Airbnb OpenAir Summit 2014
Airbnb is hosting the OpenAir summit at its headquarters on Thursday, April 24 at 2 p.m. PT. The agenda includes panels on pricing, scaling, and marketplace matchmaking--as well as conversations with venture capitalists Ben Horowitz and Paul Graham. Join Fast Company's Alice Truong for live updates from the event.
As one of the driving forces of the sharing economy, Airbnb has flipped the hotel industry on its head. With low overhead and rapid growth, the San Francisco startup is reportedly worth $10 billion after a fresh round of fundraising closed last week.
Airbnb has encountered its share of obstacles as it transforms the hospitality industry. New York City considers the service illegal because of restrictions on short-term rentals. Occasionally, rented apartments host orgies or get ransacked. Some cities are also demanding Airbnb hosts pay hotel taxes.
Bringing together different players in the sharing economy, including Uber and Homejoy, Airbnb is hosting the OpenAir summit at its headquarters on Thursday at 2 p.m. PT. The agenda includes panels on pricing, scaling, and marketplace matchmaking--as well as conversations with venture capitalists Ben Horowitz and Paul Graham. Join Fast Company's Alice Truong for live updates.
Airbnb's vice president of engineering Mike Curtis, left, and Ben Horowitz, general partner at venture capital firm Andreessen Horowitz
Panel on payments, from left: Ian Logan of Airbnb, Gilad Horev of Eventbrite, John Collison of Stripe, and moderator Owen Thomas of ReadWrite
Three questions about payments for marketplacesShould a company buy or build its own payments solution?"I think the build versus buy question, not just in payments, comes down to: You can probably buy unless there are things you can't do with what you're buying or the cost is prohibitive," said Stripe cofounder John Collison. He points to companies starting out leveraging Amazon Web Services unless they "have specialized performance needs or get to the scale where the cost gets prohibitive." Gilad Horey, risk manager of Eventbrite, pointed to the company's acquisition of Argentina-based Eventioz for its cross-border payments solution.What are considerations in terms of payments when going international?Airbnb supports more than 65 currencies for hosts. Engineering manager Ian Logan says it is important to have a "solid source of data for foreign exchange rates" that updates frequently. As the company grows, he says it is moving from a model that processes payments in bulk. "Over time, it doesn't work," he said. "In Airbnb's case we're trying to transition from a bulk-processing model to a stream-based processing model."Collison emphasized ease for consumers, which means converting amounts in local currencies to avoid confusion. "Imagine if you're a European user or South African user or Australian user, and you're seeing the price in this funny currency. It's going to cause this huge drop-off rate," he said.What about Bitcoin?Logan said Airbnb doesn't settle in or support Bitcoin, but "perhaps we can provide BTC as a display currency," so users can see the figure in the virtual currency. As part of Stripe's goal to support all currencies, it recently began accepting Bitcoin payments. "Obviously we think it's worthwhile," he said. "We live in a society that has a high penetration of [credit] cards, but that's not true of the world."
Airbnb software engineer Surabhi Gupta talks about marketplace matchmaking.
Airbnb has 11 million guests who on average spend three days considering 20 listings before booking a stay. "You're putting a lot into that one experience, so you want to make sure you're in that perfect place," said Airbnb software engineer Surabhi Gupta.The first step to marketplace matching is search. "It's important to think of your flow and see how to break it up and see how to get aggregate user information," she says. When running tests, Gupta says it can be hard to evaluate experiments in isolated geographies and suggests companies run market-level tests (say, San Francisco).Location is another important criteria, more specifically neighborhoods. Pointing to a heat map of Airbnb listings in San Francisco, she says there are certain neighborhoods with high density of offerings--such as Nob Hill, Lower Haight, and the Mission--but the company has noticed number of listings don't always correlate with guest preferences. While the Mission, for example, has high supply, it is not as desirable because of its geographic location is further south in the city.Furthermore, it's important to focus both on guest wants and what hosts can offer. "Bookability doesn't just depend on the guest characteristics," Gupta said. "It's important to recognize with a two-sided marketplace we have to look at the entire ecosystem." To evaluate bookability, the company looks at host stats: reply rate, response time, acceptance rates.
"At no point does our algorithm optimize for revenue," said Uber's senior data scientist Henry Lin about the company's surge price policy. However, he says the system optimizes for something similar: efficiency.Uber's senior data scientist Henry LinBefore there was an algorithm, there were arbitrary price hikes, he said. In its early days, he said the company raised fares by 0.25 times periods of high demand and saw how clients reacted. Now, Uber adjusts its algorithm about every six months.Or as the moderator Drake Baer, a reporter at Business Insider (previously at Fast Company!) put it: "You threw what's out there, you saw what stuck, and iterated."From left: Moderator Drake Baer, Uber's Henry Lin, and Airbnb's Dan Hill
Airbnb's product lead Dan Hill
"People have this great disconnect between what they think their place is worth--because it's their space and it's their most sacred possession--versus what they would pay if they were traveling," said Airbnb's product lead Dan Hill.Like Uber, Hill said Airbnb's goal isn't to maximize revenue but to increase host engagement. Predictive pricing, prices suggested to hosts, aims to help hosts get more bookings.
Panel about scaling and growth. From left: moderator Ryan Lawler of TechCrunch, Homejoy's head of product Annie Chang, Box's senior vice president of engineering Sam Schillace, and Airbnb's growth manager Gustaf AlstromerWhen should a company start thinking about growth?"It kind of depends on when you feel the core offering is up to a standard that's ready to scale," said Annie Chang, head of product at Homejoy, a homecleaning marketplace. She said the company looked at cleaner and customer satisfaction before deciding to focus on growth. Box's senior vice president of engineering Sam Schillace agreed: "There's no point in doing it if they're not sticking."What metrics are important?Across the board, the panelists say it depends. For Airbnb, it's about active users and figuring out what they do differently. The company's growth manager Gustaf Alstromer draws a parallel to Twitter, which in its early days had encouraged newly signed up users to tweet. Eventually it learned users were more active when they were following and followed by more people, and responded by changing the sign up flow to suggest people to follow.How do you increase your supply?For Airbnb, it's a harder proposition to get hosts to open up their homes to strangers than to acquire guests. To bring new hosts on board, Alstromer said the company is building tools to target friends of hosts and guests who have yet to list their homes on the marketplace. Chang said Homejoy hosts in-person information sessions to recruit cleaners. "A lot of these people will not be spending as much time online as we do," she said. "It kind of depends on who your audiences are."What are some growth tactics that haven't worked so well?Airbnb had tried to recruit users for cheap from paid networks, but "those sources ended up becoming very expensive," said Alstromer. Schillace added that companies "have to be careful not to overincentivize in campaigns." Instead, he said they should look to A/B testing. "You should do the same thing with your products as you do with promotion," he said. "Try it out for two weeks and watch if it works." One thing that did work for Box: gaming Google Ad keywords. "One of the keywords that worked really well was Slashdot. I wouldn't put a bunch of money into that until I figured out it was working," he warned.
Last talk of the day: Airbnb CTO and cofounder Nathan Blecharczyk, left, and Y Combinator cofounder Paul Graham.
OpenAir is capping its conference with a chat between Airbnb CTO and cofounder Nathan Blecharczyk and Y Combinator cofounder Paul Graham. Back in the day, Graham gave Airbnb one of its most valuable pieces of advice: "It's OK to do things that don't scale." This spurred the founders to go to New York City, photograph properties, and meet hosts in person. "We built evangelists out of them. This is the beginning of how Airbnb grew," said Blecharczyk.Blecharczyk asked Graham for more advice on how startups should react when growth is slowing. "When growth plateaus, you pretty much have to start from scratch. You need to treat your situation as if you need to come up with a new startup idea," Graham responded. "Treat it as seriously as if your initial idea had not worked and you have to come up with some new idea." It's OK to incorporate parts of the original idea, but "buffing up the old idea" isn't enough, he added.Graham warns against trying too hard to come up with a startup idea. "If you think about it, a surprising number of the most successful startups were not even supposed to be businesses in the beginning. They were just projects," he said, pointing to Airbnb's roots, where the founders rented out air beds to out-of-towners coming into San Francisco for a conference. "If you are thinking of one day startup up a startup, the way to start a startup is to not build a startup," Graham said. Or more simply put: "Just build stuff."He's so bullish about the sharing economy that he thinks "people might one day regard ownership of stuff as a hack"--a remnant of the past. The sharing economy has evolved from government services, such as buses and trains, to include anything. "I think anything is up for grabs," he said.
...and that's it folks. Thank you for taking the time to stop by!It's been an informative event for an audience made up primarily of startup engineers. Different marketplaces, including Airbnb, Uber, and Homejoy, shared lessons about scaling and adapting to new challenges along the way.To wrap up, we'll once again quote Y Combinator cofounder Paul Graham, who's very assured about the future of the sharing economy: "People might one day regard ownership of stuff as a hack."