Airbnb is fundamentally broken, its CEO says. He plans to fix it
Airbnb Inc. CEO Brian Chesky has had a difficult 2023. Then there was the “Airbnbust” frenzy in March, when hosts took to Twitter (now X) to complain about shrinking profit margins and a possible short-term rental bubble. Then, with a loyalty program, competitor Vrbo beat Airbnb to a feature that customers had long requested. In September, New York City significantly tightened its rules on short-term rentals, nearly forcing Airbnb out of a market that accounted for roughly 80% of its business in the early days. Never mind the tightening of return-to-office policies, which has hampered the flexibility that fueled Airbnb’s growth during the pandemic years.
By mid-September, when he rolled out a slew of site enhancements, Chesky appeared to be caught in a Catch-22, caught between the competing demands of guests and hosts. Guests want to spend less money and be assured of a better product, while hosts are concerned about potential declines in bookings and their bottom lines.
The new enhancements are gradual and primarily intended to benefit guests. They center on five common pain points, ranging from affordability to customer service. On the cost front, the promise is to show consumers total prices per listing—including transparent and lower cleaning fees, which has sparked particular outrage—while providing hosts with insights that ensure competitive nightly rates. Furthermore, a new listing verification system is reducing customer service calls by detecting and removing bogus listings, and search has been enhanced with new filters for king-size beds and pet-friendly homes.
Chesky, who co-founded the company in 2008, has a history of overhyping minor updates as major features. However, the CEO I recently spoke with via Zoom was grounded and realistic, admitting that the latest improvements are, in fact, patches over deep cracks in Airbnb’s foundation.
“We need to get our house in order,” he states. “We need to ensure that our listings are excellent, that we provide excellent customer service, and that we are reasonably priced.” And I’ve told our team that once we’ve repaired the foundation, we can return to creating new and exciting things.”
Here are six key takeaways from a candid conversation with Airbnb’s founder, covering everything from his AI ambitions to the company’s future in New York—and how he intends to rebuild the proverbial house.
Airbnb has yet to nail the fundamentals of its service.
If you haven’t experienced it yourself, you’ve probably heard the horror stories: someone arrives at their Airbnb and discovers the pool is overgrown with algae. The heat is ineffective. Or, at the last minute, a booking is canceled, leaving travelers without a place to stay. Consistency and reliability have become an enormous Achilles heel for Airbnb, an issue that Chesky has long described as a managerial crisis that necessitates wrapping his arms around millions of hosts in hundreds of thousands of locations—while retaining their individuality.
“Our system was designed for a much smaller company that grew like crazy,” Chesky says of the disruptive tech platform where “adventurous travelers” could buy and sell products (in this case, rooms or homes), process secure payments, and leave reviews.
“To use a specific metaphor, it’s as if we never finished laying the foundation.” For example, we had a house with four pillars when we needed ten.”
Aside from math, Chesky believes there are three core pillars that would add up to “a really great service”: affordable prices, dependability, and proper customer support when things go wrong. However, retrofitting a large house is not simple. “The bigger you are, the more effort it takes to increase quality,” Chesky states. “And that’s what we’ve been really focused on.”
Lowering prices is not a risk for hosts. It gives them a competitive advantage.
Consumers have demonstrated an enduring willingness to splurge on travel, according to Chesky, but the limit may be slapping a $300 cleaning fee on a weekend house rental that also requires you to take out the garbage, run the laundry, and clean the toilets. “A lot of people were introduced to our service from a pricing standpoint,” according to him. It is still a significant business driver. “The more affordable Airbnbs are, the more bookings we get.”
Chesky walks a fine line in trying to motivate profit-hungry hosts by encouraging (some of) them to reduce their margins.
However, affordability must be a competitive advantage, especially in markets with thriving hotel scenes. “We want prices to move and be more competitive vis-à-vis hotels—that is really important,” he says, noting that hotel prices rose 10% in the last year while one-bedroom Airbnb prices fell 1%. “When our hosts provide better deals, they tend to make more money.”
He believes that providing hosts with dynamic pricing insights is the solution. “We’re [currently] giving tools to hosts to compare the prices of their listings to others in their neighborhood—and while we don’t yet have a hotel comparison, we do encourage them to look at rates for hotels in their area just so they have a sense of what travelers are getting on other platforms,” Chesky explains.
The key to quality control is artificial intelligence.
While many businesses use generative AI to power customer service chatbots, Airbnb uses the technology for quality control.
“AI is the first line of defense we’re using to verify listings,” Chesky states. He claims that for each listing, hosts are asked to submit both interior and exterior photos, which are then fed into a system that reads the photos and compares them to other databases to generate a confidence score. If the photos do not match the exterior of the house at the same address on Google Earth (or similar satellite imaging services), for example, the score will be reduced and the listing will be sent to a human for review.
Purging fake listings will help to avoid some of the site’s most difficult customer service situations, which occur when a guest arrives at an address where no short-term rental property exists.
AI technology can also be used to screen guests: Throwing house parties in Airbnb rentals is against the platform’s policies, but it is still a common problem for hosts. “We’ve used machine learning techniques to look at the last billion and a half guest arrivals and see which yielded a party and which didn’t,” Chesky explains. “If you try to do this through a human eye, you might not notice any patterns, but AI can look through over a billion data points, find a lot of similarities and create a rule set.” If an attempted booking raises red flags, he says, “we either stop them or ask for more information, until we either get comfortable with you or we don’t get comfortable with you.”
More AI developments are on the way, according to Chesky, before the end of the year, implying that verifying the legitimacy of a listing is only the first step. When I ask if an effort will be made to verify the amenities of a listing, he stops short of revealing the next iteration. “Guests have left over 300 million reviews on Airbnb,” he states. “In November we will have a really big update to what you’re talking about.”
If and when Airbnb launches a loyalty program, it will not involve points or free stays.
“I’ve always believed at the most fundamental level, the best loyalty program is to build a product that people completely love and that you should first focus on that,” Chesky states. “And then maybe on top of that you could build some type of program.”
He refers to this as a “longer-horizon thing.”
If and when it does occur, he says, “it would probably be more novel than a standard points program—not like a subsidy program, which is what most of the programs are, but something where when you use it, the service actually gets better.”
In New York, experiences, not houses, will be the way forward.
“New York was the very first city we started having challenges in,” Chesky says, bitterly, “and I thought it would be the first to figure this out.” As it turns out, New York may be one of the last.
“But here’s the important point,” he says, his voice upbeat as usual. “In 2009 and 2010, New York accounted for 70% to 80% of our business.” No city now accounts for more than half of our business.”
However, a half-percentage point still represents a $42 million slice of the pie for a company that reported $8.4 billion in earnings in 2022—and Chesky isn’t about to throw that away.
“There are other services we could launch in New York,” he says, referring to the “experiences” that the platform has begun to facilitate, in which people post services rather than rooms, such as guided tours, bar crawls, or photo shoots. “There’s a lot of opportunity there.” He also mentions the option of visiting Manhattan but sleeping in New Jersey, which would be a significant inconvenience for many consumers. He implies that this may be necessary if the lack of Airbnbs raises demand—and thus prices—for hotels in the city.
“If you take a lot supply off the market, and you don’t build proportionately more, then what happens to prices?” asks him. “They’re going up.” That means it will be more expensive to visit New York, which is very unfortunate.”
Chesky’s big ideas are well on their way.
“We’re just about ready to turn the corner,” Chesky says of his Airbnb retrofit journey. “This year has been the year of perfecting our core service, with over 50 upgrades in May, five important updates now, and another series of upgrades coming in November.”
However, it may take a little longer for the jokes and memes to fade.
“Hopefully, by next travel season, it’ll be a materially better service,” he says, referring to the summer of next year. “And then you’re gonna start to see many new things from Airbnb.”
