created a website airbedandbreakfast. com to connect convention goers at both conventions looking for a cheap place to stay with residents who had space on their couch or an extra room well now the team has made another contribution as you can see here to the presidential campaign with partisan serials obama os and captain mccain's obama rose sold out within three days and people even started reselling them on ebay and craigslist for up to three hundred and fifty dollars a box the cereal had been a huge short-term success brian and joe made somewhere between twenty to thirty thousand dollars from it which allowed them to pay off their credit card debts but people started asking them wait so are you a serial company now brian didn't even know how to answer that the truth was that they still had no customers for their actual airbnb business the cereal box idea had helped them clear their debts but that was it they were simply back to zero dollars now right where they started and selling serial had only worked because it was limited edition they couldn't just keep making more in fact they hadn't quite sold out of the cap in mccain boxes which meant brian and joe mostly lived off dry cereal for the next few months because they literally had no money to buy other food brian would wake up anxious every morning with his heart pounding they really believed there was potential with the airbed idea but they needed money and help and that's when they heard why combinator was accepting applications a startup accelerator that invests in new companies and offers them guidance from experienced entrepreneurs brian and joe eagerly applied and went in for an interview unfortunately just like all their other meetings with investors it was a disaster the interviewer asked why would anyone want to stay in some stranger's house and why would anyone want to invite a stranger into their house in the first place brian and joe got up to leave the meeting already knowing they weren't going to get accepted getting into y combinator had been their last shot and now it was over the company was dead as they were walking out the meeting joe pulled a box of captain mccain's cereal out of his bag and handed it to the y combinator interviewer who was understandably confused joe explained they'd made these to raise money and get out of debt wow the interviewer said amused and impressed after hearing the serial story you guys are like cockroaches you just won't die brian and joe left the meeting and before long got a call my combinator was going to take a chance on them they'd invest in airbnb and help them try to make the business work brian was shocked the interview had not gone well but he later found out that it was the cereal that had changed their minds they said if you can convince people to pay 40 for some cheap cereal maybe you can convince people to sleep in other people's air beds this is actually a common theme with investors they're often investing in the founders themselves rather than the idea ideas can be pivoted along the way but for out of the box thinking and drive to succeed no matter what that's something worth investing in and i remember calling my mom like mom i'm a cockroach i got in so that's how we got into y combinator and that kind of was a turning point for us very soon after getting into y combinator other investors started pouring money into airbnb as well suddenly they had access to funding as well as access to experts who could help them run the business the founders were ecstatic it looked like airbed and breakfast finally had a chance of succeeding little did they know they were about to build one of the fastest growing startups in history [Music] shortly after joining y combinator the airbnb founders had a huge revelation they've been thinking way too small at the time their service was called air bed and breakfast and that they're all stated that you specifically had to rent out an air mattress even if you had an actual bed to spare not just that but the host had to be present at the house so they could provide breakfasts so they finally decided to get rid of all these restrictions and shorten their name to simply airbnb and almost immediately demand increased another key realization was that users were terrible at taking nice photos of their apartments so airbnb agreed to send out professional photographers to help people take better pictures of their homes which was expensive for airbnb but it paid off massively bookings for properties soared once the photo quality increased 50 bookings a day 100 bookings a day 1 000 bookings a day momentum was building fast they even started getting quirky less things like you could stay in a treehouse a castle or even an igloo and this helps explain why airbnb suddenly started to take off many people had become tired of the mass commodification of hotels where every single one looks the same for example you could be staying in egypt and it would look identical to a hotel room in your own country and yet people craved that authentic experience they wanted to fully experience the country's unique culture and live like a local and airbnb allowed them to quite literally live like a local rather than just staying in busy tourist areas you could move into a local's home and sometimes they'd be there as well to tell you about the city now when discussing airbnb some people point out that the idea of short-term rentals wasn't actually new there were sites like couchsurfing home away and even craigslist but another one of the key reasons for airbnb's success was that they focused on making the whole process much more user-friendly airbnb worked hard to make the design more sleek and modern so it felt more professional and they also focused a lot on their review system where both the host and the guest would review each other to make the site feel more trustworthy airbnb then poached customers straight from their competitors they created software to automatically email anyone who posted their property on craigslist asking them if they wanted to list it on airbnb as well plus airbnb's timing was perfect they launched right after the 2008 recession when lots more people wanted a way to make some extra money by renting out spare space and travelers wanted cheaper places to stay so airbnb simply matched these two groups together airbnb also invested heavily in technology for example using machine learning and ai to match people to the most relevant listings based on their own tastes and booking patterns they also built an extremely robust payment system to manage payments between buyers and sellers without relying on a third party thus making airbnb's platform a fully self-contained system which again felt more secure but the biggest reason of all for airbnb's sudden rapid growth is that airbnb has truly global network effects meaning the more people who list their place on airbnb the better the platform becomes to anyone who wants to travel and of course more travelers using the site leads to more people wanting to list their home there so you start getting this exponential growth and once airbnb had their system built it was very cheap and easy for airbnb to expand into other countries as the same platform could be used everywhere in the world for most businesses expanding into a new city would require huge costs but not for airbnb because they didn't have to own any property themselves so with all of these things combined airbnb had stumbled onto a winning formula which caused even more investors to put money in to help the business grow faster of course there were still some who were skeptical of airbnb they felt strangers opening their homes to other strangers was surely going to end in disaster surely people's houses would get trashed or their belongings stolen but i'm pleased to tell you the airbnb is proof of how great humanity can be because even all these years later there has never been a major incident just kidding this isn't a disney movie so brace yourself things are about to get dark ej was a freelancer who decided to rent out her apartment on airbnb while she went away on a trip her income as a freelancer was inconsistent and so after hearing people rave about airbnb she was keen to try it herself to help cover her bills ej listed her home on the platform and described it as her own private retreat sunny bright cozy the place in her life that was peaceful and safe however when she returned from her trip her home had been destroyed the airbnb guests who had stayed there had completely trashed everything ej was heartbroken she wrote on her blog how the guests had even smashed a hole through a lock closet door and found her passport cash credit card and grandmother's jewelry hidden inside they took her camera ipod laptop an external backup drive filled with photos and journals her entire life they burned many of her possessions in the fireplace and left ash all over the room her furniture counters bed and printer had been doused in powdered bleach her clothes were left in a wet mildewing pile on the floor so much had either been stolen or broken beyond repair ej felt violated terrified and could no longer live in her home she wrote on her blog that she was now suffering from regular panic attacks and spending her afternoons looking through pawn shops to try and find some of her personal belongings that had been taken but she said the thieves had stolen something that couldn't be replaced the spirits ej's post was soon picked up by multiple news sites and it went viral at the airbnb offices the team had no idea what to do some felt they should admit that it was their fault and tried to publicly make amends but others worried that omitting responsibility would open them up to all kinds of liability in the future airbnb's legal team urged brian to be extremely careful about what he said and tried to deal with the matter privately and quietly initially airbnb was slow to react at all and released quite a generic statement saying they'd been in close contact with ej which she later said wasn't really true the backlash against airbnb got bigger brian couldn't sleep his chest constantly felt tight he didn't know what to do so he ignored all the legal advice he'd been given sat at his laptop and simply wrote what he really felt he began with [Music] brian went on to say that airbnb had let ej down and announced a 50 000 guarantee protecting hosts against damage effective retroactively as well meaning ej would be fully reimbursed with lots of extra compensation on top as well he announced a 24-hour customer hotline and said they were doubling customer supports these changes would be incredibly expensive but it was a defining moment airbnb was going to fully support its hosts and tried to go above and beyond what was required in the long run backing hosts like this was crucial for airbnb success and so the gamble paid off unfortunately just as one crisis got solved an even bigger one was just beginning [Music] all right let's get to the hearty the problem though regulation yeah so you're having some issues in every major city it turns out that the whole idea of airbnb renting out your home on a short-term basis broke the law in many places and it can completely vary in different countries cities and even towns as everywhere has slightly different local laws around rentals building code standards tax collection and more now in many places airbnb worked with regulators to find a solution so they could operate legally but in some places it wasn't that simple there's a massively powerful hotel industry in new york and hotel unions that have really galvanized people and created this kind of perpetual battle new york is just one example of a very high profile where airbnb has faced huge opposition and restrictions another was berlin where in 2016 it became illegal to rent entire homes and apartments for short periods and citizens were asked to anonymously report rule breaking users who were using services like airbnb however part of the reason airbnb has faced a lot of pushback in some cities is that the people who profit most from airbnb are not locals wanting to make a little extra cash renting their apartment out but instead private landlords with multiple properties because you could make much more money selling a couple of nights at a time on airbnb than you can renting out a property to one single tenant for several years but because of this many feel airbnb has removed housing from the market for long-term renters driving at rent prices even further some locals feel they can't afford to live in their own city anymore and blame airbnb for that data from air dna should up to 1. 1 million airbnb listings in the us around 600 000 are from hosts that have at least two other listings and the top hosts have anywhere from nine to 272 different listings there's one single user who raked in 6.
8 million dollars via airbnb and so the bigger airbnb got the more the conflicts grew many landlords were very unhappy with their tenants subleasing and started specifically banning airbnb guests in some cases they added cameras to try and catch tenants who are renting out their home and as a result some airbnb hosts started telling guests to pretend they were relatives who were visiting instead of paying guests it was a constant ongoing battle and in 2016 airbnb actually sued new york city and san francisco because of new legislation they introduced that imposed big fines for both airbnb and its hosts if they posted listings that violated the short-term rental laws however in 2015 brian stood on stage at a company-wide meeting and told everyone that what would kill airbnb was not regulators or competition it was losing their ability to be crazy to try new and exciting ideas brian had studied successful companies like amazon and apple and concluded that to achieve long-term success they needed to branch out into new markets brian decided he wanted airbnb to play a bigger role in people's trips unless they launched the experience marketplace a new feature of their site where hosts with a particular skill could offer different experiences to guests like you can meditate with a buddhist monk you could have afternoon tea on an alpaca farm go on a spooky late night walking tour or even have an expert fire spinner teach you the art of fire bending the idea was to offer authentic travel experiences from real locals and after the feature launched some hosts started earning more money from offering these experiences they did from actually renting out their rooms on airbnb but plans seemed to be going well and brian said in future he wanted airbnb to be involved in every aspect of a person's trip meaning with airbnb you would book restaurant reservations tickets and lots more all via airbnb's app but then suddenly everything changed [Music] a sars-like virus which has infected hundreds in china has now reached the united states covid crisis has impacted so many industries this year as the virus forced businesses across the country to close their doors so overnight airbnb went from being the silicon valley unicorn to business that is in distress bookings in europe alone went down 80 what airbnb will look like after the coronavirus pandemic or whether the company will survive at all [Music] if there's one business model you really don't want in a pandemic it's a business model built around people traveling to new places and staying in strangers homes in fact many started calling it the airbnb apocalypse we got more than one billion dollars of cancellations by guests requested cancellations so what happened is the pandemic hits people can't travel and a whole bunch of people cancel right because they have cancellation policies there were about a billion dollars of requested cancellations but the hosts wouldn't let them cancel so we had to make a decision do we override the host cancellation policy or not it was an incredibly difficult situation where guests wanted refunds but hosts didn't want to cancel and lose their money eventually airbnb sided with guests and let people cancel since they figured from a health and safety standpoint this was the best option but of course airbnb hosts felt betrayed by this so in response airbnb created a 250 million fund to give away to airbnb hosts to help cover some of their lost revenue for airbnb giving away this much money was certainly not ideal since they were barely making any money themselves now that people weren't traveling they lost 80 percent of their expected business because of coverts so it was time for a drastic change so we pivoted the entire company to nearby travel basically because international travel was mostly restricted the new plan was to focus on people wanting to rent somewhere nearby and since a lot of people during covid were desperate to get out of their own home airbnb saw a huge increase in new bookings once they started focusing on nearby listings instead so whilst many thought the pandemic could really crush airbnb it was really the hosts who suffered more in particular the ones with multiple properties that were just sat completely empty during lockdowns sure airbnb lost out on some booking fees but they weren't paying any maintenance costs on empty properties because they don't own the properties however whilst in many ways airbnb's business model is brilliant some are still wondering if it's actually sustainable long term because airbnb has yet to report an annual profit since brian and joe launched the company 12 years ago in fact it's been warned they may never be profitable so whilst airbnb have managed to survive so many challenges from homes getting destroyed to legal battles to a global pandemic and so many more controversies some wonder if the biggest problem of all for airbnb is simply that their core business model might not be profitable the truth is that still remains to be seen but what is undeniable is that airbnb is a modern day rags to riches story it's quite amazing when you stop to think about it airbnb exists because two guys couldn't afford to pay their rents even brian himself admitted the whole idea was a weird one in a million shots that pretty much nobody except his granddad thought was a good idea and yet him and his two co-founders somehow built this giant global company brian was even named as an ambassador of global entrepreneurship by obama which was a bizarre full circle moment given that brian only managed to save airbnb by making obama theme serial to raise money to pay off his credit card debts very few companies have seen such rapid growth as airbnb although there is one company that comes to mind that's even more controversial than airbnb which is by dance the chinese company who created tick tock if you want to watch my video on the story of bike dance and tick tock you can 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