What Marketplace Product companies can learn from Airbnb
I’ve been following Airbnb for years, and I think it’s an outstanding example of a successful marketplace product company. Airbnb lost 80% of its business in the span of a few weeks when COVID-19 hit but was able to rise from the ashes. I’ve learned several lessons from Airbnb over the years and will share some of them here.
Playing the right game
There are three big product games:
Attention (think social media)
Productivity (think Microsoft)
Transactions
Most marketplace companies are Transactions companies (think Uber and Instacart). Airbnb too is a Transactions company and its North Star Metric is/was Number of Nights booked. This business model and north star allow Airbnb to be aligned towards the success of both sides of its marketplace.
Airbnb has also benefited from the network effects of a consumer product marketplace. Their very initial success was in cosmopolitan NY. From there, hosts would tell their friends about Airbnb, friends would become guests, people would come to NY as guests then go back all over the world spreading the Airbnb idea with them, and guests would sometimes become hosts themselves. Then it wasn’t just NY.
However, Airbnb didn’t start out as a Transactions company. True to the stages of Marketplaces that Andrew Chen defines, Airbnb started out as a directory. It was a directory of places you can stay when there is a big event that’s likely to max out hotels. They then added payments and matured the experience to an end-to-end one. According to Chen, we are now in the “Managed Marketplace Era” where marketplaces take on additional value-add beyond being just an intermediary. Which is indeed what Airbnb is doing now with its current focus on Experiences and remote work.
Agility
Airbnb has been successful in staying close to its users and changing course based on market feedback. Here are some examples:
Aibnb’s very initial idea was to focus on cities hosting big events, and people using a spare room/air bed (hence the name) to host attendees that couldn’t find a hotel. But then people started asking if they can use the service outside of events. The rest is history. Fast forward to 2021 where big-company Airbnb has a mature experimentation culture and famously ran 700+ experiments per week!
Airbnb used to be big on photos and names as a way for hosts to trust guests, but now hides guest photos until a host accepts a booking in order to avoid hosts rejecting guests based on racial discrimination. This was not an easy decision, but a drawn out process that you can read more about here.
Airbnb had a difficult time during COVID. They lost 80% of their business in the span of a few weeks. I admired the fact that Airbnb chose to refund guests who had to cancel because of COVID in the spring of 2020 (I was one of those people). However, Airbnb was able to go public during the pandemic, restructure the company to be leaner, come up with a vision of how post-pandemic travel will be different, and execute on it.
Innovation/Focus
Perhaps counterintuitively, I see Innovation/Focus as two sides of the same coin. Steve Jobs famously said “People think focus means saying yes to the thing you’ve got to focus on.. Innovation is saying ‘no’ to 1,000 [good] things.”
Airbnb has consistently innovated in a focused way, showing vision and direction from leadership. For example, the status quo paradigm for travel websites was flights + stays. As Airbnb grew and looked to expand, its leadership consciously chose to stay away from flights, despite flights being a “natural” vertical expansion to the Stays use case. That’s because the flights space is commoditized and there’s little value for Airbnb to add.
Instead, back in 2016, Airbnb launched Experiences, allowing users to book activities related to their Stays -both a new source of revenue and a way to affect Airbnb’s north star of nights booked. Then the pandemic hit and Airbnb halted its investment in (physical) Experiences. However, Airbnb launched online experiences only a few weeks after the world came to a stop; April 9th 2020, to be precise (here’s more to Airbnb’s agility!). Fast forward to 2022 where Brian Chesky announced the picking up of investing in Experiences as part of Airbnb’s vision of post-pandemic travel.
Last words
This post has been fairly flattering of Airbnb, and has ignored aspects of Airbnb’s business such as its effect on rental prices and housing availability. I also have questions about how niche/narrow the focus use cases of experiences/long stays are. That said, Airbnb is a wonderful example of a marketplace product company that’s playing the right game. Airbnb has been able to change and respond to user needs and changes in its ecosystem, and to consistently innovate for a duration of 15 years. There is a lot for us to learn from Airbnb.
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Sources
What’s next for marketplace startups? Reinventing the $10 trillion service economy, that’s what.
How Airbnb Disrupted The Hospitality Industry
Every Product Needs a North Star Metric: Here’s How to Find Yours
North Star Metric - Guide (with examples)
Airbnb CEO says he's not focused on share prices
Airbnb Answers: Guest profile photos
What data experiments tell us about racial discrimination on Airbnb