Airbnb’s Business Model Canvas (part 3): Early Days

Big companies rarely end up with the same business model as when they’d started. This article is part 1 of the series of Airbnb’s Business Model Canvas Evolution.

2009: Y Combinator and a Big Break

Fortunately, their big break came in the first quarter of 2009. The founders met Paul Graham, who owned Y Combinator, a San Francisco start-up accelerator program. He encouraged them to apply for the program despite their resistance. It turned out to be a great decision.

They received $20 000 in funding from Y Combinator in exchange for a stake in the company. They spend their time in the program working on perfecting their product. In March, they shortened their name to Airbnb, which was significantly catchier.

This was a turning point for the company. Things began to pick up slowly, and Airbnb started gaining traction in New York and San Francisco. The company searched for new offices to accommodate the expansion. They were getting new listings and bookings weekly.

Chesky embarked on a campaign to gather first-hand data about the guest’s experience by exclusively staying at Airbnb listings. He would stay with as many hosts as possible to see the kind of experience the guests would get from their listings. This allowed Airbnb to troubleshoot the areas that needed improvement.

The data showed that while the number of listings was growing, the bookings were still lagging. Paul Graham played a huge role in getting the ball rolling. He noticed that most Airbnb’s users were in New York City and advised the founders to visit New York and figure out how to make the idea more appealing.

Establishing key resources: The photographers

Gebbia and Chesky flew to New York and booked 24 listings to try and figure out where the problem was. It turns out that the hosts were not presenting their listings in a way that made them appealing to the target market.

The photo quality was terrible, and the product descriptions left a lot to be desired. It was pretty clear why few people were booking. The listings did not give potential customers an idea of what they were paying for. The pair used part of the $20 000 to improve the property listings on the website. They revisited the property descriptions and pricing.

However, the most significant improvement they made was to the photos. They rented a $5 000 camera and took professional pictures of as many listings as they could. By the end of that month, bookings had almost tripled, and the revenue from New York listings had doubled. They used this approach in every city where they had a presence. Eventually, this led to the establishment of the Airbnb photography program, which launched in 2010.

Airbnb’s value proposition and the big break

After New York, the pair were confident that their business model was profitable. They had an obvious target market; millennials. The idea struck a code with college graduates and students who could turn their rented apartment into an income stream by becoming hosts.

On the flip side, Airbnb appealed to the millennial traveler who wanted to live and interact with the locals in their visiting area. It was a new and cool way of authentically experiencing a new city. Traditional hotels were failing to capture the interest of this particular demographic, who seemed not to be taken by the idea of room service and luxurious amenities.

In addition to these facts, Airbnb solved a real-world problem; the lack of hotel rooms when events occurred in urban cities. Hotels would always charge higher rates when there was a big event in the area. Airbnb would absorb the extra demand for accommodation.  

Gebbia and Chesky presented this business model to investors on the West Coast and still got rejected. Not everyone was impressed, but some investors saw that two designers were running the company. The two founders finally got a big break in April 2009 when they received $600 000 in a seed round from Y Ventures and Sequoia Capital. 

2010: The Airbnb Photography Program, Craigslist Hack & Major Investors

With the $600 000 investment, they were able to launch the Airbnb Photography Program. This initiative allowed all Airbnb hosts to book a professional photographer who would take pictures of the listing for the website.

The program was not cheap, but Gebbia and Chesky believed it would have long-term benefits. They had a first-hand experience on how enhanced listings could triple the number of bookings. So hiring freelance professional photographers was a key resource that was worth investing in.

Craigslist Hack

One move that contributed to Airbnb’s growth was its unauthorized integration with Craigslist’s platform. Instead of spending a lot of money on marketing using the traditional channels, Airbnb figured out a way to boost traffic to their site without heavy lifting.

They identified Craigslist as the best platform to help them grow. Craigslist had a huge user base, unlike Airbnb, so they figured out how to integrate their website with Craigslist. This integration redirected traffic to the Airbnb website. So if someone placed an ad on Craigslist, the Airbnb bot would pick it up and send that person an email with an advertisement about Airbnb.

This was a brilliant plan. Access to Craigslist’s massive user base meant that Airbnb could advertise their superior listings to more people. Immediately there was an influx of bookings and listings. Hosts who made the switch to Airbnb ended up making more than they were on Craigslist because people were drawn to the better-looking listings. Airbnb used Craigslist as one of their primary marketing strategies along with word of mouth, Google Ads, and events like music festivals, concerts, and the World Cup.

In November, Airbnb received another cash injection of $7.2 million from Greylock Partners and Sequoia Capital. The company also announced that they had reached 700 000 nights booked through the website.  80% of those books had occurred between May and October 2009.

Airbnb had finally managed to gain significant traction. It was only a matter of time before the industry noticed how disruptive Airbnb would be to the established yet stagnant market.

Airbnb’s Business Model Canvas: The Early Days

At this point, Airbnb’s Business Model Canvas looked like this: 

Business Model Canvas of Airbnb: Early Days

>> Read next article in the series: Airbnb’s Business Model Canvas (part 4): Expansion

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