Good morning,
The fact that I am now on the road for the summer reminded me that I had a travel-related topic from a couple of weeks ago I had bookmarked to cover.
On to the update:
Airbnb Categories
From The Verge:
Airbnb is rolling out a huge app redesign this summer that its CEO Brian Chesky calls “the biggest change in a decade.” The new changes are rolling out to users in the US today and will let users search for stays based on categories and plan trips that include more than one home.
Airbnb founder and CEO Brian Chesky announced the update, which the company is calling the “2022 Summer Release”, in a video posted on Twitter. The part that got me the most excited was Categories; Chesky explained:
Airbnb Categories are collections of homes organized by what makes them unique. Categories allow you to search by whatever your passion is, and it can lead you to a whole world of possibilities and towns you would have never known to search for. We now have a “Camping” category, or a “Countryside” category. There’s even the “Arctic”, or one of my favorite categories, the “OMG!”, including this yellow submarine.
I know this sounds hyperbolic, but this is honestly one of my favorite new product launches in a very long time; time will tell if it is a big deal, but it certainly has some of the pieces to be just that.
V1, V2, and Categories
A point that I regularly make in the context of new technologies is that the v1 is often disappointing because it simply apes what came before; it’s the v2 that is transformational because it does something that was not possible previously.
My go-to example here is digital advertising. For years we heard about how print dollars were turning into digital pennies, and if you consider the format of early digital advertising, it made sense: print advertisements were laid out next to the content, so it’s not a surprise that the v1 of digital advertising was laid out next to the content. And, unsurprisingly, given it was in a worse format — relatively low resolution screens where the ad usually scrolled out of view — these ads monetized poorly.
What transformed display advertising was the feed: now ads could be dynamically loaded and take over the screen even as they felt less intrusive and more native; moreover, the work necessary to customize the feed was broadly applicable to the work necessary to customize the ads. These ads monetized dramatically better than not just the v1 of digital ads, but than print ads — print dollars and digital dimes became print pennies and digital $10 bills.
The critical distinction between v2 and v1 is that while v1 was an imitation of what came before, v2 was something that was only possible with digital, which brings me to Airbnb Categories.
Another booking site, like, say, Booking.com, could technically do categories; a website isn’t a physical object like a newspaper. What, though, would the categories be, given that most of the inventory on Booking comes from hotels? After all, one of the raison d’êtres of hotels — the reason I always choose them when I am traveling by myself for business — is their consistency. Sure, there are different features — number and size of beds, whether or not there is room service, etc. — but all of these features are a secondary consideration after location. That’s why location and date are how you search for hotels on Booking.com, or any other lodging website, including Airbnb — at least until now.
What makes Categories so compelling is that it provides an organizing principle for users that is completely new: instead of starting with location or even dates you start with the type of experience you want, and filter down from there. This is very compelling from the end user experience, as it is an entirely new vector on which to generate demand; it’s just as compelling from the host perspective, as it provides a means to drive demand for and towards experiences that most users would never even encounter, simply because they would have never thought to search the location in which they are found. To put it another way, this is something that only Airbnb could do, and it is something that deepens the company’s competitive advantage.
This is where I must note that I have long pushed the company to go in the opposite direction — to add bog standard hotels to its listings. I wrote back in 2016:
I wrote in 2015 how Airbnb has digitized trust, allowing other factors in the traveler’s decision-making process to rise to the forefront, including the uniqueness of the experience, price, type of lodging desired, or even the pleasure of well-designed mobile app. Sure, trust still matters, but once it is based less on brand and standalone buildings and more on user reviews and Airbnb’s reputation that changes the competitive landscape.
Note, though, that digitizing trust by no means forecloses the hotel market, which is substantial: while Airbnb had around $1 billion in revenue in 2015, the original aggregators, online travel agents (OTAs) Priceline (including Booking) and Expedia (who between them own nearly the entire market), had 2015 revenues of $9.22 billion and $6.67 billion respectively. And, when considering Airbnb’s market cap, those two companies make much better comparisons than hotel companies; Airbnb is worth more than the U.S.-centric Expedia ($14.56 billion), but still a long-ways off from Priceline ($57.54 billion). [Editor’s note: Priceline is now worth $94.9 billion, Airbnb $76 billion, and Expedia $20.7 billion.][…]
With just a few tweaks to its business model Airbnb can take on the OTAs with a product that has a better front-end user experience, doesn’t need to pay to acquire users (because they already have them), and can direct that savings either to the bottom line or back to hotels (although the OTAs use of most-favored nation clauses could limit this). Oh, and by the way, Airbnb would be the only OTA with a huge selection of couches, rooms, and houses, making their potential offering not just better than Priceline and Expedia, but their market bigger as well.
I should note that Booking does have a good number of home rentals on their platform now; I will also note — anecdotally — that I find it makes the product worse. If I’m looking for a hotel I want a hotel, not a house listing — and it’s easy to imagine this preference running in the opposite direction as well. “Categories” certainly presupposes this is the case: instead of being a more expansive OTA, Airbnb is leaning into being something completely unique; not only is that strategically more defensible, it also holds out the promise of expanding the market, instead of simply taking share. It is notable that, as the parenthetical in the above excerpt notes, Airbnb has gained ground in terms of market cap relative to Priceline (and far exceeded Expedia), validating the company’s focus on differentiation instead of being all things to all people. I will be watching closely to see if Categories continues this trend, even though it might take a fair bit of time for consumers to even realize they have a new way to think about travel.
AirCover for Guests
Another feature Airbnb launched was “AirCover for Guests”; from Bloomberg:
Wednesday morning Airbnb Inc. revealed what it’s calling its “biggest change in a decade.” Beyond modifications to its user interface and nifty new bells and whistles, it’s also addressing one of the company’s greatest pain points: poor consumer protections for guests.
Airbnb will now offer a substantial set of satisfaction guarantees for guests and is staffing up an army of customer service agents to deliver on them. “There are inherent structural advantage to hotels, like product consistency and having a front desk,” explains CEO Brian Chesky over Zoom. “And it’s been an underlying assumption for many years that we really can’t meet hotels in that sense.”
AirCover for Guests is his bid to change that. “We wanted to take some of the uncertainty of Airbnb off the table,” he says, “and make the idea of being one-of-a-kind an asset, not a liability.”
The entire Bloomberg article is interesting, particularly the parts that explore why this initiative makes Airbnb hosts nervous, and what that says about the challenges of running a two-sided marketplace.
What jumps out to me, though, is the bit about trust, particularly this paragraph:
Traditionally, Airbnb will pay out the portion of a booking that a host has earned within 24 hours of check-in. If a guest’s problem hasn’t been resolved by then, the traveler has no real recourse or protection with Airbnb, and the host has little incentive beyond a poor review to make things right.
The phrase “little incentive beyond a poor review” is striking, particularly given how the review system and the fact it digitized trust was the foundation of the 2015 article I wrote called Airbnb and the Internet Revolution; forgive the long excerpt, but I think it is useful:
In the interest of full disclosure, I’m actually writing this post while sitting in an apartment rented through Airbnb. The pictures were ok, but the plethora of reviews were effusive in their praise of this surprisingly large one-bedroom apartment with easy access to the train, so I took the plunge. Indeed, the reviews were spot-on: the apartment is beautiful, and I couldn’t be happier with my choice. One more thing — my family and I are working really hard to keep the place as pristine as it was when we moved in. After all, while I trusted the ratings over the pictures, future Airbnb sublessors will surely care greatly about my rating as well.
There isn’t the sort of community that Chesky promised; I haven’t met our sublessor in person, and likely never will. I don’t know his favorite coffee shops or taco places (or ramen joints for that matter), and I very much feel not at home. But despite that fact, some of the most important trappings of community do exist: the shared mores, and common accountability. My sublessor is incentivized to provide a great place, and I’m incentivized to keep it that way, and that more than anything is what makes Airbnb work. And, by extension, one of the big advantages of hotels — the trust instilled first by the concept and reinforced by the brand — begins to erode.
The commoditization of trust is far more injurious to hotels than you might think: it’s not simply that Airbnb is more competitive on one particular vector; rather, the “trust” vector was by far the biggest priority for both travelers and hosts. Hotels could be infinitely more inconvenient, expensive, or sterile relative to your typical homestay and it wouldn’t matter. In the pre-Airbnb days travelers — and sublessors — justifiably prioritized trust above all else. In other words, the implication of Airbnb building a platform of trust is not that a homestay is now more trustworthy than a hotel; rather, it’s that the trust advantage of a hotel has been neutralized, allowing homestays to compete on new vectors, including convenience, cost, and environmental factors…Here’s the kicker though: without Airbnb I wouldn’t even be making this trip.
Let me make another analogy: in the world of newspapers trust was predicated on having an established brand, editors, etc.; the rise of social networks shifted trust into a concoction based on reputation, the attestations of people you trusted, etc. This was injurious to the old bastions of trust, in part because social media made it easier to see their biases and shortcomings, but social media itself was a victim of its own commoditization of content; over time social networks of all types have found it necessary to invest in increasingly heavy-duty moderation operations. Yes, the question as to the political import of these moderation decisions is a valid one, but any honest accounting of social media at least admits that some sort of moderation is necessary, for spam if nothing else.
“AirCover” suggests a similar evolution for Airbnb: reviews from hosts and guests are, quite literally, user-generated content, with all of the same economic advantages that came with user-generated content for social networks. Suddenly Airbnb was getting trust for free, without having to build brands and physical infrastructure. The ultimate victim of this commoditization, though, was Airbnb — user-generated content is ultimately unstable, particularly to its host. That is why the company is investing in AirCover, which, if you squint, is basically moderation for home rentals.
What will be interesting to observe is to what extent this becomes a drag on Airbnb’s profitability as opposed to a revenue driver in its own right, thanks to end users being more willing to book on Airbnb. It certainly seems that the biggest impact of moderation on platforms like Facebook and Twitter has been to increase costs, with almost no impact on the companies’ overall image; if anything the latter has been degraded, thanks to the aforementioned accusations of political favoring. One assumes — and hopes, for Airbnb’s sake — that yellow submarines will provide more upside.
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