Airbnb’s Hidden Challenge: Its Own Community

Published on Triple Pundit:

Since entering the mainstream, Airbnb has faced a host of challenges that could derail it from realizing the $1 billion annual revenue Forbes predicted. As well as legislators very publicly calling for enforcement of tax avoidance, commentators also accuse Airbnb of accelerating gentrification. But there’s a hidden challenge which could already account for significant hidden revenue loss. The Airbnb community itself erodes the company’s revenue by avoiding fees through “off-site” deals. But the motivation behind these deals could be transformed by altering Airbnb’s business model.

Ironically, doing so could also indirectly address those other challenges too.

Hidden revenue loss

Around 80% of people I’ve either hosted or stayed with on Airbnb have offered off-site deals, i.e. tried to avoid fees by organizing outside the platform. Almost all mentioned they’d done other off-site deals. As many were for longer trips than the original booking, they would have generated higher fees for Airbnb, so this represents significant, ongoing potential revenue loss. It also marks a breach of trust, purely spawned by differing profit interests between Airbnb, the company, and Airbnb’s community.

Airbnb’s response

Airbnb polices these off-site deals rigorously. I’ve received messages informing me that booking enquiries have been blocked because a user tried to contact me regarding an off-site deal. They clearly reminded me to abide by the site rules – and fees. Airbnb also automatically blocks any websites and email addresses from its postings.

I don’t entertain off-site offers for practical and idealogical reasons. Having helped to set up (the first crowd-funding site for ethical projects in the U.K. and another peer-to-peer platform), I believe Airbnb has been very skilfully set up to facilitate trustworthy behavior — offering insurance, a help line and numerous verifications. I’m also a big fan of the the service model’s potential to shift value away from corporates towards communities. But I’m sure plenty of other hosts don’t share this perspective. So, off-site deals are likely to continue while the business model continues to focus on generating profit for its private and venture capital owners.

An alternative

Instead of the widely predicted IPO route, Airbnb could actually increase its revenue by becoming a Subchapter T, or co-op, a suggestion outlined by California lawyer Janelle Orsi. This would transform the motivation for off-site deals through surplus profit-sharing and a shared sense of owned responsibility. Like Orsi, I’d be thrilled to make an investment or contribute a percentage of every transaction towards community ownership.

These community-owned models aren’t new, marginal or incompatible with the type of revenues Forbes predicted for Airbnb. Both REI (a co-op based in the U.S.) and John Lewis in the U.K. (a High Street shop owned by its employees) have multi-billion dollar annual revenues.

Wider impact

Off-site deals are hardly the biggest challenge for Airbnb – but becoming a Subchapter T could indirectly address those seemingly bigger challenges, too. The shared sense of formal responsibility could encourage hosts to pay taxes on their rental income and discourage illegal sub-letting. This could check Airbnb rental incomes – which critics say are increasing property prices and gentrification in some neighborhoods.

While the wider impact is speculation, Airbnb shifting towards a triple bottom line model might not be as far off as it sounds. Wired recently featured Fast Co. editor Ariel Schwartz’s prediction that a public company would become a B-corp in 2014. Before January 2014 was up, Schwartz wrote an article on the first purchase of a B-corp by a public company. Campbell’s purchased a healthy baby food company that is bound by its corporate charter to maximize social and environmental responsibility.

Supporting infrastructure

Infrastructure is emerging to support these triple bottom line business models. The long-awaited Obama American Jobs Act aims to support crowd-sourced equity. This could support businesses transforming their ownership model, as well as provide a funding path for early- and mid-stage organizations to avoid the venture capitalist model Airbnb is built on. Education is catching up too; alternative economic models are now widely included in the syllabi of top universities.

But I have an inkling the most effective solutions for the challenges these business models are likely to face will come from outside the traditional education models. Massive Online Open Courses (MOOC’s) such as Udemy offer flexible and affordable online courses anyone can access. For more depth, the Institute for Leadership and Sustainability offers a rather maverick, experiential-learning approach in its PGC and MBA courses — summed up by its director who asks, “Why do academics make it so boring?” Its modules (like sustainable exchange – which includes peer-to-peer models like Airbnb) are taught both remotely and outdoors in nature. It can even be paid for in Bitcoins.

Sell out, loose out

Right now I’m still head over heels in love with Airbnb – despite the shortcomings I see in its model. I’m writing from San Francisco (Airbnb’s headquarters) on a trip made possible because I host and guest with Airbnb.

As well as helping me achieve a lifestyle I’ve dreamed of, I believe Airbnb could be part of a shift towards a flatter, fairer economic landscape. But, if Airbnb continues to pursue profit, or if was aquired, I’d think twice about accepting off-site offers. I wouldn’t wax lyrical about the platform – converting a dozen friends into regular Airbnbers. And it wouldn’t be hard for one of Airbnb’s competitors – or a new one — to take advantage of this by establishing a more trustworthy model. The extraordinary passion I’ve met amongst other Airbnbers has persuaded me that a significant, and highly active, section of the community, would very simply dump Airbnb on the spot too.

But I trust Airbnb. For now.