Airbnb Back to Square One?

Summary

• Airbnb CEO, Brian Chesky says: “The Travel industry will never, ever go back to the way it was pre-COVID”.
• In March, the company faced a sudden avalanche of travel cancellations.
• The company lowered its internal valuation to $26 billion in April 2020.
• The big question is if startups are so fragile to crumble in crises.

The travel industry will not be the same again, says Airbnb CEO, Brian Chesky. The boss of Airbnb - a vacation rental online marketplace company, admitted losing almost everything of what it took them 12 years to build.

The worldwide outburst of novel coronavirus has left the service and hospitality industry struggling.

While countries are still battling with the deadly effects of the virus, travel, tourism and hospitality industry are severely destroyed by the impact of COVID-19 pandemic.

According to the industry expert, the recovery will be long and complicated, but Airbnb CEO, Brian Chesky believes that ‘the travel industry will never, ever go back to the way it was pre-COVID.”

He also suspects that, amid future uncertainty people will choose to travel locally, closer to the home due to the risk in planning future trips. Because of sudden border closer, many preplanned trips got cancelled, and people lost much money. He believes this could be a reasonably permanent shift and mass-tourism with bucket list destination days are behind us.

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The Success of Airbnb Over The Years

Airbnb, a startup based out of San Francisco, United States, started its operations in 2008. The company turned homeowners into entrepreneurs with providing a vacation spot in a home or villa. Initially, Airbnb offered arrangement for lodging, primarily homestays, later offering tourism experiences as well.

The company does not have any real estate of their own. They act merely as a broker and receives commissions from bookings. In the second year itself, the company received funding of $20,000 in venture funding from Y Combinator. Since then, year on year, the company has raised billions of dollars. This year, private equity firms namely Silver Lake and Sixth Street Partners invested $1 billion in Airbnb.

The company has also acquired various other startups.

1. German competitor, Accoleo was acquired in 2011
2. London-based rival CrashPadder was acquired in 2012; this acquisition added 6,000 more listings to already existing ones.
3. In 2012, Airbnb acquired NabeWise, an online guide that delivers information for the specific city.
4. In 2012, Airbnb announced the acquisition of Localmind, a location-based Q&A portal.
5. For approximately $300 million in cash and stock, in 2017, the company acquired Luxury Retreats International. It is a Canadian-based villa rental company.
6. In 2017, Airbnb acquired a social payment startup - Tilt.com.
7. The company acquired Accomable in 2017. It is a startup focused on travel accessibility.
8. In 2019, Airbnb acquired HotelTonight, a website for booking last-minute hotel room deals. The acquisition took place for $400 million.
9. To expand out of regular travelers, Airbnb acquired Urbandoor in 2019. The global online website offers stays for corporate clients.

Current Scenario; Is This the End For Airbnb?

Due to coronavirus pandemic, the travel industry is shut, and sales of Airbnb have dried up. On 5th May, after working from home for almost two months, Airbnb CEO Brian Chesky addressed to thousands of employees. Within a few hours, 1,900 employees — a quarter of Airbnb’s workforce, were fired from the job. Chesky, in his crackling voice, said in the video, the employees are his family, and he loves them all.

Airbnb lowered its internal valuation to $26 billion in April 2020. It’s a straight 16% drop in the company's previous estimate of $31 billion.

An in-depth discussion has started in Silicon Valley; are startups so fragile to crumble like a playing cards tower? Are startups regular businesses with capitalist concerns. The companies that position themselves as highly productive families of likeminded people have faced harsh realities like budget cut and layoffs.

A billion-dollar company, Airbnb stood for idealism. The founder Chesky frequently emphasised on doing business on principles and its people. He did not believe in the short-termism of Wall Street.

With a global compound annual growth rate of 153%, Airbnb planned to go public this year. In March, the company faced a sudden avalanche of travel cancellations. Chesky said everything that could go wrong for a business actually went wrong for Airbnb. For its employees, in the paradise world of Airbnb, the layoffs came with a disillusionment. Many employees who had to leave, felt betrayed, denial and grief, as the move was opposite to the company’s culture and its core values.

Are there any Bright Spots?

Startups are critical drivers of economic growth as they create jobs and are a catalyst for radical innovations in the industry. While the coronavirus pandemic has given a halt to many existing startups, it also has a paved a path to startups related essential services.

Startups all over the world have been most impacted because of the pandemic, as they are more vulnerable to such unprecedented shocks. Small and medium-sized firms (SMEs) engage in less-risky activities than startups. As revenues are affected by a drop in demand, startups become financially fragile.

Some countries like France, have introduced measures to support startups during crisis times. While France has set up €4 billion funds to push startup liquidity, Germany has promised a customised startup aid program. Besides, the UK has declared a co-financing fund for innovative companies.

Companies like Uber, Airbnb, WhatsApp were all started during crises, but not all of them can sustain themselves during another crisis.