Airbnb – Travel startup or a home rental platform?

Last week, Airbnb filed to go public. If you love reading through S1 documents, you can find the full filing here where they have given complete details about the business, or you can read a condensed version by Crunchbase here.

I am not going to go into the details of the IPO as such, but it’s safe to say, Airbnb is an exciting company.

While going through the S1 docs, an interesting snippet popped up – Long term stays is one of the fastest growing sectors within Airbnb. There is a big opportunity between ‘hotels’ and ‘long term rentals’ which is currently being addressed by serviced apartments, which Airbnb can very much tap into.

What does this mean?

The company expects that the full ~$50B serviced apartments market and 10% of the long term rental market ~$150B (Full market size of long term rentals is ~$1.5T) is within it’s addressable market for this opportunity.

This exponentially increases the TAM for Airbnb, and it is clear that it is no longer a just a ‘travel’ start up.

At it’s core, Airbnb helps hosts (both landlords and operators) rent out their properties to potential tenants.
It has clearly won the travel segment, where travellers use the service for booking short stays (~1 week). Now, the company has set it’s sights on mid-term (~1 month) and long term (1 year) stays.

This signals that long term rental aggregators (Like Apartments.com, RightMove, Magicbricks, etc.) as well as rental operators (Like Sonder, ZoloStays, Common, etc.) need to start evaluating Airbnb as a potential partner or a potential competitor.

The Covid-19 effect

The ongoing pandemic has definitely dented the plans of Airbnb’s juggernaut in the travel industry. The company laid off 25% of it’s workforce in May-2020 in anticipation that the travel industry will take a long time to recover, and when it does recover, it will look different. They have definitely hit the nail on the head.

While global travel has indeed reduced, there has been a surge of people travelling locally, staycations at nearby locations, working from remote locations and some other interesting trends.

(In picture: Current home page of Airbnb talks about travelling to nearby places.)

Given the increasing appeal of remote work, it is entirely possible that knowledge workers can work remotely for the foreseeable future for extended periods of time. It seems inevitable that people will travel to different parts of the world while working remotely. Airbnb sits right on top of this opportunity, and has an easy road into the mid-term rental market.

Reports emerged of students opting for ‘Collab Housing’ – A set up where students rent an Airbnb in a remote/scenic part of the world with their friends, while taking remote classes! This helps them experience the ‘dorm life’ in some capacity.

Longer term rentals – Not an easy road

Shifting focus from short term rentals to longer term is definitely not an easy road. There are many challenges that need to be solved to make inroads in this direction. A couple of the important ones include –

1. In long term rentals, tenants would like to see the space in person before committing to staying there for months or even years. In which case, the booking can possible happen offline. Airbnb may have to explore a lead generation business model, and not just a booking based fee
2. Working with real estate agents – In many parts of the world, real estate agents have a tight grip on the long term rental markets and Airbnb would need to bring them onto it’s platform. Realtors are notorious for fighting technology and change, so that poses an enormous challenge

Personally, I am bullish on Airbnb and am excited to see how they navigate the next few months and years.

This blog was originally posted by our co-founder Ajay Kumar on his personal blog here.