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The Airbnb Bubble: Boom or Bust?

Airbnb is undoubtedly one of the most successful stories of a digital industry ‘disrupter’ to quite literally erupt in the last decade. The marketplace has been overwhelmed with the launch of apps such as Netflix in the home entertainment arena; Skype and WhatsApp in telecoms and of course Uber the taxi app. All these applications are about big data, convenience, personalisation and transparency. The buzz words associated with them are ones you are most probably familiar with: smartphones, the cloud, access as opposed to ownership, and scaling up potential. They also have a certain sense of ubiquity, by reformulating a familiar activity, say the trip to your local video store to rent a film, once the technology is adapted, and it’s hard to imagine our lives without the new, improved service.

Context specific service is at the heart of these innovations – as the Airbnb start up story / mythology illustrates so perfectly. In 2007, designers Brian Chesky and Joe Gebbia couldn’t afford the rent on their San Francisco apartment and decided to turn their loft into a lodging space, but, as Gebbia explains, “We didn’t want to post on Craigslist because we felt it was too impersonal. Our entrepreneur instinct said ‘build your own site.’ So we did.” And from there sprang a lifestyle focussed accommodation rental site, enabling folks all over the world to rent out a spare room or their whole property to visitors keen to connect with accommodation options other than the traditional hotel type offerings. It wasn’t long before hoteliers were quaking in their boots and the exponential growth of uptake on the Airbnb way of life means there is unlikely to be any respite for the flailing industry.

Fast forward to 2014 and the platform had 10 million guests and 550,000 properties listed worldwide, along with a $10B valuation—making Airbnb worth more than legacy players like Wyndham and Hyatt.

In March of this year, to signal a true coming-of-age, Airbnb won a contract to provide a reported 20,000 rooms for this year’s Olympic Games in Rio de Janeiro.

Rio de Janeiro, Creative Commons/JorgeBRAZIL

Already operating in 191 countries and 34,000 cities, financial services analysts predict that by 2020, Airbnb hosts will be taking 500 million bookings a night, rising to one billion by 2025.

In the UK, more than three million people have used the site, while 52,500 people have opened their homes to strangers. A typical host can expect to earn £2,000 in return for renting out a room for 46 nights a year.

Recently, Airbnb executive Jonathan Mildenhall told Adweek that their latest advertising campaign reflects a growing “demand for experiences that are not like the typical tourist experiences that actually more reflect what it’s like to live in local places.”

Ian Wright hanging out with a family in Iran

With every boom, a bust is often close behind, lurking in the form of competition, tighter regulations or the unexpected affects of success.

The Harvard Business Review calls it Airbnb’s “existential crisis”, visitors get new experiences and bring in money, but as their numbers grow, they “erode the very atmosphere in which they bask and threaten the liveability of the city for residents.”

Only last week, Mark Tanzer, Chief Executive of the Association of British Travel Agents, warned that the popularity of companies such as Airbnb was leading to such an influx of visitors that there was a danger that some of Europe’s most attractive historic cities would be ruined. “If they can’t get around the city you are going to lose value from tourism, even if the numbers are going up,” he said. “Overcrowding in key destinations is becoming a pressing issue. Without controls, we know tourism can kill tourism.”

Even smaller communities are experiencing problems of scale when it comes to Airbnb. Joshua Tree is a tiny town of 7,000 people on the edge of the Joshua Tree National Park in California. It has over 200 available Airbnb rentals. Resident Christine Pfranger observes that “locals are having difficulty finding homes to rent, and are being pushed out of their homes to make way for more vacation rentals.” Another resident adds, “Airbnb and vacation rentals are changing our community…House prices are going up because people now buy houses to rent out as vacation rentals, making it close to impossible for people working in the area to buy a house.”

These Victorian rowhouses are in the Haight-Ashbury neighborhood of San Francisco, California

There are indications that cities are resisting. For instance, the mayors of 10 major markets around the globe are implementing task forces to formulate a united response to the problems adoption of the Airbnb app brings about. Meanwhile, in their hometown of San Francisco, in February 2015, a new rule required Airbnb hosts to register with the city. However, over a year later only about a fifth have done so resulting in the city holding Airbnb accountable for its hosts by imposing a fine on the company of $1,000 per day for each unregistered listing that the city can discover. Of course Airbnb are fighting back by suing the city and they may well win. But this raises the question of what Airbnb’s responsibilities are, if any, to the places their brand appeal of “living like a local” is taken up with most vigour?

It’s an interesting bind Airbnb are now faced with. Hardly the victims of success, far from it, demand for Airbnb signals only growth. Rather, it is the very complex position of facing the beast of accelerated tourism they have unleashed and are now yoked inextricably to.