How Airbnb makes its money

The San Francisco Chronicle did an interesting analysis recently of Airbnb listings in San Francisco in an attempt to see if Airbnb’s narrative about who its hosts are is true. Airbnb tends to tell the story that Airbnb hosts are renting extra rooms to make ends meet and in some cases to pay their mortgage. They’re your average Joe or Jane sharing their space and participating in the burgeoning share economy.
The analysis found 5,000 listings in San Francisco of which two thirds were the entire home or apartment. 160 homes or apartments were being rented full time, suggesting these are locations being run as effective hotels. Another third were being used as private rooms at an average price of $116 per night. Two thirds of listings had fewer than 10 reviews, suggesting occasional use. While a quarter had 11 to 50 reviews. 6 percent of listings had more than 50 reviews, consistent with heavy use.
Importantly 86 percent of hosts had a single listing which is important to those arguing that Airbnb isn’t becoming a short term rental hub managed by property managers/landlords out to exploit the higher returns from short term rentals. Still 1525 of the 5,000 properties are controlled by hosts with multiple properties. The top ten hosts controlled 248 listings. This appears to be a consistent trend in Airbnb–a portion of the listings are being managed by pros.
An analysis by Tom Slee that collected data on 90,000 hosts and 125,000 listings in 18 cities found that over 80 percent of Airbnb hosts have a single listing, which suggests a bunch of apartment owners earning extra cash on the side. But almost 40 percent of properties were controlled by hosts with multiple listings, suggesting there is a definite group of property managers using Airbnb to manage groups of short term rentals. What’s likely occurring is a small group of property managers that are responsible for lots and lots of bookings and multiple properties.
In the end whether Airbnb is enabling illegal hotels will not be enough from my perspective to stop the company’s march. The hotel lobbies have been complaining about a new illegal, unregulated competitor in the market.
But I actually think the hotel lobby’s problem isn’t the competition brought by Airbnb. The long term problem is actually a shift in consumer behavior. I’ve noticed even my parents, who are not tech savvy 60somethings, are choosing to stay in apartments when they travel, particularly when they’re visiting a city they’re already familiar with.
The value of a hotel is often in its location and the services it offers. But if you consider that smartphones have made it much easier for individuals to locate services they want, hotels’ value declines. Need to find a good restaurant, hours at the local museum or even a gym. A smartphone can do all this in an efficient way that includes a map, and sometimes better than a hotel can. And if competitive value comes down to location, Airbnb competes well because it has access to any neighborhood it wants to since there are apartment owners looking to make additional cash everywhere.
The risk for Airbnb is wholesale bans, which I consider highly unlikely. (I consider Airbnb’s regulatory challenges in a comparative analysis with Amazon’s sales tax fight in “What investors should know about policy and the share economy.”) There could be some attempts by cities to go after those using apartments as full time rentals, which would shave some revenue off Airbnb’s top line and annoy investors. But there are also risks for cities in being perceived as anti innovation, particularly since it’s clear consumers really like Airbnb’s product and that it likely does enable tourism.
In the end my expectation is regulation and taxation, which Airbnb has indicated it’ll go along with. Unlike Amazon it won’t be able skirt collecting taxes for a decade. But the truth is that collecting taxes will keep city council folks happy while further legitimizing Airbnb’s impressive growth run.

Meet the man who’s beating Airbnb in Europe

European vacation rentals site HouseTrip has everything going for it right now: not least fast growth and a fresh new round of funding. Co-founder Arnaud Bertrand lays out why he thinks his site can carry on winning — and reveals the scale of his ambition.