Never Sell: Episode 6 - Airbnb and Booking

David and his co-host engage in a detailed discussion comparing Booking.com and Airbnb, focusing on their market dynamics and business strategies. They highlight that while Airbnb garners more attention, especially among younger investors, Booking.com is a larger entity in terms of room nights and market cap. The conversation touches on the influence of Silicon Valley's storytelling on company perception, with Airbnb and Stripe often overshadowing less publicized yet substantial competitors like Booking.com and Adyen. They explore the challenges and strategies in supply and demand management, the impact of AI on travel bookings, and Airbnb's evolving focus on professional hosts and unique experiences. Despite skepticism over Airbnb's new initiatives, particularly in experiences and services, both hosts acknowledge its impressive financial performance and potential for growth in emerging markets.

• Discussion on the disparity in attention and valuation between Booking.com and Airbnb.
• Booking.com is twice the size of Airbnb in terms of room nights, gross bookings, and market cap.
• Despite its larger size, Booking.com receives significantly less attention than Airbnb, especially on platforms like Twitter.

"When it comes to fundamentals, right, Booking, it's around twice the size of Airbnb. They have, you know, roughly twice the room nights, twice the gross bookings, twice the market cap."

• Highlights the fundamental strengths of Booking.com compared to Airbnb.

"Booking gets, like, 1/20th the attention that Airbnb does."

• Emphasizes the disproportionate attention Airbnb receives compared to Booking.com.

• Younger investors and platforms like Fintwit tend to favor Airbnb.
• Older investors, such as the podcast hosts, tend to own Booking.com.

"Fintoot is so, you know, it's pretty clear fintude is probably, you know, less than 35 years old on a weighted average basis."

• Younger demographics dominate the conversation around Airbnb on financial platforms.

"The boomers in this conversation own booking and the younger fol, you know, who are dominating Fintwit and all, we own Airbnb."

• Highlights the generational divide in investment preferences between Airbnb and Booking.com.

• Discussion on the role of storytelling and media presence in the success of Silicon Valley companies.
• Airbnb and Stripe are highlighted as companies that receive more media attention due to their founders' active engagement in media and storytelling.

"It's not enough just to be a founder, you also need to be a thought leader."

• Emphasizes the importance of being a thought leader in Silicon Valley.

"In the book the Airbnb Story, there's this part where at one point Airbnb's founders were so broke and they're living on dry cereal or something."

• Illustrates how Airbnb's founders used storytelling as a strategic tool for success.

• Airbnb's financial achievements, particularly its operating profit and free cash flow.
• The challenges and failures of other companies in the online travel space.

"Airbnb is probably the only comp or is. Is the company that is generating highest, like, you know, GAAP operating profit or like free cash flow."

• Highlights Airbnb's financial success compared to other companies founded in the last 15 years.

"The online travel space, it's just littered with dead bodies. Right. Like Maasa, Sonder, TripAdvisor, Trivago, like Expedia, to hasn't done much over the last decade."

• Discusses the competitive and challenging nature of the online travel industry.

• Airbnb's creation of a two-sided marketplace with unique supply and demand.
• The rarity of companies achieving such scale on both sides of the marketplace.

"Airbnb really created, you know, it's a two sided marketplace of course, but at one side, at one hand it created unique supply and it also created unique demand."

• Describes Airbnb's success in creating a balanced marketplace.

"You don't really see such companies every year or every even, you know, five years or 10 years."

• Emphasizes the rarity of Airbnb's market position and success.

• Booking.com's origins as Priceline and its strategic acquisitions in Europe.
• The significance of the acquisition of Booking.com in shaping the company's current value.

"Before booking was Booking, it was a US centered online travel agency called Priceline."

• Provides historical context for Booking.com's evolution.

"They paid about $300 million for both of those combined. $135 million for just booking."

• Highlights the strategic acquisitions that led to Booking.com's current market position.

• The fragmented European hospitality industry as an advantage for Booking.com.
• The company's culture of experimentation and innovation in improving conversion rates.

"The European hospitality industry is very fragmented and therefore easier to aggregate than in the US."

• Explains how market fragmentation in Europe benefits Booking.com.

"At any given time this company is running, you know, more than a thousand tests to improve conversion and click through rates."

• Emphasizes Booking.com's commitment to continuous improvement and innovation.

• The symbiotic relationship between Booking.com and Google in terms of search ad revenue.
• Potential risks and opportunities related to AI and Google's role in the travel booking space.

"Travel was and it might still be Google's largest source of search ad revenue."

• Highlights the financial significance of Booking.com to Google's revenue.

"I always just saw this as like a synergistic partnership and I didn't really see a strong reason why that would change."

• Describes the mutually beneficial relationship between Booking.com and Google.

• Booking.com's efforts to increase direct bookings and reduce reliance on Google.
• The development of a connected trip concept and loyalty programs to enhance customer experience.

"More than half of their bookings now come directly."

• Indicates Booking.com's success in increasing direct customer engagement.

"They tried to create this idea of a connected trip where you just rely on booking for all parts of your vacation."

• Describes Booking.com's strategic initiative to offer a comprehensive travel experience.

• AI agents can act as a meta-layer across various applications, simplifying tasks like booking travel by traversing multiple platforms and creating personalized itineraries.
• These agents potentially offer more convenience and personalization than dedicated apps due to their expansive memory of user preferences across different activities.
• Booking.com has partnered with OpenAI, indicating a shift towards AI-powered interactions in the travel industry.

"So it might surface related activities when you're planning your trip."

• AI agents can enhance user experience by suggesting activities based on past preferences, making travel planning more personalized.

"In that second scenario where everything is agents interacting with websites, I think one possibility is that the relationship booking has with OpenAI...is not too dissimilar to the one it currently has with Google."

• The partnership between Booking.com and OpenAI could mirror existing relationships with search engines, where AI controls user interactions while Booking.com handles transactions.

• Aggregators like Uber and Airbnb have distinct advantages due to their business models, which rely on gig workers and independent hosts, respectively.
• AI agents might bypass traditional aggregators by directly interacting with individual service providers, but customer service and transaction management remain critical roles for companies like Booking.com.

"Nevertheless, somebody has to handle customer service, somebody has to deal with payments, the fraud prevention, the cancellations and refunds, that kind of stuff."

• Despite advances in AI, human-managed services are essential for handling complex customer interactions and transaction issues.

"So basically like it's possible that the agents see booking as, as you know, like the most reliable or efficient way to finalize a transaction."

• Booking.com might maintain its relevance by being a reliable transaction facilitator, even as AI agents gain prominence.

• Stablecoins could simplify international transactions for AI agents by reducing complications related to foreign exchange rates and fraud.
• The integration of stablecoins with AI agents could streamline high-frequency transactions, such as booking rides.

"It's possible that stablecoins can play a very, very interesting role in mediating these transactions where the complication, complexities around in FX rates, different currencies, you know, fraud and all that can potentially go down."

• Stablecoins offer a potential solution for simplifying complex financial transactions in a digital economy dominated by AI agents.

• While AI agents offer convenience, many users find personal enjoyment in planning travel, preferring to engage directly with options and details.
• Frequent travelers might benefit more from AI agents due to time constraints and routine travel needs.

"Planning is actually core part of the enjoy that People get from the whole experience."

• The personal aspect of travel planning remains important for many users, highlighting a potential limitation of AI agents in this domain.

"I don't expect myself to completely outsource that sort of experience to the AI agents."

• Users may prefer a hands-on approach to travel planning, especially for leisure trips, underscoring the need for a balance between AI convenience and personal involvement.

• Booking.com has a significant presence in Europe but faces challenges in the U.S. market due to competition from chain hotels and Airbnb.
• The company’s operating margins and growth in alternative accommodations highlight its competitive strategies and financial health.

"It's pretty clear that they're not a big player in the US but they do. And he was basically making the point to me that's an opportunity."

• Booking.com sees its current low market share in the U.S. as an opportunity for growth, despite existing challenges.

"They also, I think, mention every. Almost every call now that they are actually growing faster than Airbnb in their alternate accommodation segment."

• Booking.com is focusing on its alternative accommodations segment, which is growing faster than Airbnb’s, indicating a strategic focus on diversification.

• Airbnb hosts are predominantly individual hosts, but professional hosts, though fewer in number, contribute significantly to bookings.
• The platform faces challenges in increasing individual host numbers and occupancy rates, especially in regulated markets.

"So booking mix is in, as in, let's say if I have like a spare room, right? And I, let's say from time to time I just, you know, put it on Airbnb, but I do it only few, I don't know, let's say weeks a year, right?"

• Individual hosts typically have lower occupancy rates, contributing to a smaller portion of Airbnb’s overall bookings compared to professional hosts.

"It feels to me inevitable that the farther I look out, it feels like Airbnb's booking mix is going to be more and more professional hosts and less the individual hosts."

• The trend towards more professional hosts on Airbnb reflects the platform’s evolution and potential future dynamics in the accommodation market.

• Airbnb has shifted from its original community-focused model to a more professionalized and standardized experience, resembling hotel check-ins.
• The challenge lies in balancing artisanal, unique offerings with scalable, mainstream options.
• There is an ongoing conflict between maintaining intimate, artisanal experiences and the need for scalable, consistent operations.

"When Airbnb kind of first started out, there was a lot of emphasis placed on, you know, making connections with the host and community and all that kind of stuff."

• Initially, Airbnb focused on personal connections between hosts and guests, emphasizing community building.

"I honestly can't remember the last time I booked at Airbnb where I even ran into the host. Usually it's here's the code to the door and call if there are any issues."

• The current Airbnb experience is more automated and less personal, similar to hotel check-in processes.

"Can you be Etsy and Amazon at the same time, or do you have to make a choice about who you want to be?"

• The dilemma of maintaining a unique, artisanal experience while scaling like a major corporation.

• Consistency is a major complaint from guests, leading to the need for standardization across different locations.
• A close relationship between hosts and guests could potentially bypass Airbnb’s platform.
• The balance between creating a global community and maintaining platform integrity is challenging.

"What's the major complaint about from Airbnb? Let's say guests lack of consistency. Right. That's the number one complaint."

• Consistency in guest experience is a significant issue for Airbnb.

"If you are actually too close with your host, you will. You would actually disintermediate Airbnb, right?"

• Direct relationships between hosts and guests can lead to bypassing Airbnb, posing a risk to the platform.

"If I'm really close with someone, if I trust a host and if I go to that particular city, you know, multiple times, why do I need to be on Airbnb?"

• Frequent travelers may not need Airbnb if they establish trust with a host.

• Airbnb is perceived as a mature platform, with most of its business concentrated in five core markets.
• Emerging markets are growing but still represent a small portion of revenue.
• The platform's growth is limited by its dependence on a few geographic regions.

"It's probably becoming more of a mature marketplace. I think people underestimate how much this platform is just five markets."

• Airbnb's business is heavily concentrated in five core markets, indicating maturity.

"All these nine markets is like today only 15 to 20% of revenue."

• Emerging markets contribute a small fraction of Airbnb's revenue, highlighting growth limitations.

• Airbnb is pursuing a strategy to become a recurring super app, aiming for more frequent usage.
• There is skepticism about the potential success of experiences and services as a significant revenue stream.
• The focus is on incremental revenue opportunities rather than a new billion-dollar stream.

"This new initiative to become more of a recurring super app and get more frequent usage."

• Airbnb is attempting to increase user engagement through a super app model.

"I actually don't know any public market investor who thinks that experience and services have big potential."

• There is widespread skepticism among investors about the viability of Airbnb's experiences and services.

"I see it more as like, as like an incremental ARPU opportunity on the core booking."

• The potential for services is seen as an opportunity to increase revenue per booking rather than a major new revenue stream.

• The marketplace model's success varies depending on the type of service and its frequency of use.
• Uber's success is attributed to the gig work model and consistent service, unlike platforms like Angie's.
• The challenge lies in creating a recurring need for services on Airbnb.

"One question is, like, why has the marketplace model worked for Uber and not like Angie's in Upwork?"

• The success of marketplaces like Uber is contrasted with less successful platforms like Angie's and Upwork.

"When there's, you know, a wide variance in the quality of the experience and where the dollar amounts are involved are pretty significant, I think that's where you're also going to have a tough time intermediating the relationship on a recurring basis."

• High variance in service quality and cost makes it difficult to maintain recurring relationships in a marketplace model.

• Airbnb's travel experience strategy focuses on enhancing long-term stays, particularly in non-urban areas where traditional hotel chains are absent.
• The platform aims to provide activities for guests staying 28+ days, addressing the need for entertainment during extended stays.
• Airbnb's unique positioning in non-urban areas differentiates it from traditional hotel experiences, catering to a market less served by big hotel chains.

"If you're in a city for like 28 plus days, right. Then I think you may actually run out of things to do and Airbnb can come into the situation into this context to help you figure out stuff, figure out things to do in the city."

• This quote highlights Airbnb's strategy to enhance the guest experience during extended stays by offering activities and experiences to keep guests engaged.

• The relaunch of Airbnb Experiences faces challenges due to the company's desire to control the quality of offerings, akin to Apple's controlled ecosystem.
• There is a debate on whether Airbnb should allow the market to dictate which experiences succeed rather than curating them heavily.
• The tension between maintaining a curated experience and allowing market forces to determine success is a central challenge.

"Brian Chesky talks a lot about how he wants Airbnb, like how he designs Airbnb to be Apple. Right. And how Apple and Steve Jobs is basically his idol."

• This quote illustrates the influence of Apple's business model on Airbnb's approach to curating experiences, highlighting the tension between control and market dynamics.

• Airbnb's marketplace strategy involves balancing the focus between demand (guests) and supply (hosts).
• Unlike hotels with fixed supply, Airbnb's supply is more flexible, requiring a nuanced approach to maintain balance.
• The company prioritizes unique supply to differentiate itself from competitors like Booking.com and Expedia.

"When I think about just this dynamic, I feel like Airbnb thinks aggregating the unique supply is much more important and existential for them."

• This quote underscores Airbnb's emphasis on unique supply as a critical differentiator in the competitive landscape of online travel agencies.

• Airbnb generates a significant portion of its traffic organically, which influences its advertising and revenue strategies.
• There is potential for Airbnb to introduce advertising products, particularly targeting professional hosts who currently pay a 15% fee.
• The idea is to create a bidding system for professional hosts to gain visibility in search results, leveraging Airbnb's organic demand.

"90% of traffic to Airbnb is organic. Right. So they are literally generating demand organically. And I think the professional hosts, they need to pay for it more."

• This quote suggests a potential shift in Airbnb's revenue model to capitalize on its organic traffic by charging professional hosts more for visibility.

• Airbnb's financial performance is influenced by its spending on R&D and sales and marketing, with a focus on brand advertising.
• The company's core markets generate significant operating profit, while emerging markets are less profitable.
• Airbnb's market cap and enterprise value are significant, reflecting its position in the travel industry.

"Last year they spent 2 billion on R D. Booking has like no line item at all. Right, so 2 billion R& D somewhere."

• This quote highlights Airbnb's substantial investment in R&D compared to competitors, indicating a focus on innovation and long-term growth.

• Airbnb's growth strategy involves expanding into emerging markets, with a focus on cultural adoption of the home-sharing model.
• The gradual acceptance of Airbnb in non-Western markets is seen as a long-term opportunity.
• The company's success in new markets depends on both host and guest adoption, creating a two-sided marketplace challenge.

"The experience of the American travelers or European travelers who are used to Airbnb, when they go to Asia or other, let's say Latin American countries, they stay on Airbnb."

• This quote reflects the gradual cultural adoption of Airbnb's model in new markets, driven by travelers familiar with the platform from Western countries.