Fortune editor Leigh Gallagher offers an inside look into the early days of Airbnb

In 2007 Brian Chesky and Joe Gebbia were broke and looking to raise money to make their rent in San Francisco. They decided to rent out air mattresses in their apartment to attendees of a conference because all the hotels were booked. They called their service “Air Bed and Breakfast.” In a few years, this small experiment would create the hotel industry disruptor Airbnb. The privately held company, with third co-founder Nathan Blecharczyk on board, now lists more than three million lodgings in nearly 200 countries. It is worth $31 billion, more than Hilton and Wyndham combined, and closing in on Marriott.

Leigh Gallagher, assistant managing editor at Fortune magazine, chronicles the extraordinary growth of the company in her new book, The Airbnb Story: How Three Ordinary Guys Disrupted an Industry, Made Billions … and Created Plenty of Controversy. She talked about her book on the [email protected] Show, which airs on Sirius XM channel 111

Airbnb
By DesignStudio (Airbnb’s Design Department) [Public domain], via Wikimedia Commons
Airbnb

An edited transcript of the conversation follows. 

[email protected]: What was it specifically about Airbnb that drew you in?

Leigh Gallagher: I tend to go for topics that have what I call a “cocktail party factor” — you bring it up, and everybody has an opinion about it whether it’s good or bad or a personal experience or whatever.

This company first came on my radar in 2008, 2009. I am the editor of Fortune’s “40 Under 40” list. Every year, we get these breathless pitches from these new companies out of Silicon Valley that are “going to change the world.”

When I heard about this one, as I say in the book, I really rolled my eyes, and I said, “You know, this is an old idea. I’ve used VRBO or HomeAway.com for years. What is it with these tech companies that think they can gloss something up and re-issue it onto the marketplace?” I just sort of put that away, and then sure enough, a year or two later, they … started to catch fire.

“Everyone thought that they were completely crazy; no one thought this was a good idea.”

I had the chance to interview the CEO, Brian Chesky, at a tech conference Fortune hosts in Aspen every year. … I dug into the [company] numbers, and they just really spoke for themselves. I quickly learned I was wrong to dismiss them, and that’s when I first started looking at the company in closer detail.

Really, what drew me to it is that it’s this incredibly transformative way to travel. This incredibly social, business and cultural disruption story — it just touches so many things.

[email protected]: What these guys did — Chesky, along with Joe Gebbia and Nate Blecharczyk starting a company basically by renting out space in their own apartment — was obviously a unique way to launch something.

Gallagher: It is, yes. The whole story around their origin takes a lot more twists and turns than most people who have read about the company know. They’ve oversimplified it to tell the story hundreds of times, but it really was purely accidental — as are many of the most interesting kinds of inventions.

Everyone thought that they were completely crazy; no one thought this was a good idea. People said to them, “I hope you have another idea. I hope this isn’t the only thing you’re working on.” Or, “People actually do this? What’s wrong with them?”

Investors wouldn’t even meet with them, or if they did, they just said, “You guys are crazy. There’s going to be a murder in one of these houses. There’s going to be blood on your hands. I am not touching this with a 10-foot pole.” And no one did. They almost didn’t get off the ground. They almost had to close up shop because people thought it was that crazy

[email protected]: What was the turning point?

Gallagher: There were two moments, I would say. One was when they first rented out their apartment when a design conference was coming to town. They needed to make their rent. … This is in San Francisco. Two of the three co-founders — Brian Chesky and Joe Gebbia, they were Rhode Island School of Design graduates — needed to make money, and they rented out their apartment. They said, “Well, there’s lots of designers coming to town, so let’s offer them a place to stay with an air mattress, and it’ll be a whole [travel] experience. We’ll show them the city, etc.”

“Hotels charge a higher rate when there’s a big event that boosts demand. That’s basic supply-and-demand economics. Now, Airbnb absorbs all that extra demand.”

They thought they were going to get hippie backpackers, and instead, they got lots of people just like them who wanted those air mattresses. They had people sending their resumes and their LinkedIn profiles [to prove they are not security risks], so they thought, “We might be on to something.”

[The next pivot point came] when they got accepted into Y Combinator, the San Francisco start-up accelerator program. They didn’t even want to do that. They had to be pushed to applying, because they thought, by that point, they’d already launched their company. They’d been written up in TechCrunch, and they were offended that someone would suggest you would need to do Y Combinator. But [the company] would have died if they didn’t.

That program really gives a lot of advice, a lot of hands-on guidance, and co-founder Paul Graham told them immediately, “You’ve got to go to your users.” They didn’t have many users, but the few that they had were in New York City, and [visiting them] hadn’t occurred to them. They went to New York, and they really sat with their users and helped them dress up their properties with better language, better pricing and just gussied up the listings — and that was enough to turn the numbers to where they then started to catch fire.

[email protected]: You’re originally from the Philadelphia area, and I’m sure you’ve spent many a summer weekend down at the Jersey Shore. … When you think about going to a shore location in the summertime, the majority of the properties available are people renting out their own houses. That’s been a core economic idea in beach communities for a long time. So the fact that this idea took so long to really explode in big cities is a tad surprising.

Gallagher: It is surprising. That’s why I rolled my eyes and said, “Oh, there’s all these other sites.” Well, Airbnb really was different: It was urban. These other sites, they were for beach houses or mountain towns, or they were for second-home rentals, which is a huge business. And we’ve all done that.

You know, when someone said to Brian Chesky, ‘Oh, I’m interested in your company because the vacation rental market is huge,’ he said, ‘vacation rental? Wait. You mean like the houses at the beach my parents used to rent?’ He hadn’t even connected those dots. He did not see Airbnb as a vacation rental company.

It was that it was urban; it

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