Livelihood Local Economy New Economics

Economies Built on Trust

Sep 07, 2017 CWN

The Micro- & The Macro-Story of Airbnb

By Paul Smart

    There’s been much talk about Airbnb in the Hudson Valley of late. Counties are arguing about how to draw taxes from it, as they do from hotels, motels, and old-style bed and breakfast establishments. Towns are worried about liability in situations where the entities aren’t covered in their zoning laws—and looking at potential income from licensing and other fees. Meetings where the subject of Airbnb comes up get boisterous very quickly; some cite scary stories about kids using people’s homes for partying; others talk about the ways in which the phenomenon has helped them meet home expenses, and bolstered the economy in otherwise-strapped communities.

    A vast majority of those reading this piece have stayed at Airbnb apartments and homes as a first choice when traveling. Almost as many have rented out spaces as landlords, or pondered doing so.

    What’s the story, on micro- and macro-levels?

    The corporate story starts in the Fall of 2007 when Brian Chesky and Joe Gebbia moved to San Francisco and decided to make their living room a bed and breakfast haven as a means of covering rent. They bought three air mattresses, served up a simple breakfast, and then created a website to promote their “business.” First night they booked two men and a woman and made $80. Within months they welcomed a third partner, Nathan Blecharczyk, and upgraded their website to airbedandbreakfast.com in summer of 2008, which later changed to Airbnb.com the following spring.

    The idea grew from shared spaces to rentable apartments, homes, tree houses, boats and even castles, and within two years, staff was up to 15. The millionth booking got announced in February 2011; less than a year later they were up to 5 million, which then doubled five months later. Now, after years of public offerings, buy-outs, mergers, and investment, Airbnb has offices in 20 cities worldwide, over 3,000,000 lodging listings in 65,000 cities and 191 countries, and is valued at $30 million (okay, so Uber is considered to be over twice that—but that’s another story).  

    The website works as a broker and filter designed to instill trust between renter and landlord through use of a tight rating and review system. People sign in online; they need to provide ID and a photo. They need to get their phone number, email, address, and other required information verified. All users write as well as receive reviews. The site is free (Airbnb makes its money through service fees).

    Landlords list their space, specify the details of the room or home and its location, set prices per night (and for longer term options), write an overview of the space and its neighborhood, and then upload photos of the rental (or Airbnb sends out a photographer).

    Renters search locations, check in and checkout dates, specify their requirements, and compare pricing until they’re ready to make a request to a “host.” A dialogue ensues, and then a deal struck—yes or no—within an allotted timeframe. Money changes hands electronically at the allotted check-in time. Then more reviews happen on both sides of the transaction.

    Airbnb recommends that hosts obtain insurance, but itself offers secondary insurance, which it calls a “host guarantee,” along with a 24-hour customer service hotline and a task force to review suspicious activity.

    Some fun facts before we get to more personal details: 54 percent of Airbnb guests are female, 10 percent of its hosts are over the age of 60, and about 20 percent of people staying with Airbnb are staying 30 days or more.

    Which is my experience with it. My wife and I cleaned up a spare bedroom and moved my office into what had been an office with a window. We bought a futon couch/bed to augment the queen-sized bed in the cozy guest room, brought in a small fridge, microwave, coffee maker, guidebooks, and small television and DVD player. And boom—our income was augmented.

    Of course, we reached a point where we got a few reviews asking us to make some changes to our space we didn’t want to do. Plus I started asking myself whether I really needed to change the sheet between one-night rentals and decided it was time for a break. Thankfully, that came in the form of a series of long-term rentals that arrived, as well, through Airbnb.

    But what about all the fears we’ve been hearing, especially about partiers, liabilities, and other misuse of the sharing economy so many of us are pushing, while nearly equal amounts provide resistance?

    “We approach trust as a ‘hierarchy of needs,'” noted Nick Shapiro, Airbnb’s global head of trust and risk management and a former CIA deputy chief of staff, in a recent article he wrote to address trust-based economic models in our current age of growing distrust.We believe, in order for you to trust each other, we must accomplish three things. First, safety is fundamental. Without being safe, people will not be able to trust each other. However, just ensuring people are safe isn’t enough. Next, we need to overcome the stranger danger bias that’s been ingrained in us since we were kids. And third, we need our community to know that—no matter what—we have a dedicated team standing by to help resolve any issue that might arise, from a home not being what you expected to a guest who broke something.”

    Lip service?

    Shapiro went over the company’s vetting systems, watchlist checks, home safety workshops, handing out of free smoke and carbon monoxide detectors, and money protections. He talked about tax programs and work Airbnb has done with governments large and small, village to nation, around the globe.

    “While we can’t eliminate all the risk in hosting or traveling, nor can we guarantee safety, we strive to ensure that every host and guest has the best possible experience on Airbnb,” he concluded. “Of our more than 30 million stays in 2016, significant property damage (claims reimbursed under our Host Guarantee program for over $1,000) was reported in only 0.009 percent of stays. At that rate, you could host a new reservation every single day for over 27 years without expecting to file a significant property damage claim under our Host Guarantee.”

    No, Shapiro’s article didn’t get into questions about privacy and such checks, or the effects that short-term rental market surges have had on long-term rental prospects in many cities, including San Francisco (and locally, Woodstock). He didn’t touch on specific municipal questions about liability tied to zoning, or state Republican worries about the legalities of their taxing the shared economy.

    But he did get at one item at the base of the new phenomenon.

    “Many people are just starting to see the value of a trusted community on Airbnb and all of the access it can unlock. Tens of millions of travelers have been able to experience the world not as tourists, but as locals,” Shapiro wrote on behalf of the company he works for. “All of this is possible because of the trust we are helping people put in each other. Trust is the fundamental currency of the sharing economy, and it’s at the heart of everything we do at Airbnb.”