Here’s why Airbnb isn’t worried about New York’s crackdown

Here’s why Airbnb isn’t worried about New York’s crackdown

By Brian Fung, Updated: November 15 at 2:17 pm

Airbnb has been on a tear lately. On Tuesday, the service that connects travelers with private rooms for rent announced a slew of new features designed to streamline its experience for hosts and guests. But the company is alsoembroiled in a legal fight with the New York attorney general, who is concerned that some landlords are abusing the service and renting their properties illegally. On Thursday, I sat down with Airbnb co-founder Nathan Blecharczyk to talk with him about the issue and about what else the company has learned by putting up 150,000 people a day. The following transcript has been edited for length and clarity.

Brian Fung: Give me a sense for where you’ve been and where things are headed.

Nathan Blecharczyk: We’ve only been around for five years. And it took four years to service our first four million guests. And in the last nine months we’ve serviced five million more. So in the last nine months we’ve done more business than in the four years prior. So the exponential growth has been a little bit mind-boggling, and when we talk about New York we’ve kind of gone from not many people knowing about us necessarily to suddenly, “Wow, where’d that come from?”

We have about 150,000 people staying in other people’s homes every single night. There’s about a half-a-million properties around the world — 192 countries, 40,000 different cities. So, just immense scale and immense velocity. When you look at the kinds of properties you can stay in, it’s everything from people’s bedrooms to entire homes, entire homes being the more common case. And there are also a lot of novel things — we have 600 castles, we have boats. Treehouses are among the most popular properties.

Most of the people who are doing this are doing this for the first time. They’re renting out their primary home. It’s like 87 percent of our hosts are renting out their primary home. In terms of where this is headed conceptually — we’re not just a provider of accommodation, we’re a provider of experiences. And so we’re thinking about, How do we make those experiences meaningful in terms of being local, authentic?

With so many of these transactions happening every day, you obviously have a wealth of data at your disposal. What kind of lessons have you drawn, or patterns have you noticed from users’ behavior?

That’s absolutely right. There’s no other travel company that’s been as end-to-end in terms of being there with a customer. We’re there during the discovery process — where do I want to go — to comparing where you want to stay in. We see what you look at; then we see what you ultimately book. We see the dates, when you’re out and about. Fifty percent of our travelers are already opening up the app during the trip, and then afterward we collect the reviews.

When you think about Kayak, TripAdvisor, Hyatt, all these other travel companies, they all represent specific vertical moments in that life cycle, but none of them have an end-to-end picture of what the customer is doing. We do. And using that information we want to be able to personalize our services, our offering, going forward. In terms of what we’ve seen so far, it’s more around maybe pricing recommendations for our hosts and seeing the balance of supply and demand and how the marketplace functions.

Are there good examples where you’ve seen that economic activity at work?

The most basic example is seasonality. Another example is how when people build their reputation they actually charge more. So our recommendation to users is that they start with a lower price, accumulate a reputation. But then some of these properties become almost legendary because of the reviews and how unique they are. Then they really have to raise their price in order to deal with all the inquiries, basically. So I think that’s been interesting to watch.

Are there cities you’ve found where this model really works? And which cities might those be?

The impetus for a lot of hosts is that they have a specific economic need. That’s what clicks in their head. It might be their mortgage; it might be medication payments; but they suddenly have a need for extra income. … And we see, like in southern Europe, a lot more adoption I think because of the economy than, say, in northern Europe, the Nordics. The U.S. is somewhere in the middle. So there’s definitely a tie-in to the economy and how that’s doing when you see the host uptake.

There’s a lot of stories about how people have taken this money and then used it to fund their startup, fund their bakery, pursue other passions of theirs. I like to think of our hosts as micro-entrepreneurs.

How do you see governments adapting to the sharing economy? It seems like New York is a case where the government hasn’t really adapted very well.

It’s too soon to tell. I’m actually very optimistic about New York. I think it’ll be totally fine. What you find though is this could be a little bit bumpy. New York is not just one thing — you have the attorney general, you have the mayor, you have the tax office, you have the enforcement office. There are a lot of stakeholders, all kinds of primary objectives and levels of awareness. What we find is, once we meet with cities and we share some of the positive impacts they may not have thought of, and structure the conversation around what are their concerns, we usually get through this. Some good examples are, in Amsterdam earlier this year, it had similar issues as New York.

All the changes we’ve seen so far [in cities such as Amsterdam] have been positive, but the issue is that it’s so fragmented — 40,000 different cities — that we’re having a lot of conversations in parallel. And it can be a little bumpy.

One of the big concerns in New York is taxes. We actually think our hosts should pay taxes, even though the activity is a little different, we think it’s kind of inevitable that this is the reality. And it’s in no way going to be detrimental to our business. So what I explain, though, to cities is that when our hosts go to pay their transient occupancy tax, and they get the paperwork, the paperwork asks questions like what’s your hotel named, what’s your business license, and that’s a dead end. They don’t know how to proceed. If we can streamline that process, then remittance won’t be a problem.

I think a good example of it not being a problem is at the federal level. With income tax, we file 1099s on each of our hosts. So all of our hosts currently pay federal income tax on that money. Why can’t it be that easy at the city level to do the same thing?

It seems like, for a startup company, having to deal with regulatory problems isn’t something that you might expect a company like yours to have to deal with.

I think it’s a high-quality problem. It’s — if we weren’t having big impact, this of course wouldn’t be an issue. So other companies that have become great companies have gone through similar issues. It’s almost everyone you name. YouTube — remember the controversy when people were uploading basically pirated videos and such? YouTube was able to turn that around and turn it into a monetization instrument for movie studios. But when the movie studios saw that, they said: “No, shut it down. The whole business is built on something that shouldn’t exist.” And[YouTube]  said: “No, this is actually an opportunity for you. Let us show you the way.” And they were very proactive in leading, and we want to be proactive in leading, too.

The Electronic Frontier Foundation recently filed an amicus brief in support of your case [in New York City]. Did you ever expect that this would become about civil liberties?

I’ve never done anything like this before. It’s all somewhat new to me. I will say that I was just in London and Berlin. What’s happening in New York City has global ramifications. That’s the thing with the Internet. You make these really local rules that have to do with the Internet, but they affect everyone everywhere. Our users in London and Berlin are very concerned about if you turn over data to the government of New York, what’s to prevent you from turning over our data to them or someone else when they come up? It sets a precedent that has ramifications on a global scale, and I think that’s easy to overlook.

What do we know about folks who rely on Airbnb as a significant source of income? What’s the magnitude of Airbnb’s contributions to their livelihoods?

In a place like New York, the average host is below the median income. About 50 percent of them do not have full-time employment. They’re either unemployed or do freelance work or some kind of temporary thing. More than half of them use the money to pay for mortgages, food, bills, stuff like that. There’s certainly plenty of anecdotal stories we’ve collected, and one of the things we did on Tuesday is launch Because the stories are so powerful. … People don’t usually understand that aspect until they use it. They see the very utilitarian value of, okay, maybe I can save a bit of money, maybe I can get a cool place. But what they underestimate is the human connection that’s formed when someone hands you the keys and welcomes you into their home, shares what’s special about their neighborhood with you. That human connection is kind of our secret sauce. It’s responsible for a lot of our growth.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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