Fascinating conversation. Thanks for giving insight into how these deals work...
>ABNB reminds me of Etsy in that it facilitates real commerce in a marketplace model directly between two people.
Interestingly enough, I still tend to side with Fred's assessment of AirBnB's future. All my experiences with it as a user have been too unreliable to expect that it can scale to truly massive usability. Selling your old guitar online is a lot different than renting a room to someone. Renting a room has so much more of a personal aspect to it.
There are so many more subtleties to actually having a stranger come and stay in your house than there are to sending a stranger a book, guitar, etc via USPS.
Regardless, I still think there's a massive market out there for this type of thing, I just don't see it swallowing up the whole Hotel industry.
There are so many more subtleties to actually having a stranger come and stay in your house than there are to sending a stranger a book, guitar, etc via USPS.
So, PG is a good salesman, and he hit the nail on the head with this comment:
Just wait till all the 10-room pensiones in Rome discover this site.
If you ever read a Rick Steves guide (which are not exactly the scariest guidebooks on the planet -- they're fairly comfortable middle-class NPR stuff) or tour around Europe in backpacker mode you will become familiar with the pension, aka the German zimmer or the English B&B. These are rooms. In pubs, or very tiny hotels, or people's homes. Which get rented out. They are very common, they have been a tradition forever, and they aren't very formal. Maybe you call ahead. Sometimes that doesn't even work. Sometimes you call ahead but then the landlord forgets your reservation. But ultimately you turn up, meet the landlord, get taken to the room, you look around for two minutes, you say "si" or "no" and fork over a night's rent, and there you go. It's not like buying a house or getting married or anything.
Yes, it's a bit more subtle to rent a room than to deal in used books. But it's not that subtle.
I just did my first AirBNB experience (actually am still in the middle of it) and I can say that it's actually been surprisingly smooth. It's almost like a paid way to make friends. The hosts who I'm staying with are so cool, and since I'm pretty public online, it was easy for them to feel comfortable with me staying at their pad. They've set it up as much like a hotel as I could ask for. It's really great, and it's paying half their rent (they have about 100% occupancy, believe it or not).
"I just don't see it swallowing up the whole Hotel industry."
I've been out of the travel/hotel game for about 4 years now, but I worked in it on and off from ~'97 through to '07.
It's an industry ripe for a new player to do a Paypal style end run around the traditional banking/creditcard industry.
I don't know whether Airbnb are that player (I'm 100% sure pg and Fred are _much_ better judges of that then I am), but I'm also at least 99% sure that it _won't_ be any of the existing big players (Sabre, Gallileo, Pegasus, MyFideleo, Worldres were the large players I worked with) that revolutionise the hotel booking business.
Strangers renting rooms are only a piece of their future. HomeAway (vacation rentals) just bought a superbowl commercial and are reporting revenue of $100M+.
Note the # of entire home/apt entries. My guess is that these (with B&Bs, inns, and eventually hotels) will dominate the listings.
ABNB has a challenge with positioning moving forward-- a LOT of people think they are all about renting a room in a stranger's house, sharing a common area, etc. But their growth speaks for itself.
My take on it is that Airbnb is great unless you're the kind of person that doesn't trust strangers. Sadly, in the United States, the tendency to not trust strangers has been on the upswing for the last few decades.
Interesting that completely missing from this conversation is:
-- Their website design
-- Their code (Rails? Jquery?)
-- Their hosting / scalability / "cloud" strategy
-- Source control methods, dev environment, tools
-- APIs, "ecosystem", social media, "viral rate" etc.
-- And more...
Basically, all the things that most of us here spend most of our time discussing.
Instead:
1) Idea / Team
2) Execute
3) Talk to people with money
4) Go to #2
That's all Fred is looking at in that phase-- because even an awesome team won't build a venture-sized business in a tiny or low-growth market.
At our Demo Day, there was two teams that had a veritable investor feeding frenzy around them-- and they were both attacking markets that were either huge/rich or markets that were growing like gangbusters (and they had the good sense to talk as much about the market opportunity as they did about their product).
Why would anyone talk about that stuff when pitching to a VC?
Sure the operational factors are important (and that's why they get discussed here), but they're secondary to size of the market and the nature of the solution when it comes to how big the investment opportunity is.
This is a great point....market potential seems to be top of mind more than anything else.....which reminds me of how Sequoia invests....clearly they got the larger vision (and presumably had more data points as they invested later)
I've told this story before on HN, but it's worth telling again.
I rented a room in L.A. using Airbnb. The owner of the room said he made $4000 in 3 months on two rooms that would have otherwise been vacant. If you're making this much money for people you've tapped into one helluva market.
I can cover the rent of a 2-bedroom apartment in Manhattan by renting out one of the bedrooms on Airbnb. I don't expect the situation to last forever, but for now it's great.
Wonder how elastic the market is. Don't know LA enough, but can assume that eventually too much demand will ruin the seemingly perfect situation. It's a luxury position. Huge profits were possible on ebay too at one point in time...
Maybe not quite that persistent, but I've definitely tried to sell investors on startups that didn't end up doing very well. Even by the end of the 3 months we are far from perfect at predicting who the big winners will be.
The idea with this kind of thing, as far as I can tell, is to be as nuts (i.e. risk-friendly) as you can possibly get away with. If you're never wrong, that's probably an indicator that you could get away with being a lot more nuts.
Moreover, if you do pump a startup and you are wrong, then to explain the situation is often to piss all over the work of said startup.
So this post has done two things in my estimation.
1) Improved the perceived standing of PG among the entrepreneur-class. It proves that he really adds value the way he says he does - hawking, what can easily be seen as a very weird idea at a time when not many people see it.
2) Improved my perception of Fred. Even though he passed on the deal, he is stand-up enough to not only admit it - but allow PG to post this email exchange that shows that he was "one of the old guys" that were skeptical. It also shows that he wasn't just pulling PG's chain, but was really debating it internally.
That terseness is how Fred writes every email, it's not unique to this thread with Paul. When you try to reply to a couple hundred emails a day, this terseness is the result.
In my experience, Airbnb's biggest competitor is HostelHero and I found this much more convenient than Airbnb while traveling (if only because hostels nearly always have space, unlike the many rooms we encountered on Airbnb advertised as free but suddenly not when you book them).
Arriving in a new city without internet it was great to have HH and be able to find 10 hostels and know they are going to be open. I guess McDonalds wifi etc. means Airbnb could have been a competitor, but the ease of finding accommodation reliably, of a reliable standard, and at more affordable prices meant we used HH far more than Airbnb.
Having said that, the times we could manage to find a room that was genuinely free, and appeared to be genuine people with a spare room, were some of the highlights of our travels. The people and the rooms were both fantastic, and it's this "home away from home" and social aspect I think Airbnb should be pushing. I think at the same time they should be working hard to remove the listings that I could best describe as dodgy guys trying to run a hotel out of an apartment building without adhering to local hotelier laws as we found these far too prevalent in some cities.
It just seemed a very good sign to me that these guys were actually
on the ground in NYC hunting down (and understanding) their users.
That's a funny comment from paul because he was the one to tell them to go to NYC. That they went is to their credit, but still. I think of this sometimes with the pitch coaching for demo day. How many investors think "that's a great way to phrase that" when watching a presentation and what they are actually hearing is PG? When you've seen a few of them, it is quite stunning.
I don't mean this in a negative way. It actually is just evidence that paul graham is a badass.
We were already meeting our users over the previous year, including at the DNC and Inauguration. We had ambivalence to continue to do so city-by-city because, as we were warned by others, it didn't scale. PG gave us permission to continue these efforts, and to "do things that don't scale." It was one of the greatest pieces of advice we ever received.
This exchange cements my concerns about AirBNB only being huge if they can end-run the hotel regulatory system.
pg: Did they explain the long-term goal of being the market in accommodation the way eBay is in stuff? That seems like it would be huge. Hotels now are like airlines in the 1970s before they figured out how to increase their load factors.
fw: So I think it can scale all the way to the bed and breakfast market. But I am not sure they can take on the hotel market.
The problem is, the regulatory system (not to mention the neighbors) do not want unlicensed, widespread "crowd-sourced" illegal hotel rooms, and are working hard to block them:
Paul Graham talks about the 'eBay' of accommodation -- but a huge percentage of eBay's revenue comes from professional sellers, which is exactly what will run afoul of regulation in the rental/hotel market.
If someone still has any doubts about the value of YC, they should read this email exchange. PG is pushing for the startup as if it was his own. He genuinely wanted them (and also the VC firm) to succeed.
This is great stuff.
You can't blame any VC for being cautious at that early a stage though, and although the idea of hotels using airbnb to list their vacancies hasn't happened yet, as far as I can tell, it may not even matter. I have just started trying them to rent my apt in NYC, lets see how it goes. Personally as a "landlord" I feel like I do a great job accomodating my tenant, but on a site like craigslist, which is where I'd been posting my listings, this never gets reflected as there are no opinions/ratings, etc. As a result, I can't "stand out" from other landlords. It's not hard to get tenants in NYC, but I can imagine in some other parts of the country or world this may be a bigger issue.
This is where I hope airbnb comes in handy.
[+] [-] quickpost|15 years ago|reply
>ABNB reminds me of Etsy in that it facilitates real commerce in a marketplace model directly between two people.
Interestingly enough, I still tend to side with Fred's assessment of AirBnB's future. All my experiences with it as a user have been too unreliable to expect that it can scale to truly massive usability. Selling your old guitar online is a lot different than renting a room to someone. Renting a room has so much more of a personal aspect to it.
There are so many more subtleties to actually having a stranger come and stay in your house than there are to sending a stranger a book, guitar, etc via USPS.
Regardless, I still think there's a massive market out there for this type of thing, I just don't see it swallowing up the whole Hotel industry.
[+] [-] mechanical_fish|15 years ago|reply
So, PG is a good salesman, and he hit the nail on the head with this comment:
Just wait till all the 10-room pensiones in Rome discover this site.
If you ever read a Rick Steves guide (which are not exactly the scariest guidebooks on the planet -- they're fairly comfortable middle-class NPR stuff) or tour around Europe in backpacker mode you will become familiar with the pension, aka the German zimmer or the English B&B. These are rooms. In pubs, or very tiny hotels, or people's homes. Which get rented out. They are very common, they have been a tradition forever, and they aren't very formal. Maybe you call ahead. Sometimes that doesn't even work. Sometimes you call ahead but then the landlord forgets your reservation. But ultimately you turn up, meet the landlord, get taken to the room, you look around for two minutes, you say "si" or "no" and fork over a night's rent, and there you go. It's not like buying a house or getting married or anything.
Yes, it's a bit more subtle to rent a room than to deal in used books. But it's not that subtle.
[+] [-] randall|15 years ago|reply
[+] [-] bigiain|15 years ago|reply
I've been out of the travel/hotel game for about 4 years now, but I worked in it on and off from ~'97 through to '07.
It's an industry ripe for a new player to do a Paypal style end run around the traditional banking/creditcard industry.
I don't know whether Airbnb are that player (I'm 100% sure pg and Fred are _much_ better judges of that then I am), but I'm also at least 99% sure that it _won't_ be any of the existing big players (Sabre, Gallileo, Pegasus, MyFideleo, Worldres were the large players I worked with) that revolutionise the hotel booking business.
[+] [-] webwright|15 years ago|reply
writing on the wall: https://skitch.com/webwright/rieyj/airbnb-search
Note the # of entire home/apt entries. My guess is that these (with B&Bs, inns, and eventually hotels) will dominate the listings.
ABNB has a challenge with positioning moving forward-- a LOT of people think they are all about renting a room in a stranger's house, sharing a common area, etc. But their growth speaks for itself.
[+] [-] auston|15 years ago|reply
I opted for ABNB literally 5 out of 6 times this past February. All successful.
[+] [-] ryandvm|15 years ago|reply
[+] [-] cloudbrain|15 years ago|reply
-- Their website design -- Their code (Rails? Jquery?) -- Their hosting / scalability / "cloud" strategy -- Source control methods, dev environment, tools -- APIs, "ecosystem", social media, "viral rate" etc. -- And more...
Basically, all the things that most of us here spend most of our time discussing.
Instead: 1) Idea / Team 2) Execute 3) Talk to people with money 4) Go to #2
[+] [-] webwright|15 years ago|reply
http://pmarca-archive.posterous.com/the-pmarca-guide-to-star...
That's all Fred is looking at in that phase-- because even an awesome team won't build a venture-sized business in a tiny or low-growth market.
At our Demo Day, there was two teams that had a veritable investor feeding frenzy around them-- and they were both attacking markets that were either huge/rich or markets that were growing like gangbusters (and they had the good sense to talk as much about the market opportunity as they did about their product).
[+] [-] ig1|15 years ago|reply
Sure the operational factors are important (and that's why they get discussed here), but they're secondary to size of the market and the nature of the solution when it comes to how big the investment opportunity is.
[+] [-] jorkos|15 years ago|reply
[+] [-] freshfey|15 years ago|reply
[+] [-] zaidf|15 years ago|reply
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] siddhant|15 years ago|reply
[+] [-] andrewljohnson|15 years ago|reply
[+] [-] chr15|15 years ago|reply
I rented a room in L.A. using Airbnb. The owner of the room said he made $4000 in 3 months on two rooms that would have otherwise been vacant. If you're making this much money for people you've tapped into one helluva market.
[+] [-] yef|15 years ago|reply
[+] [-] joelhaasnoot|15 years ago|reply
[+] [-] edw519|15 years ago|reply
Have you ever given a similar vote of confidence to founders who didn't live up to your expectations?
[+] [-] pg|15 years ago|reply
[+] [-] ecuzzillo|15 years ago|reply
Moreover, if you do pump a startup and you are wrong, then to explain the situation is often to piss all over the work of said startup.
[+] [-] charlief|15 years ago|reply
http://twitter.com/fredwilson/status/48456993614200832
[+] [-] marcamillion|15 years ago|reply
1) Improved the perceived standing of PG among the entrepreneur-class. It proves that he really adds value the way he says he does - hawking, what can easily be seen as a very weird idea at a time when not many people see it.
2) Improved my perception of Fred. Even though he passed on the deal, he is stand-up enough to not only admit it - but allow PG to post this email exchange that shows that he was "one of the old guys" that were skeptical. It also shows that he wasn't just pulling PG's chain, but was really debating it internally.
[+] [-] seiji|15 years ago|reply
[+] [-] pg|15 years ago|reply
[+] [-] NickPollard|15 years ago|reply
So many 'business' people think that long waffling sentences seem clever and impressive. Nothing is further from the truth.
[+] [-] andrewparker|15 years ago|reply
[+] [-] nopassrecover|15 years ago|reply
Arriving in a new city without internet it was great to have HH and be able to find 10 hostels and know they are going to be open. I guess McDonalds wifi etc. means Airbnb could have been a competitor, but the ease of finding accommodation reliably, of a reliable standard, and at more affordable prices meant we used HH far more than Airbnb.
Having said that, the times we could manage to find a room that was genuinely free, and appeared to be genuine people with a spare room, were some of the highlights of our travels. The people and the rooms were both fantastic, and it's this "home away from home" and social aspect I think Airbnb should be pushing. I think at the same time they should be working hard to remove the listings that I could best describe as dodgy guys trying to run a hotel out of an apartment building without adhering to local hotelier laws as we found these far too prevalent in some cities.
[+] [-] danielha|15 years ago|reply
YC absolutely does hustle for you like this, and it's the best kind -- genuine.
[+] [-] zck|15 years ago|reply
Mark Pincus is better known as the founder of Zynga, unless this is another Mark Pincus.
[+] [-] fredwilson|15 years ago|reply
[+] [-] jedc|15 years ago|reply
[+] [-] jedc|15 years ago|reply
[+] [-] ivankirigin|15 years ago|reply
I don't mean this in a negative way. It actually is just evidence that paul graham is a badass.
[+] [-] brianchesky|15 years ago|reply
[+] [-] pclark|15 years ago|reply
It possibly shows why Sequoia are the best.
[+] [-] dr_|15 years ago|reply
[+] [-] chrismanfrank|15 years ago|reply
[+] [-] unknown|15 years ago|reply
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[+] [-] unknown|15 years ago|reply
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[+] [-] unknown|15 years ago|reply
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[+] [-] DevX101|15 years ago|reply
[+] [-] neebz|15 years ago|reply
[+] [-] nupark|15 years ago|reply
pg: Did they explain the long-term goal of being the market in accommodation the way eBay is in stuff? That seems like it would be huge. Hotels now are like airlines in the 1970s before they figured out how to increase their load factors.
fw: So I think it can scale all the way to the bed and breakfast market. But I am not sure they can take on the hotel market.
The problem is, the regulatory system (not to mention the neighbors) do not want unlicensed, widespread "crowd-sourced" illegal hotel rooms, and are working hard to block them:
http://www.frommers.com/articles/6912.html
Paul Graham talks about the 'eBay' of accommodation -- but a huge percentage of eBay's revenue comes from professional sellers, which is exactly what will run afoul of regulation in the rental/hotel market.
[+] [-] borism|15 years ago|reply
hotel chains won't be sitting idly while few geeks eat their market.
oh and btw, isn't eBay kinda dead thanks to Craigslist?
[+] [-] luckystrike|15 years ago|reply
Great stuff.
[+] [-] thesis|15 years ago|reply
[+] [-] dr_|15 years ago|reply
[+] [-] zaidf|15 years ago|reply
It's not the end of the world.