In a securities filing last month, Airbnb disclosed it had raised $555 million in a round that valued it at $30 billion, up from $25.5 billion previously. The round had yet to close and could eventually total $850 million.
Funding numbers are easy enough to report, the thinking behind them another matter. “Home-sharing,” as Airbnb calls its line of business, has undoubtedly proved a valuable addition to the hospitality industry. But at $30 billion, Airbnb isn’t just a rich startup, it’s the fourth-most valuable private company in the world, behind only Uber, Chinese electronics maker Xiamoi, and Chinese taxi- and ride-hailing firm Didi Chuxing. Airbnb’s current valuation also exceeds the market capitalization of every major hotel chain.
And that’s just at $30 billion. When investors put money into a company at one figure, what they’re really betting is that it will ultimately turn out to be worth far more. What makes them think Airbnb will prove that correct?
A huge, global market
In the nearly nine years since it got started as three guys renting out air-mattresses in their apartment to help make rent, Airbnb has taken its home-sharing model around the world. Airbnb says there are 2.5 million homes listed on its site across 191 countries, and 1 million guests staying in them on any given night.
“We are the leader in home-sharing in every single country in the world,” Airbnb co-founder and chief technology officer NathanBlecharczyk said at Quartz’s The Next Billion conference on Oct. 13. “I had this question, when we started, is this something that’s only going to work in New York City? And then, is it just in North America? Is it just in Western culture? And now indeed China is our fastest growing country. I think it’s really surpassed all of our expectations.”
Airbnb hasn’t disclosed how much of its business is outside the US. But for some sense of the scale, consider that third-party analysis identified about 550,000 Airbnb listings in the US in 2015. Paris, Airbnb’s biggest international city, was estimated to have just over 45,000 homes for rent.
Blecharczyk points to China and India as particularly potent markets for Airbnb, countries where the middle class is growing, many people are going abroad for the first time, and there are few “preconceived notions” about travel.
“So many other places in the world, I have to take someone who might be accustomed to what a hotel is and explain relative to that what is an Airbnb,” he says. “In China, it’s very much a level playing field. There’s a lot of curiosity about what is a five-star hotel, what is an Airbnb, what is a hostel? They want to experience the world, they want to experience all this stuff. And I think it’s fascinating to kind of get in there on the ground floor.”
Winning over business travelers
Airbnb is still thought of first and foremost as a hotel alternative for vacationers, but lately it’s been courting business travelers. Unlike Airbnb’s normal pool of rentals, which range from clean, minimalist apartments to tents advertised as private rooms, corporate listings need to meet a minimum rating threshold and provide certain business amenities (i.e., wifi, “laptop friendly workspace,” a hairdryer).
In July, Airbnb announced partnerships with three big travel management companies to help their clients book and invoice stays through the Airbnb platform. The startup is also currently offering $50 in credit to anyone who takes their first Airbnb business trip. Blecharczyk says 10% of all Airbnb guests identify themselves as business travelers and that it’s one of the fastest-growing parts of the company (not all that hard if you’re starting from a small base).
“When you think about it, Airbnb is a great solution if your family is traveling with you on business and you need more space, if you’re going for an extended stay, like a week plus,” he said. “It’s a great solution if you want close proximity to the work site and maybe there isn’t a hotel across the street, or whatnot.”
Airbnb’s push into corporate accommodations is more reason for hotels to worry. Business travelers are the bread and butter of the hotel industry. Their schedules are more predictable than those of casual vacationers, their budgets less sensitive, and their loyalties easier to win over with a well-designed points program. For Airbnb, converting business travelers is part of growing its total addressable market. For hotels, hanging onto them is existential.
Going beyond rentals
Airbnb started as a simple matching platform for hosts and guests, but now is preparing to expand beyond that. The company is testing a program internally dubbed “Magical Trips”—this is Silicon Valley, land of the unicorns, after all—and will reportedly debut it next month (paywall). Preliminary reports suggest Magical Trips will be a pseudo-concierge offering, allowing hosts to earn more money by giving tours or booking restaurant reservations for their guests.
The company is also working on new ways to grow its inventory: brokering deals between landlords and their tenants, and getting more involved in the property development pipeline to one day build homes with an Airbnb side-gig in mind.
“Historically, we’ve just been doing accommodation. And, going forward, we’re really exploring the full boundaries of everything that someone needs while on a trip, and also how can we reinvent that experience,”Blecharczyk said, declining to be much more specific in his description. “We’re not interested in providing what has already been done before and to a large extent commoditized.”