The shape of Airbnb’s business

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When Airbnb talks about its legal troubles in New York, Berlin, Amsterdam, and elsewhere, it claims that existing laws were never designed for its new brand of disruptive peer-to-peer business.

There were laws created for businesses, and there were laws for people. What the sharing economy did was create a third category: people as businesses… They don’t know whether to bucket our activity as person or a business.

In 2010, the State of New York passed a law designed to crack down on bad actors that operate illegal hotels—a goal we all share. Unfortunately, the 2010 law also had the unintended consequence of impacting regular New Yorkers.

There are more. You get the point.

In a series of studies designed to address regulators’ concerns, Airbnb talks about its hosts as “regular people” and focuses on the ways its business is different to the existing tourist business. It highlights the hotel industry as a point of comparison and emphasizes just how different Airbnb is. Here are a few typical quotations:

  • “87 percent of hosts rent the homes they live in” (Amsterdam)
  • “87 percent of Airbnb hosts rent out the home they live in, and the typical host earns $7,530 per year” (in New York)
  • “Airbnb is complementary to the existing tourism industry in Paris. 70 percent of Airbnb properties in Paris are located outside the central hotel corridor.”
  • “73 percent of Airbnb properties in Amsterdam are located outside the eight central tourist districts.”
  • “Airbnb’s 5,600 local hosts are regular people who occasionally rent out their homes and use the income they earn to pay the bills.” (in Berlin)
  • “About 80% of Airbnb hosts rent out the home they live in” (in London and Edinburgh)

There are more. You get the point.

The claim of novelty and of hosts as “regular people” has been widely accepted. For example, the thoughtful Kevin Roose wrote this in New York magazine the other day:

There are no laws governing Airbnb because until very recently, there was nothing like Airbnb in the world—not of the same scale, not with the same guiding philosophy. And when Airbnb came onto the scene, regulators were forced to slot it into existing categories where it, arguably, didn’t belong—treating a bachelor renting out his spare room to make rent, for example, with the same rules as a scuzzy landlord operating an illegal hotel. They’ve been playing catch-up ever since.

Or as Wired Magazine writes:

We are hopping into strangers’ cars (Lyft, Sidecar, Uber), welcoming them into our spare rooms (Airbnb), dropping our dogs off at their houses (DogVacay, Rover), and eating food in their dining rooms (Feastly).

There are more. You get the point.

So when it comes to thinking about and dealing with this and other sharing-economy companies, the kind of business that Airbnb operates matters. Does it match the company’s self-portrait? Is the company as novel as it claims to be? Are its hosts “regular people”?

It turns out there is an element of wishful thinking in the portraits of Airbnb. Last November, I took a look at Airbnb data from New York (here and here). In February, travel web site Skift carried out a similar study (here and here), which was part of the New York Attorney General’s case against Airbnb. The two studies took similar approaches, collecting listings from Airbnb’s public web site and gleaning what we could from that imperfect data set. Both studies concluded that, while it is true that a large number of hosts rent the homes they live in, hosts with multiple listings make up almost half of Airbnb’s business. Also that, while Airbnb makes great play of its origins in renting out an airbed, such rentals are now a negligible portion of its business. Even “spare rooms” are a minority of the business: the majority of Airbnb’s business in New York comes from the rental of entire homes.

The data showed a company that was closer to orthodox models such as HomeAway and its subsidiary VRBO than the narrative would have it. There are differences—HomeAway is focused on vacation rentals, and many of its properties are run by property managers—but the similarities cast doubt on Airbnb’s claims that existing regulations are inapplicable.

Now here we are: it’s six months on, and interest in Airbnb continues. Airbnb has kicked 2,000 New York listings off its site (10% of the total for the city). It handed over host data to the Attorney General (anonymized, the company says). Meanwhile, the company is valued at $10 billion, having raised $450 million in a new round of venture capital. The New York dispute is now over, but the sharing economy poster child is still here, bigger than ever, and still a leading light in the wave of digital disruptors looking to shake things up and make a lot of money.

So during May I collected data on over 90,000 hosts and 125,000 listings—about 20% of Airbnb’s 600,000 total, according to this TechCrunch estimate—from 18 cities around the world, to sketch a portrait of Airbnb’s business. The main questions I had in mind are the straightforward ones, starting with the same ones Skift and I asked about New York:

  • Is Airbnb’s business based on “regular people” in a way that other part of the hospitality industry are not?
  • Is Airbnb’s business based on spare rooms and airbeds?
  • I looked again at several cities I had collected (but not posted about) in November, so that I could look at how the business has changed in some of Airbnb’s key markets.
  • I hoped that looking a second time at New York might have something to say about the 2,000 listings that Airbnb removed from the site in April, during its run-in with the Attorney General.

For those who don’t want to read the whole thing, here are the quick answers.

  • While a good part of Airbnb’s business is based on “regular people”, over 40% comes from hosts with multiple listings. This is different from Airbnb’s self-portrait. Airbnb’s claim that existing regulations don’t apply to it is at least exaggerated.
  • The majority of Airbnb’s revenue comes from whole-home rentals. This makes the company much more like HomeAway and other vacation rental businesses. It casts further doubt on the company’s claim to be a new class of business.
  • In some of its biggest markets, Airbnb may have maxed out the number of listings it can achieve. What’s more, there is a high rate of churn as individual hosts put a property on the market, have a few guests, and then take the property off again.
  • Airbnb does not appear to believe its own claim that customer ratings provide an assurance of good experience. Airbnb says it removed 2,000 New York listings from the site because of bad experience, but at least half of those listings had good (4.5 or 5 star) average ratings from customers.

I’m going to post this in two parts.

  • Part 1 looks at the split between hosts with a single listing and those with multiple listings, and it also looks at how far Airbnb has moved from its “origin myth”, after which the company is named—the hosting of people on couches and in shared rooms.
  • Part II looks at the change in Airbnb’s business over the last six months, including the changes in New York where the legal strife has been the loudest.
  • If I have time and if there are requests, I’ll collect these three together and post a single PDF.

Background and Method

Just to set out some basic information, Figure 1 shows the number of listings and of hosts in each city. The data was collected using a fairly straightforward two-stage search. The first stage goes through all the search pages for a specified city and collects the room_id values. The second stage visits the room page for each value and gets details about the listing. The code is available on github.

A few notes:

  • Airbnb has regularly said that is has about 20,000 listings in New York city. I find 19094 (and have over 20,000 from November) so the collection seems pretty complete.
  • In 2013, Airbnb claimed 5600 hosts in Berlin. I find 6141.
  • In the run-up to the World Cup, Airbnb claims to have 9,000 listings in Rio. I find just over 10,000. Perhaps the borders of the search are different, or the number is growing. Still, 90% accuracy is not bad.

In short, the surveys for each city seem pretty accurate.

city_basics.png

Figure 1: Number of hosts and listings in the surveyed cities

The host perspective

Figure 2 shows the percentage of hosts in each city that have a single listing on the site. The values for New York and Amsterdam match Airbnb’s claim for New York and Amsterdam to within a percentage point, which suggests that the sample is realistic and that the use of a single listing is a pretty good proxy for “regular people who occasionally rent out the home in which they live”. The graph also shows that the claim applies to most of the big cities. Barcelona, Rome, and Tokyo are the only Airbnb locations surveyed that have fewer than 80% of hosts with a single listing. So far, so good for Airbnb’s self-portrait. From here on I will call hosts who have a single listing “regular people”.

city_hosts.png

Figure 2: Percent of hosts with a single listing

The marketplace perspective

Imagine that a city has 100 hosts, 99 are “regular people” with a single listing and one host has 99 listings, then the percent of hosts who are regular people would be 99%, but the percent of listings on the market that come from regular hosts would be only 50%. Both percentages are important in gauging the kind of business that Airbnb is. Figure 3 shows the percent of listings offered by regular people. The overall figure is 62%: still a significant majority, but a number that is 20% lower than the percentage of hosts.

We can see that for a few cities, notably Barcelona (11,000 listings) and Rome (growing quickly, at 8,000 listings), the majority of listings come from hosts with more than one offering.

city_listings.png

Figure 3: Percent of listings from hosts with a single listing

The traveller perspective

The percentage of listings that come from different types of hosts corresponds to the experience of the potential guest browsing or searching the Airbnb site. The traffic generated by Airbnb is different, because not all listings are equally popular. There may be areas with many Airbnb listings but relatively few actual visits, while other areas may have listings that are visited very frequently. Airbnb does not give the number of actual bookings for each listing (or, nearly equivalently, the number of visits to the listing), but it does give the number of reviews that each listing has received, and this should be a reasonable proxy for the number of visits.

Over a third of all listings have no reviews at all, and some have many (the most-reviewed listing in my sample is this San Francisco treehouse, a novel place to stay with 460 reviews.)

Figure 4 shows the percentage of visits that are to rooms listed by regular people. The numbers are getting significantly smaller now. No city has more than three quarters of its visits at properties of regular people, and several have a slim majority of visits to hosts with multiple listings. Overall, 45% of visits happen at places offered by hosts with multiple listings.

city_bookings.png

Figure 4: Percentage of visits (bookings) to listings offered by hosts with a single listing, using reviews as a proxy for visits

The Airbnb perspective

There is one more step to take, which is to look at Airbnb’s actual revenue. What fraction of its business comes from regular people and what fraction comes from multiple listers?

To get here, I multiply the bookings (proxied by reviews) with the listed nightly price. Again, it’s not a perfect measure but so long as regular hosts don’t overall have longer- or shorter-stay guests compared to other hosts, it should give a reasonable picture.

Figure 5 shows the percentage of Airbnb’s revenue that comes from regular cities. Only three cities have over 60% of their revenue coming from hosts with a single listing. Overall, 44% of Airbnb’s business comes from hosts with more than one listing, which is slightly up from 42% in November (the increase may not be significant).

city_revenue.png

Figure 5: Estimated percentage of Airbnb revenue from hosts with single-listings

Airbnb listing types

The story of Airbnb emphasizes the casual “airbed” rental, but this is a very small part of Airbnb’s business. Again, there are a couple of ways of looking at the data.

Listings by room type

Every listing on the Airbnb site is listed as one of three categories: a private room, a shared room, or an entire home/apartment. Figure 6 shows the breakdown in each city. It is clear that shared rooms are a negligible portion of the total: about 1 in 50 listings are shared rooms.

city_listing_roomtype.png

Figure 6: Number of listings that are private rooms, entire homes or shared rooms

Visits by room type

Figure 7 shows the visits by room type, using reviews as a proxy for visits again. Shared rooms are an even smaller percentage of the whole: only 1.4% of Airbnb visits are made to shared rooms.

city_booking_roomtype.png

Figure 7: Number of visits to private rooms, entire homes or shared rooms

Revenue by room type

Using reviews * price as a proxy, Figure 8 shows the percentage of revenue from each room type. The revenue that comes from spare couches and shared rooms is a mere 0.56%.

city_revenue_roomtype.png

Figure 8: Revenue from different types.

So what?

  • The data show that Airbnb is consistently economical with the truth when it describes its own business. It’s a long way from being just “regular people” and there is a lot more business coming from multiple-listing owners than they let on.
  • The data say that it’s time commentators and the media stopped using the”Couchsurfing” narrative for Airbnb. At less than 1% of its business, the couchsurfing model is irrelevant for what Airbnb is today. It’s far more like HomeAway than it is like Couchsurfing.
  • If there is a novelty to Airbnb’s business, it’s that it collects property managers, individual renters, and occasional renters under one roof, just as Amazon can offer best sellers, midlist authors and self-published obscura in the same place. And while much of the talk will be about the long tail of rooms, the reality is that Airbnb is pushing for the professionalization of its hosts, and we’ll see more of that over time.
  • Other conclusions to come after we see the rest of the data.
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14 Comments

  1. Fixed It For You

    RE: “sharing-economy companies”: “P2P Marketplaces.” -FIFY

  2. “If there is a novelty to Airbnb’s business…”? The novelty is that they enabled the less than 30 day rental market. It is a reservation system much like the Sabre airline reservation system but using modern technology (web, mobile, and social/crowd) that has removed the previously prohibitive costs of matching short-term buyers/sellers.

    Your stance depresses me, Tom. You are inadvertently enabling the very thing you are fighting against. When a novel new voluntary economic activity requires that a long line of gatekeepers/regulators/special-interest-groups be paid off then the only viable business model is one that depends on large amounts of capital to protect against future legal attacks. In my opinion, NY State and it’s Attorney General are no different than Patent Trolls. The options are to clarify/fix an outdated and objectionable law or extend the reach of this law and apply it inappropriately, and they chose the latter.

    For me, your analysis is equivalent to a social conservative analyzing Craigslist for the content of their adult boards. You are championing an immoral cause in my eyes because you object to the voluntary behavior of others.

    To reiterate an analogy, the NY State “illegal hotel” law applied to Airbnb is morally equivalent to historical sodomy laws. I’m quite sure social conservatives didn’t perceive the sodomy laws as immoral either.

    • Context, RAD, context. You lack it.

      AirBNB’s problem in NYC is specifically that it didn’t “enable the less than 30-day rental market.” The problem is that there had been a thriving less-than-30-day rental market before AirBNB arrived, and local residents were trying to stamp it out.

      In the early 2000s, property managers and landlords in NYC realized they could make more money renting apartments by the day rather than by the month. So they would hand blocks of apartments over to vendors like WooGo (Raz Ofer), Toshi (Robert Chan) and Signature Suites who would bundle them up and sell them through standard online channels like Expedia.

      Neighbors and local politicians revolted. New York has a hideous housing shortage, and locals couldn’t stomach the idea of apartments being taken off a very tight market, especially when the buildings were all permitted as long-term housing rather than hotels for out-of-towners. Locals complained about misbehaving tourists in their halls, and in some cases, about being pushed out by landlords who saw greater profit in daily rentals.

      This led to the formation of the Illegal Hotels Working Group in 2005 and the eventual passage of the illegal hotels law in 2010. And as Skift’s research showed earlier, as soon as AirBNB came to NYC, those bad actors (represented by property managers with multiple listings) just switched platforms over to AirBNB. The law isn’t “outdated” – it exists to solve a specific problem that AirBNB was perpetuating.

      Now, if AirBNB was really a platform where individuals occasionally rented out their apartments when they were out of town, we wouldn’t be having this discussion. But go look at Tom’s stats. 40% of the money is coming from people with multiple listings.

      • Sascha, I had previously read through what you consider important context and I understand these negative externalities. I’m sure that every taxi medallion system started with the premise that the regulation was required to protect customers/visitors. These systems morph over time into monstrosities with negative externalities that dwarf the original harm that was supposed to be addressed.

        Airbnb is not a landlord (they are a matching service). The 2010 “illegal hotel” law is government overreach and it is egregious to apply it to a third party like Airbnb.

        I am not promoting Airbnb but warning against the morphed monstrosity that Airbnb will become if enabled by ever expanding regulatory reach (think taxi medallions). I am not defending venture capital but warning that only venture capital funded businesses can survive when faced with baseless legal attacks launched by elected officials. I am not objecting to government but to the scope of government.

  3. RAD: If the matching problem were the only issue at stake, I’d agree. But it isn’t, which is why I write about this and not about eBay or Kijiji or CouchSurfing. If there is a novelty to Airbnb it’s to take an informal activity and to turn it into a commercial market (as a subset of their overall business). It would be sad if the outcome was to make the previously unregulated informal sector untenable, but I fear that may happen. The existing law in NY is neither outdated (it is less than 5 years old) nor objectionable.

    I would guess that you have little time for minimum wage laws, rent control, or other regulatory actions that limit the scope of free markets, but I have a bit more faith in the ability of democracy to solve complex problems than you do.

    • What I have little time for, Tom, is groups using the power of democratic institutions to promote their own hobby horses. This applies equally to “conservative czars of culture” and “progressive protectors of the plebeians”.

      I don’t deny the existence of negative externalities but I am highly skeptical of the ability of the conservative czars and progressive protectors to influence the common good.

      • I heard an interview with theatre director Peter Sellars the other day and he said that “democracy is a high-maintenance project”. I’d agree with that, and it is open to capture as you say. I think the response is more maintenance, rather than venture-capital funded consumer-driven change. But that’s a very big argument that we need to pursue over beers.

  4. RAD: I live in an historic residential area where one guy bought a few houses – evicting 5 sets of tenants, by the way – and began renting them to large groups. The parking, trash, noise, and general inconsideration for those of us who are not on vacation, who actually live here, has been infuriating and has really disrupted our little neighborhood. When I bought my house, part of the consideration in making that enormous investment was the zoning of the area, which prohibits hotels. Those of us in the trenches don’t consider ourselves special interest groups, or gatekeepers. We are simply people who don’t want to see our neighborhoods (or buildings, as the case may be) hollowed out by this practice. We want neighbors. It’s that simple.

    • HBee, I live in a home with a historical Bed & Breakfast next door that is often used for outdoor wedding receptions. I also spend time at a summer cottage on a lake with many “camps” with temporary vacationers. I understand and have lived with the “parking, trash, noise, and general inconsideration” issues you raise. It is nice to live in a neighbourhood where everyone has the same usage/work patterns but its unrealistic to demand it. I’m not against zoning, parking/noise by-laws, and general consideration for others. The issues you raise are age old, owners vs. renters, temporary vs. permanent residents, my-use vs. your-use.

      Private cottages on lakes are often rented out for one or two weeks. If one person owns more than one cottage that is rented for periods less than 30 days does that turn this cottage into a hotel? Would you insist that cottage owners stay in the cottage with their renters? Would it be right if, a decade ago, you went after the classified ads in a newspaper that included multiple cottage listings with the same phone number because the newspaper is breaking “hotel laws”?

      I don’t see the claimed simplicity in your argument. You belong to a special interest group even if it doesn’t feel that way (just like I am). You are also creating extra gatekeeper power for the government officials, think taxi medallion system here. The NY State Attorney General wants Airbnb to act as Tax Collector, Regulation Enforcer, and Statistician even though Airbnb does not own any property. That horrifies me. Airbnb will not only survive, but probably thrive after a deal is struck simply because they have deep pockets to pay off the gatekeepers and the system will morph into a medallion-like system. That depresses me.

  5. RAD – when the building next to you is no longer occupied by people who live there, but by an ever-changing stream of paying visitors, it has ceased to be a residence and has become a commercial operation.

    Neither I nor my neighbors are making any demands that everyone conduct their lives in the same ways. In fact, we are an incredibly diverse bunch in terms of age, race, employment, and interests. Nor is there any tension between owners and renters in our area, as you subtly suggest.

    Your example of the lake cottages isn’t relevant to the point I’m making, which is that zoning is supposed to determine what happens in an area. If you bought a lake house knowing that short-term rentals were legal, that’s just fine. But in areas where this kind of thing is illegal, it’s not a “special interest” to want to see rules enforced.

    • HBee, why is a 1-12 month lease of a residential property not commercial? My example of lake homes is exactly relevant and I could have used other examples that I’m familiar with. Your historic neighbourhood attracts short-term visitors. Perhaps this is new in your neighbourhood but it is far from unique for a tourist destination. I’ll believe your self-proclaimed love of diversity a bit more when it extends to people engaging in voluntary economic activity that you don’t like.

      Tell me, if you were visiting Bermuda for two weeks, would you prefer to stay at a hotel/resort or a historic private residence? Can you not see that some people might prefer the private residence specifically because it is not a hotel and because interacting with local permanent residents is part of the charm?

  6. RAD – My preference on where I’d like to stay while on vacation has as about as much to do with this as does how fast I’d like to drive when I’m there.

    I don’t get to set the rules.

    The places – which in this case are, inherently, the products being sold – do. And in my city, like many others, we’ve drawn a line between short and long term rentals. There are oodles of spots zoned for hotels and I don’t bat an eye when one opens.

    It’s not a dislike of short-term rentals that is my concern here. It’s my dislike of the illegal ones.

    • HBee, you may not set the rules but you have the power to influence them. If you truly believe that residential properties should not be allowed for periods shorter than 30 days then that is the case you should make, preferably with a new law, not by re-purposing existing laws that are at best peripherally related. You keep insisting that hotel zoning laws apply but you don’t make your case for the distinction between renting a residential property for 2 weeks (which you call a hotel) vs. 4 weeks (which you call a neighbour).

      Social Conservatives make the same arguments that you do about adherence to existing laws, they don’t dislike immigrants just illegal ones, etc., etc.

  7. HBee and RAD: I feared the conversation might fall into recrimination, but thanks for keeping it constructive and focusing on the issues. There’s a lot of complexity here. I don’t know if many others are reading, but I’ve found it a helpful conversation.

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