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"Furthermore, as much as there are local law issues in places like NYC against them, I don't anticipate those lasting long or having a large effect on their revenues."

If this is true, it will also apply to their competitors, right? Either the prices of Marriott will fall if/when they stop charging some crazy-expensive taxes on their guests, or AirBnb will have to start paying/charging for those taxes. One way or another, it'll change. Right now, one of AirBnb's advantages is that they are ignoring zoning restrictions and the like; either those restrictions will go away or they'll have to play by those rules.

To me, the biggest thing AirBnb has going for them is that they are choosing to play fast-and-loose with the laws, and hoping that they can grow fast enough to change them (similar to Uber). That gives them a huge advantage against the established businesses who have to play by the rules. Marriott can't just say "we're going to build a giant hotel in this area that isn't zoned for it", but AirBnb can hide behind its hosts because presumably they hold all the liability.

I imagine there will be some pushback at some point where AirBnb presumably makes most of their money: in big metropolitan areas. In Boston, where I'm at, these are generally illegal/against rental policies. People tend to look the other way for now, but at some point it might become a bigger issue. For me, personally, when I was setting up my condo association, myself & the other owners specifically wrote it into our documents that AirBnb and short-term-rentals are NOT allowed without prior authorization.

On a separate note, I wonder what percentage of the hotel revenue is business travel. I know in companies I've worked for in the past, they had some pretty good deals set up with hotel chains, so no matter where you traveled, you stayed at whatever the preferred chain was.

You are partially right, but the main value of AirBnB is that opens up a larger supply of rooms.

Hotel prices often fluctuate wildly -- a room may cost $59 one week and then a few weeks later cost $299 because a trade show is in town, etc.

Cities like New York have an insufficient supply of hotel rooms to meet demand. There are often no hotel rooms in NYC available for last-minute booking for under $400/night.

With AirBnB, even if everyone paid all the taxes, there would still be thousands of extra rooms available in NYC, many of which would be cheaper than $400 per night.

Hotels are a nice idea if you need the sheets changed every day, the room cleaned every day, porters to bring up the luggage, a pool, a front-desk to call to ask how late the pool is open, etc.

AirBnB also ads value by offering lots of other permutations. I stayed at an AirBnB in DC and was asked to put my own sheets on the bed (there were freshly laundered sheets in the closet). Upon leaving, I was asked to remove the sheets I used and put them in a basket. The 10 minutes it took me to do those things effectively saved me $100 on the stay, and yes I probably avoided $10 in taxes too.

"Hotel prices often fluctuate wildly -- a room may cost $59 one week and then a few weeks later cost $299 because a trade show is in town, etc."

You don't think this will happen with AirBnb, similar to "surge pricing" with Uber? Continuing with supply & demand, at times of great demand, prices will rise no matter if it's a hotel or AirBnb, even if there is a great deal more supply, there will always be huge bursts of demand (trade shows, what-have-you).

AirBnb would seem to flesh out the low-to-mid-range end of the market. If money isn't an object, there are places to stay in NYC (I think--I'm not at that level, myself!). But if you're looking to stay in NYC comfortably for fairly cheap, AirBnb exists with offerings that fit that, albeit they may be illegal (right now). I just question whether that market is "worth" more than the major chains (based on valuations, which I know is a shaky number to use).

I think you misunderstand the mechanics going on with surge pricing.

In SF on new year's eve, getting a yellow cab can take up to an hour (or more). One year it took me nearly two hours to get a cab to go home. There is way more demand than supply so there is a huge queue.

With Uber's surge pricing, the price simply goes up to help supply meet demand. You can book an uber at 2x or 5x surge pricing and count on it showing up a few minutes later, and count on getting home at a reasonable time.

The best part, however, is that it's in Uber's best interest to have surge pricing happen rarely. Nonetheless, it's a great way to attract new drivers. Want to make $500 on New Year's eve, sign up to be an uber driver and drive from 12:30 to 3am and benefit from surge pricing.

This opens up a larger pool of drivers, which in turn increases supply and reduces the price.

There are certainly price fluctuations with AirBnB too, however increased supply makes the spike less pronounced.

Regarding low-mid range, This isn't my experience at all. My experience is that for certain types of travel (eg, meeting friends for a weekend in some fun city) and AirBnB apartment is more fun, IE higher quality than any normal hotel option. Obviously if you compare a midrange apartment to a rockstar suite in a 5 star hotel AirBnB doesn't win but for most fair comparison I value the apartment more than the hotel.

Which is better is a matter of taste, I suppose. A lot of people love hotels. I don't. But, for the price ranges that cover 80% of rooms in most cities, I think it's hard to claim that AirBnB is only better value at the lower tiers. There are some awesome places at the 'sold my company to google' price ranges.

Excellent point. I too prefer staying in someone's comfortable home over a hotel room. Other than at very high end hotels, there are frequently little annoyances (air conditioning cranked up, noisy fans, noisy housekeeping in the morning, excessive use of insecticides, low quality mattresses, small or nonexistent refrigerator, no kitchen, etc.) that detract from the experience.

Airbnb seems like a terrible choice for last-minute booking because it's based on the notion of hosts responding via email in their spare time. When you book a room in a hotel you have reserved a room and don't need to do anything more except show up but when you book a room via airbnd you have merely made an inquiry and won't know whether you've reserved a room until you possibly get an email back after some non-deterministic amount of time.

Selection bias says the most responsive hosts will get booked early so the bookings that still show as available at the last minute tend to be less responsive hosts. A room that's still showing up as available at the last minute might be doing so because the host went on a hiking trip and forgot to update the calendar rather than because it's actually available.

They do have instant booking https://www.airbnb.com/help/article/187

Empirically, the rooms that offer last minute instant booking tend to cost about the same as a hotel.

Although I didn't realize you could use "has instant booking" as a search parameter - thanks! Now if only I could get hipmunk to honor that restriction too...

AirBnB also does something that I'm not sure how to generalize in a term. It allows operating at a different scale. Replacing 5 500 person businesses with 2500 1 person businesses can unlock all sorts of efficiencies (the same is true of the reverse).

AirBnB can allow individuals to do the work of providing accommodation part time, after work, as students, working mothers, retired people. We often mention disruptive businesses making new markets displacing non-consumption rather than substituting competition. AirBnB does something similar on the supply side.

Also, since AirBnB basically unlocks the productive potential of real estate, there's an interesting financing angle. Individuals have the ability to finance the purchase of a house or apartment with mortgages on pretty good terms. There is no other financing product available to the common man en masse comparable to home mortgages, certainly not business loans. AirBnB can help turn that into a business.

Owner-operator setups have all sorts of other little efficiencies over more hierarchical monolithic setups. Hotels have huge overheads. A lot of those are like airline or airport overheads in the sense that they're inherited from a world where hotels were originally designed for the rich (the gentry in the case of hotels) and then redesigned for the "discerning business traveler".

There is a fundamental problem with your argument.

The condos and apartments people rent out on Airbnb are built by developers.

So as Airbnb becomes more popular, developers will recognize the ability for tenants to profit from renting out units. In response, they will try to capture that profit on the front end by raising the selling point of the unit.

Practically, the increases in property value Airbnb generates will ultimately flow back to developers, and make housing less affordable.

It's a double whammy for the people that are buying units and not renting them out, because they now have to more for units that don't want to rent out.

Edit: Also, the U.S. real estate stock depreciates by 3% annually, so it ultimately will have to be replaced with new units.

That's taking it deep. Luckily most of our economies run on price systems. :)

First, just because you're making more doesn't mean developers can charge more. Building is a fairly competitive industry. Land is usually the thing that can increase in value in response to rising demand.

Overall when thinking about housing prices the thing to consider is supply. Housing stocks take time to build up and there are all sorts of forces preventing them from increasing. That's really a different discussion but my personally opinion on it is that housing costs go up where and when the government and the citizenry want it to.

Rising house prices are a weird pathology. They help credit markets, which everyone is fond of (banks, developers & home buyers directly; retail and any consumer spending focused industry indirectly). Homeowners feel wealthier when their property increases in value, even though the house is still the same house and they have no way of realizing those gains without moving to a different town.

You are correct that AirBnB increases the value (and thus the price) of housing units. However this does not refute his argument.

Since AirBnB allows the rental of full units, individual rooms, and even shared rooms, it makes housing more affordable. Now, someone can afford a 2BR and plan on renting out one of the rooms a few nights a month to help afford the rent.

If there were massive competition, the price of renting a room on AirBnB for one night would approach 1 30th of the monthly rent price. Right now people typically rent a flat for one year. Why is that? Why not rent an AirBnB for 3 months and then try living in a different neighborhood? All these options are enabled by AirBnB and all of this extracts more value from existing infrastructure.

Right, it makes existing infrastructure more affordable. But for new infrastructure, any income generated is priced into the value, making the "profit" from renting it out less substantial.

That may be true, but why would anyone invest in new infrastructure if it didn't seem like a better option than buying existing infrastructure?

Both alternatives include the additional value that AirBnB creates and I'd expect both to result in increased investment in housing across the board, both new construction and improvement.

You are ignoring the concept of competition. Housing is not the most competitive market due to restrictions both natural (limited space) and artificial (zoning), but there is still competition.

See that's my point... there is only so much land in the middle of NYC that is zoned right for condos, so the competition really won't increase.

Also, real estate in general is a very capital intensive industry, which takes out 99% of competition anyways. How many people are there that can raise $200 million to build a project. Not many.

> How many people are there that can raise $200 million to build a project. Not many.

First, you don't need many for competition; you just need a few. Second, there are lots of people who can raise a mere $200 million.

"mere $200 million"

lol ok

Welcome to the world of finance.

I noticed lately that mid-range hotels (Hamptons and Holiday Inns) generally turn out to be quite competitive price-wise. Those guys live by dynamic pricing, so a new entrant lowers the prices, but not completely disrupts the industry.

>Remember: These valuations aren't for what a company is currently worth. Otherwise, there's no point to investment. They valuations are for where they see the company going, and more probably, growing past.

Nit pick: a valuation is what a company is currently worth. That current worth us just based on anticipated future cash flows.

>Nit pick:

This isn't a nit-pick, it's a very important point that is sometimes overlooked by the less financially-inclined.

So often people will argue for some obscene valuation based on the fact that the company is growing rapidly. Well, the whole point of a valuation model is to capture these elements and estimate a price you're willing to pay today for all that future growth.

Of course, that's way easier said than done, especially in a fast growing start-up. But these are sophisticated investors, who are trying not to leave any money on the table.

VC: "I am going to buy these goods at $1,000 because that is what they will be worth in the future."

You: "Great, how much will you sell them for when they are worth that $1000"

VC: "$2000"

You: "And who will buy it at that price when they worth only half"

VC: "Let Wall Street worry about that"

It's more like:

VC: "I am going to buy these goods at $1,000 today because I expect to be able to sell them for $1,100 in one year".

How they arrive at the $1,100 is based on the amount of risk there is and the return they could get on a zero-risk investment.

Seriously, finance seemed like mumbo jumbo to me to too before I learned about it. But it's actually pretty interesting. This is the calculation for present value.

Remember when you are looking at hotel chain valuations that they generally don't own the hotels, but just franchise the brand. There are other large companies involved that own the hotels.

While that can be true, some get a fair amount of money out of their owned (or ones they actively manage) properties. Franchisees are quite important and contribute a lot in fees (lots of fees...) as you point out but don't discount the still owned properties, many of which are significant buildings by themselves.

Expand, please.

The hotel business has the separate concepts of "operator" and "owner". The operator is the brand you know. The owner is some property ownership company that contracted a particular operator to build and run their property. The branding is so thorough that you generally don't see any indication of the actual owner, except in the rare cases where a property changes brands.

Just take a look at this list of the top 25 hotel owners: http://nreionline.com/research/real_estate_top_hotel_owners_...

A few are the brands themselves, since they are the owner/operator for some properties. But many are companies you have never heard of that own hundreds of hotels.

Interesting, I only heard of 1 of out of those companies previously.

> Furthermore, as much as there are local law issues in places like NYC against them, I don't anticipate those lasting long or having a large effect on their revenues. The same way that if you're in Uber's way you get painted as being anti-jobs, Airbnb gets to say the same thing. And that's in the few places that have them.

I don't see the law in New York city going anywhere. If anything, it is only going to be enforced more aggressively. While it isn't clear that that will be enough to dissuade everyone who is currently operating one or more illegal hotels using the service, I would not be surprised if the vast majority of the "entire place" listings currently found on Airbnb in NYC disappear over the next year as it becomes an increasingly risky thing to do. Of course, I don't imagine that having a huge impact on Airbnb's operations overall unless many other cities do the same thing.

I'm glad it works for you but as far as I can tell the difference between Airbnb and a hotel is that when you make a reservation at a hotel you actually have a reservation. Meaning you can then just show up and expect the room to be there when you arrive. Whereas with Airbnb you are tying up your money and time based on a mere hope that a room might be available and that the host might respond and tell you so and tell you how to find/access it.

Sometimes the host says "sorry, the calendar is wrong - that room's not available". Sometimes the host doesn't reply at all, in which case Airbnb releases the deposit back but you've lost a day or two and now there's less availability.

So far I think I'm 0-for-3.

Well, those hotel brands you cite are all legal businesses. Airbnb is illegally operated in most of its large markets. The illegal risk is currently put on the backs of its hosts, but that could easily change (either way--there could be a legal breakthrough with upside for Airbnb, but it's a municipality by municipality grind).

That makes the value quite hard to pin down, a bad court case or two could severely harm Airbnb. It's not likely that there will be a court case that makes tax paying and code abiding hotels illegal, which makes hotel chains much easier to value.

what about future competition? what's to stop 100 other people starting similar websites?

Sadly, network effects. The same reason that eBay doesn't have any serious competitors, despite the awful experience they offer.

What's so awful about eBay? I have always been able to find pretty much exactly what I want at a reasonable price.

It's great for buyers. It's awful for sellers. They charge massive fees and offer virtually no protection against buyer fraud.

Try selling

The more relevant question is, what business plan is going to let someone with a similar website attract customers?

You have to find a weak point in Airbnb. Maybe focus on particular underserved cities. Maybe only allow amazing properties and aggressively poach them from Airbnb. Maybe try to enforce a common high-end experience by providing hosts with branded physical goods. Maybe piggyback on an existing hotel brand. Maybe market to the business market exclusively (worked for LinkedIn.) Just some quick ideas, and maybe not viable, but just cloning Airbnb isn't going to get you far.

Agreed. However, no one is going to compete with Airbnb anytime soon. To compete, you can't just be a little better, you need to be a lot better. Reason being, people have accounts on Airbnb, they have feedback, and they're familiar with the experience. If a slightly improved HN is released by someone tomorrow, we don't all jump ship, because we're invested in the current community. For us to leave, it would need to profoundly improve on the experience or offer incredible content. Likewise, to compete with Airbnb you would need a completely different approach or business model, or have a selection of apartments that are far beyond Airbnb in quality and affordability.

Airbnb pushes out updates frequently, their site offers a great experience to the user, and they have a solid team of developers that stay ahead of the game. They're going to be here for a while.

Airbnb already negotiates with individual cities to charge taxes for certain rentals (look at Portland).

As soon as they're big enough, they will start supporting these taxes and pushing for laws that require collection, as it makes it more difficult for others to enter the market the way they did.

Critical mass.

What would stop someone from putting their property up on multiple websites?

It's a rational decision for most sellers. There's a bunch of properties listed on AirBnB, HomeAway and VRBO (latter two being owned by the same company). For buyers I'd guess existence of previous transactions and reviews is a quality signal, as opposed to a site where you can get scammed by a dishonest seller.

There's also the niche differential. VRBO & Homeaway tend to be more for vacation rental properties (not all, but that's the trend).