Lessons from Airbnb about business in the sharing economy

Editor's note: Airbnb's Molly Turner will be speaking about the sharing economy at the upcoming GreenBiz Forum in San Francisco on Feb. 26-28.

GreenBiz editor and reporter Kristine Wong spoke with Turner about how the company that created a way for individuals to rent out their residences to short-term visitors has become one of the fastest-growing startups around. At the same time, the sharing economy must take on regulatory challenges that may threaten its growth.

Turner, Airbnb's director of public policy, is an urban planner by training with a background in sustainable tourism development. Before joining Airbnb, she consulted with cities on how to develop a more economically, socially and environmentally sustainable form of tourism.

Kristine Wong: Tell us the story of how Airbnb got off the ground and how it’s grown since then.

Molly Turner: Airbnb was founded by two friends: Joe Gebbia and Brian Chesky, who moved to San Francisco to start a company. Joe actually wanted to start a sustainable business; he’s a serial entrepreneur and started a few other businesses that didn’t take off. They weren’t sure what kind of business to start, though. When Brian moved in with Joe, their landlord raised the rent and they couldn’t pay it. They were wracking their brains on how to pay. It turned out a conference was in town, so they thought ‘Why don’t we blow up some air beds and rent them out to conference goers?’ They ended up getting three conference goers, cooked them breakfast, had a great time and made enough money for their rent. Then they realized they were an airbed and breakfast. So they brought on a third co-founder, Nate Blecharczyk, as the technical brains of the operation. They launched at the 2008 Democratic National Convention in Denver. Since there was not enough room in the city for all the people traveling there, the mayor was thinking about opening up a park so people could camp.

We’ve been growing exponentially over the past two years. It’s just unbelievable. As a two-sided marketplace, we grow because a guest might go home and become a host -- and the hosts earn enough to become a guest. We quadrupled in size in the span of a year. The amazing thing about this model is that it meets the needs of both sides of the marketplace. The hosts are looking for a way to stay afloat and rent their homes to make additional money. Travelers today are looking for more affordable travel – people are looking to have experiences that are more authentic, more local and off the beaten path. There’s a lot of demand for that. Those are the reasons why we've grown without having to do a lot of marketing.

KW: How does Airbnb fit into the realm of sustainable business?

MT: It contributes to social, economic and environmental sustainability. Airbnb does an amazing job on all three of those forms. First of all, I really think we’re socially sustainable because a lot of forms of tourism are created from scratch – Disneyland or Las Vegas, for example, built a destination from scratch. Or you might have a historical context like Chinatown but you’re packaging it for tourists in a nice and neat tidy way, which does not provide as an authentic experience as possible. That has social impacts on people who live there as well as the indigenous culture there.

Airbnb is economically sustainable. We commissioned an economic study in San Francisco and are working on one in New York. There are surprising findings – first is our impact on our community and our hosts, who have real economic incentives to use Airbnb. They can’t afford to stay there [in their homes] because of rising rents or [their homes] are underwater. Whether they’ve just graduated from college or are empty nesters or are retired on fixed incomes, Airbnb enables them to use the assets they already own. Our hosts told us they’re using this to pay for their living expenses. Tourism is the No. 1 industry in a lot of cities, especially San Francisco, and usually tourism dollars are spent on international hotel and retail chains in downtown. With Airbnb, you’re spreading that money to neighborhoods and small locally owned businesses in higher proportions. For example, someone in the Haight Ashbury buying coffee and used clothes rather than spending at the Gap in Union Square of downtown San Francisco. This way, more of every tourist dollar spent stays in the local economy.

Environmentally, maybe someday we’ll never have to build another hotel. San Francisco hasn’t built a new hotel room in nine years and I don’t think it’s a coincidence that we’ve been successful during that time. There’s no way San Francisco can host America’s Cup and other events such as the Olympics without Airbnb. We hope this model of shared space using underutilized existing space will prevent urban sprawl and everything will be used day and night and on the weekend. For example, I will feel guilty if my apartment is empty when I go out of town. That is a great side effect for the environment. We’re a 7x7 [square mile] city and can’t build enough infrastructure fast enough. Maybe we don’t want to.

KW: What are your responsibilities as Airbnb’s director of policy?

MT: I have to advocate for the communities in the city where the concept might be new and not fit in to regulatory frameworks that they have, and also look for a new form of tourism. For example, getting a convention center and expanding it is not the best way to do tourism in regards to return on investment. So we work with cities on pilot projects on how can you develop a form of tourism which has less of a footprint and brings in money at a local level.

Photo of giraffe manor rental listed on Airbnb in Nairobi, Kenya provided courtesy of Airbnb

Next page: Addressing regulatory challenges