University of California Davis Airbnb Etsy Uber Paper the first doc is case, the second doc is format. put the answer into the second which is format. Airb

University of California Davis Airbnb Etsy Uber Paper the first doc is case, the second doc is format. put the answer into the second which is format. Airbnb, Etsy, Uber: Growing from One
Thousand to One Million Customers
By 2016, online two-sided platforms (or marketplaces) were among the fastest-growing internet
startups in existence. These marketplaces sought to match suppliers of assets for rent, physical
products, or services with customers demanding them. Among the most notable two-sided
platforms that quickly reached one million customers were Airbnb, Etsy, and Uber. They offered
short-term property rentals, handcrafted goods, and car rides, respectively. As two-sided
markets grew past the first thousand customers, network effects kicked in as more consumers
bred more suppliers and vice versa. But how did these platforms ride the next level of growth,
going from a thousand to a million customers? How did they change their acquisition tactics to
reach this next level of scale?
Airbnb
Airbnb was a two-sided marketplace that sought to match people who owned real estate
properties with people interested in renting short-term lodging. Founded in August 2008 and
based in San Francisco, the company was privately owned. By 2009, it had more than a thousand
customers and by mid-2011, more than a million. As of 2015, it had over 1.8 million listings in
34,000 cities worldwide.
Start with the Perfect Experience and Work Backward
In 2008, after hosting their first three guests in their San Francisco apartment, Joe Gebbia and
Brian Chesky began receiving emails from people around the world requesting Airbnb in their
own cities and in places they would like to visit. As Gebbia put it, “People told us what they
wanted, so we set off to create it for them.”1 Indeed, much of Airbnb’s growth could be attributed
to the fact that people asked for the service Airbnb offered.
In order to learn what people wanted, the founders used their services. In the summer of 2009,
as the company was searching for new office space, Chesky stayed exclusively in Airbnb listings
in order to gather firsthand data about the service.2 That same summer, Airbnb was not gaining
much traction in New York, so Gebbia and Chesky flew out and booked spaces with 24 hosts to
figure out what the problem was. It turned out that users were not doing a great job of presenting
their listings. According to Gebbia, “The photos were really bad. People were using camera
phones and taking Craigslist-quality pictures. Surprise! No one was booking because you couldn’t
see what you were paying for.” Their solution to this problem was low-tech but effective.
According to Chesky, “A web startup would say, ‘Let’s send emails, teach [users] professional
photography, and test them.’ We said, ‘Screw that.’”3
Instead, they rented a $5,000 camera and went door to door, taking professional pictures of as
many New York listings as possible. This approach led to two to three times as many bookings on
New York listings,4 and by the end of the month Airbnb’s revenue in the city had doubled. As it
turned out, what drove the rapid growth in New York also helped in Paris, London, Vancouver,
and Miami.5
This led to the Airbnb photography program, which was officially launched in the summer of
2010. Hosts could automatically schedule a professional photographer to photograph their
space.6 Though initially only 20 photographers were contracted by Airbnb, the service became an
instant hit.7
Though this initiative was not cheap for the cash-strapped startup, the founders felt that the
long- term benefits—improved listings were two-and-a-half times more likely to be booked—
were well worth the cost. By 2012, there were more than 2,000 freelance photographers
employed by Airbnb to photograph 13,000 listings on six continents (see Exhibit 1).8
As Chesky explained, “We start with the perfect experience and then work backward. That’s how
we’re going to continue to be successful.”9 This approach extended beyond revamping listing
photos. The founders looked at the characteristics that users valued and worked to engineer
those into the entire site. With initial traction came new scrutiny from the media and the
established hospitality industry.
Disrupting an Established Market
When Chesky and Gebbia first advertised their loft-turned-lodging space and home-cooked
breakfast, they were promising more than simply a place to sleep. And as Airbnb grew, this
remained a core component of the user experience. It was this ability to deliver more than just a
place to sleep that allowed Airbnb to disrupt the established lodging market in such a major way.
Yet in order to really compete with hotels, it had to do more than just offer a better experience.
A major advantage of Airbnb was that it tended to be substantially cheaper—generally 30% to
80% lower than hotels in the same location.10 A 2008 TechCrunch article on the startup, which
was still called AirBed & Breakfast at the time, explained: “In general, the prices are usually much
cheaper (rates in San Francisco, for instance, range from $10 to $175 a night, with the median
being $85). And you get to stay with a friendly local who can steer you to restaurants and stores
you probably would never find otherwise.”11 One commenter pointed out that there was one
drawback to Airbnb:
If this ever becomes mainstream, the whole thing will come crashing down. The kind of people
that *DO* rob, abuse, rape and murder people will start using these systems, and that will spread
legitimate fear, corrupting the whole thing. Pray that this remains underground, that’s the only
way it can survive.12
As of 2012, with more nights booked than Hilton and a greater valuation than Wyndham and
Hyatt,13 there was no denying that Airbnb had gone mainstream. However, the company did not
“come crashing down” thanks to a number of efforts to help overcome the inherent trust issues,
even though Airbnb had its fair share of mishaps.
Professional photographs did a lot to inspire trust on one side of the equation—not only by
helping to ensure that listings were not seen as very low-end accommodations, but also by
simply verifying addresses. In addition to enhanced photos, in the summer of 2011, the company
introduced Airbnb Social Connections, which leveraged users’ social graphs via Facebook
Connect.
When Social Connections was enabled, listings showed the profiles of mutual connections—
friends who had stayed with the host or were friends with the host. Social Connections also
allowed guests to search for hosts based on other characteristics, like school of graduation. The
service was also quick to point out that the feature could be turned off with just a click, and that
connections were only visible to those with whom the user was already connected. Regarding
Social Connections, Chesky explained:
This has been one of our most requested features, particularly for people that want to have
something in common with the people they are staying with. Social Connections helps you find
places to stay with mutual friends, people from your school or university, or hosts that your
friends stayed with and recommend.14
When the featured launched in 2011, Chesky claimed that there were already 16,516,967
connections among current Airbnb members—a number that continued to grow.15 It was
important to the founders that Airbnb was not just a transactional website, but rather a place to
engage with before (and after) booking travel accommodations.
Optimizing the Product for Engagement
In the summer of 2012, Airbnb redesigned the site around a new “Wish Lists” feature.
The Wish Lists offered the ability to save properties that users most liked. It had been possible on
the Airbnb site for a couple of years, but the team wondered whether the function was optimized
for maximum engagement. As with the listing photos, they began with a test and waited to see
what happened. In this case, they decided to change the generic star icon to a heart as a means to
tag preferred properties. It was the aspirational difference between a star and a heart that led
Airbnb to develop Wish Lists. Wish Lists were functional, designed to facilitate sharing and
collaboration, but they also spoke to the aspirational potential of the heart by helping position
Airbnb listings as content. This gave users a reason to visit the site not only when they were
looking to book a room, but when work was boring or the weather oppressive. Users could visit
Wish Lists as a way to escape, browsing whimsical Airbnb-curated lists such as It Yurts So Good16
and Castles.17
Much to management’s surprise, engagement increased by 30% as a result. Gebbia explained that
the heart “showed us the potential for something bigger.” 18 That potential was aspirational
rather than utilitarian—something more than a simple accommodations search tool. “You have to
have search,” Gebbia explained after the Wish Lists launch. “But what if you don’t know where
you want to go?”19
Four months later, 45% of Airbnb users were engaging with Wish Lists and over a million had
been created.20 Ultimately, like the site’s use of Social Connections, Wish Lists helped the site to
stand out among competitors. Rather than merely a place to search for accommodations, Wish
Lists helped Airbnb to move toward a more engaging, social discovery form of planning travel.
Early Controversy
During the summer of 2012, Airbnb received $112 million in a Series B funding round from
Andreessen Horowitz, Digital Sky Technologies, General Catalyst Partners, Jeff Bezos, Ashton
Kutcher—who also joined the company’s advisory board—and CrunchFund. Then on June 22,
just three days after funding that valued Airbnb at over $1 billion, an Airbnb user’s home was
ransacked.21 It was unclear whether the company actually refused to help the user, named EJ, as
TechCrunch’s Michael Arrington initially reported: “I spoke to Airbnb about EJ’s situation. They
won’t reimburse her for damages, they say, and they do not insure against losses. They are
helping police track down the person who did this, but their help ends there.” 22
Airbnb was quick to email TechCrunch with the following corrections, which appeared as an
update at the end of the article:
1.
We have been assisting investigators and they have a suspect in custody.
2.
We have been working with the host since the event and we have offered to assist her to
the situation to [everyone’s] satisfaction. If you read the blog post, you’ll see that she
points this out:
I would be remiss if I didn’t pause here to emphasize that the customer service team at
airbnb.com has been wonderful, giving this crime their full attention. They have called
often, expressing empathy, support, and genuine concern for my welfare. They have
offered to help me recover emotionally and financially, and are working with SFPD to
track down these criminals. I do believe the folks at airbnb.com when they tell me this
has never happened before in their short history, that this is a one-off case.
3.
We actually have an entire safety FAQ for our users. You can find it here:
http://www.airbnb.com/safety23
The same day the TechCrunch article went live, Chesky also contributed a guest post on
TechCrunch entitled, “On Safety: A Word from Airbnb,” in which he asserted:
We are committed to improving upon our product with safety as the cornerstone of the Airbnb
marketplace. We are fully committed to the vision that one day you will be able to travel to any
city or town around the world, and with the click of a button, access local people and cultures
safely and easily. We will work tirelessly alongside our community until that day is fully
realized.24
Among these improvements, Airbnb promised it was working on a number of initiatives,
including doubling the customer support staff, creating a dedicated Trust & Safety department,
creating a Host Education Center with safety tips for hosts, designing enhanced user-profile
verification, facilitating richer communication between guests and hosts pre-booking, and
offering insurance options to hosts, though the specifics of those insurance options were initially
unclear.25
In the month that followed EJ’s initial post and Arrington’s coverage of it, the media attention did
not die down. In another blog post on July 28, EJ asserted:
On June 29 I posted my story, and June 30 thus marks the last day I heard from the customer
service team regarding my situation. In fact, my appointed “liaison” from Airbnb stopped
contacting me altogether just three days after I reported the crime, on June 25, for reasons that
are unknown to me. I have heard nothing from her since. I blogged my story, and all these kind
and supportive people just . . . disappeared.
She went on to claim that “one of the founders” (though not Brian Chesky) was the only person
from Airbnb with whom she had been in contact, and that he had repeatedly requested she take
down her initial blog post, limit access, shut down the blog entirely, or “update the blog with a
‘twist’ of ‘good news’” because of “the potentially negative impact it could have on his company’s
growth and current round of funding.”27
To make matters worse, on July 30, Paul Graham, founder of incubator Y Combinator, accused
Arrington of lying about Airbnb’s unwillingness to pay for the host’s damages, referring to
Arrington’s claims in a July 29 TechCrunch article as “bullshit.”28 That day, Arrington responded
in another TechCrunch post, referring to the whole situation as a “grossly mishandled PR
crisis.”29
The next day, Arrington highlighted the case of Troy, another Airbnb host who had had a
similarly nightmarish experience two months prior—Troy’s valuables and identity were stolen,
meth pipes were left strewn around his home, along with a random cat, and “thousands of dollars
of bizarre damage” was done to his rented home.30 In a comment from one of TechCrunch’s initial
posts about the Airbnb situation, the host explained:
I had a similar problem with haphazard communication from people at Airbnb. I gave them
multiple opportunities to make me a happy customer to which they did but then retracted their
offer after [there] was miscommunication among the team. Sometimes days went by without
hearing from anyone, while I was fear-stricken, totally disoriented, and angry. It was almost the
most absurd customer service crisis one could ever imagine. But I am one squeaky wheel, and we
eventually found an agreeable solution that I was generally pleased with. 31
The user, who had used Airbnb as both a host and a guest since the incident, went on to accept
most of the blame for the situation, explaining, much as EJ had, that he had had a gut feeling when
renting to this particular guest that something was not right. Airbnb eventually gave Troy
multiple free nights as restitution. His main criticism was that “[t]he reason they’re able to charge
these high fees is [because] they lull people into a sense of false security. If they disclosed that,
people would just use Craigslist”32—a point that was also echoed by EJ in her initial post.
Then on August 1, Chesky issued an unconditional apology via the company blog, announcing
Airbnb’s updated guarantee to cover up to $50,000 in damages from vandalism or theft, a 24hour helpline, something both EJ and Troy noted as lacking in their experiences, and several
more improved security measures.33 Then in May 2012, Airbnb partnered with Lloyds of London
to expand its guarantee even further, covering every booking with its $1 million Host Guarantee.
The company pointed out, however, that the guarantee was not a replacement for home or
renter’s insurance, and it did not cover cash and securities, collectibles, rare artwork, jewelry,
pets, or personal liability. Hosts that made claims under the Host Guarantee also had to “agree to
cooperate with Airbnb and its insurers, including providing documentation of the loss they’re
claiming and agreeing to inspection in the rare cases it may be necessary.” 34
Though the company’s initial handling of the situation was dubious, management learned from
their mishandling of damages and liability, and as of 2016, the $1 million Host Guarantee was an
example of the company’s commitment to trust. By moving quickly to address these concerns,
Airbnb was able to continue growing, despite these incidents, on an even sharper growth curve.
Etsy
Etsy was a two-sided e-commerce platform specialized in handmade or vintage items and
supplies including art, photography, clothing, jewelry, food, and toys. Etsy generated revenue
primarily from three revenue streams: (1) a marketplace revenue fee of 3.5% of sale and a listing
fee per item, (2) seller services such as promoted listings, payment processing, and purchases of
shipping labels, and (3) fees received from third-party payment processors. Etsy grew from a
thousand to a million customers from approximately 2005 to late 2008.
Organic Marketing/Network Effects
A TechCrunch “Teardown” of Etsy pointed out that the company was spending “next to nothing”
on customer acquisition (see Exhibit 2). This trend remained fairly consistent as the company
continued to grow, as revealed in its Form S-1 filing. Since 2011, organic channels had
represented 87% to 91% of Etsy’s traffic, while paid ads had been responsible for between 2%
and 7% of traffic (see Exhibit 3). As the author explained: “To think of this another way, for
every $100 of sales that occurred on Etsy’s platform, Etsy spent $1–$2 on marketing. Some may
say that this is still somewhat high given Etsy’s take rate is only approximately 10%, but if you
think of Etsy’s GMSa as equivalent to e-commerce revenue it is very low.”35
Furthermore, direct and organic traffic was typically of much higher quality than paid traffic, and
not only because it was free. How did Etsy drive such a high percentage of organic traffic?
Empowering Sellers
Etsy’s early support of artisans at craft fairs helped bring buyers and sellers to the fledgling
marketplace. As the company grew, it continued to provide support for sellers, who marketed
their wares and, in turn, marketed the Etsy platform to their own loyal customers. In 2013 CEO
Chad Dickerson, who took over after founder Rob Kalin stepped down in 2011, attributed Etsy’s
remarkable user growth, in part, to sellers promoting their own shops on social media. 36
As Medium’s Nicolo Ungari explained:
In reality, what Etsy did so well was enabling individuals to be entrepreneurial with their
hobbies. They created a virtuous cycle through several touchpoints, all directed towards helping
the seller first: the “Seller Handbook”37 (on Etsy’s Blog), internal management tools to better
process their orders and staying in touch with their customers, deep social media integrations . . .
and sponsoring a great amount of third party apps to better manage your Etsy store and increase
your revenues.38
Etsy fostered an entire ecosystem of more than 150 third-party apps and tools39 to empower and
support sellers. As Ungari put it, “Etsy’s incredible organic channel is the entrepreneurial drive of
its sellers.” 40
As Ezra Galston of TechCrunch explained in more general terms, “power sellers will be the
primary drivers of scale on your platform. While the long-tail of one-off sellers does provide
product breadth and liquidity, power sellers will drive both volume and organic referrals to their
own native product stores.”41 Speaking more specifically to Etsy’s circumstances, Galston went
on to point out:
Although only 32 percent of sellers who had sold an item in 2011 were still actively selling in
2014, those who remained on the platform had developed into serious power sellers—on
average $13K per active seller from that cohort. And as power sellers become smarter and
empowered by better tools, I expect their average earnings to continue increasing. This i…
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