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AirBNB - The Dominant Rise

Updated: Dec 9, 2019

Broke is not always a bad thing, if the story of Airbnb is anything to go by. Brian Chesky and Joe Gebbia’s inability to sustain rent opened an opportunity that would turn around their fortunes and rise to eventually completely disrupt local and global hospitality industry. It was in 2007 in the heat of the financial crisis that these two saw an opportunity to rent out their apartment to conference attendees who had failed to secure accommodation in local hotels in San Francisco. They named their business Air Bed and Breakfast and hosted three guests paying $80 a night each. Although the conference offered them an opportunity to try out their new business model, the proceeds from the conference fell short of what they required to get the idea off the ground. It was however a big boost to their efforts in that it convinced their third roommate Nathan Blecharczyk to join the two.

Funding challenges

Having been convinced of the economic viability of the idea, the next problem was how to raise funds to create a website and other systems that would help the business take off and scale up. a Getting seed capital was not going to be a walk in the part due to the financial crisis at that time and that their idea was hardly convincing. They were introduced to 20 different potential investors out of which only 5 took time to respond to their emails although none would go ahead to fund them. Left with few choices to their future, the trio decide to take advantage of the coming US elections campaigns and chose the 2008 Denver National Convention (DNC) to drum up support for their idea among the delegates hoping to convince delegates living in the city to rent out their homes to those from other areas. They also created a campaign branded cereal Obama-O's and Cap'n McCain's - for $40 a box, raising $30,000 in the process by selling 1,000 boxes they had convinced a local printer to make them for free by giving him a royalty on the sales. This convention resulted in them meeting venture capitalist Paul Graham of the Y Combinator who agreed to give them $20,000 in exchange for a 6 per cent stake in the company. Through Graham’s advice, the company changed name from Air Bed and Breakfast to AirBnb and continued to attract more capital. They would eventually secure over $ 7.2m in 2010 and $110m in 2011 helping them to set up a functional office.

Poor images

Marketing the Airbnb services was not always smooth and easy. On a trip to New York to meet their customers, the founding trio realized that the photographs of their listings were not of good quality and this was compromising uptake. At that time, phones and tablets did not have the quality of cameras available today and their only option was to invest in cameras. They took upon themselves to take the photos and upload them on the site to ensure quality and this helped drive uptake. Today global users of Airbnb mainly use phones and tablets to capture images of their homes and they appear just fine.

Global uptake

The thought that private home owners could agree to rent out or share free space in their homes was far-fetched at the inception of Airbnb but not anymore. The meteoric rise of the business has not been without hurdles. In 2011, the company faced a backlash when one host wrote a blog complaining of guests having ‘trashed’ her home. This did not dampen their spirits but opened them to the idea that they needed to take insurance to cover hosts for damages. They now cover claims up to $1million. These measures, coupled with aggressive marketing have enabled the business to rise from a San Francisco start up to a global giant operating in 200 countries and 34,000 cities. By 2019, it listed over 3 million lodgings and 200 million guests had booked through the Airbnb system. It is now a global leader with an estimated value of $31million ahead of hotels chains Hilton and Wyndham. There are reports that the company could be headed for an IPO in the near future.

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