Airbnb and Other Unicorns Suffer by Staying Private, High-Profile Tech Investor Argues

As Airbnb mulls executing an initial public offering next year, tech investor Bill Gurley argued that Airbnb and other unicorns suffer by remaining privately held.

“Once you get to a certain size, you can’t be a thorn in Expedia and Priceline’s ass, and not expect them to turn around and talk and come after you,” said Gurley, a general partner a Benchmark Capital, referring to the battle between Airbnb and Booking Holdings over which company has the most alternative accommodations listings and consumer demand.

Over the years, Benchmark has invested in Twitter, Uber, Snapchat, Instagram, OpenTable, Zillow, Glassdoor and many others, although it has not been an investor in Airbnb or any of the online travel agencies.

When companies stay private or transition from a publicly held company back to the private sector, executives often say that there are great advantages to building and running companies outside the glare of quarterly earnings calls.

But in a one-on-one interview with Skift while attending the Phocuswright conference in Los Angeles Wednesday, Gurley argued that Airbnb and its co-founder and CEO Brian Chesky are suffering because the company is privately held.

“All these entrepreneurs love to tell you how wonderful it is to be private and that they have advantages,” Gurley said. “Chesky’s getting hurt right now because he’s private. And Morgan Stanley’s brought this report out and said we think the world is like this. And (Booking Holdings CEO Glenn) Fogel has the microphone because he’s in public and he can probably state it, and you’re sitting over there private not sharing anything and you’re taking the brunt of these blows.”

Private companies lose out in controlling their own narrative, Gurley said. “So this is one of those things where these companies think that they can just hide forever. And no, the war of words is coming at you. And if you choose to be quiet, it’s going to be told by other people.”

Gurley was speaking before becoming aware that Airbnb responded to the Morgan Stanley report that showed that Airbnb’s growth was slowing and that Booking Holdings and Expedia were making gains in alternative accommodations. An Airbnb spokesman had said that Morgan Stanley’s numbers were wrong.

Venture capital investor Gurley also argued — as he did onstage at the conference — that private companies get more disciplined and focused after going public because they have to.

Airbnb had no comment Thursday about Gurley’s statements to Skift.

Booking Holdings CEO Not Convinced

Asked about the Morgan Stanley report, Booking Holdings CEO Fogel, in a separate Skift interview Wednesday, said he’s pleased at the trajectory of his company’s alternative accommodations business. With 5.7 million alternative accommodations listings, according to the company, Fogel said one focus is to add more individually owned properties.

“It does not surprise me as we continue to build our business that people that are in this space will end up getting less share,” said Fogel, referring to the findings about Airbnb in the Morgan Stanley report.

But Fogel, who said he greatly respects Gurley’s opinions and track record, was not necessarily buying Gurley’s arguments about the benefits of the unicorns going public.

“There are pluses and minuses in being a public company,” Fogel said. He said it is a relatively recent phenomenon where privately held companies can achieve such scale, and also where the companies can go public with the founders still retaining control or near-control of the company.  He cited Snap co-founder and CEO Evan Spiegel as an example; the company is structured so Spiegel and his co-founder wield significant control of the company even though they own fewer than half of the shares.

“Amazon is a public company, but Jeff Bezos is able to do what he thinks is best for long-term value for the company and he operates no different, I am sure, as if he were a private company,” Fogel said. “He would make the exact same decisions.”

Fogel said he’s unsure whether it would make a difference to Booking Holdings whether Airbnb remains private or does an initial public offering, saying he prefers to concentrate on his own business and “what we need to do to win in this space.”  He said those things included adding single homes and apartments, having the best prices and user experience, including no traveler fees, presenting hotels and alternative accommodations together, and keeping all properties instantly bookable.

The Battle Will Be Over trust and Host Tools

Gurley contended that the battle between Airbnb, Booking Holdings, Expedia/HomeAway, and others in alternative accommodations will be won or lost over trust issues and which company provides the best tools for property owners.

“You book it on Priceline or Expedia, and then you’re dropped off right,” Gurley said, meaning customers are subject to an inconsistent experience from property to property.

Gurley said online travel agencies can solve that problem.

“And I think the boldest move any OTA (online travel agency) could make, would be to be putting more R&D (Research & Development) dollars into hotel property management systems than anyone on the planet, because you could afford to,” Gurley said.

He suggested it could be game-changing if one of the big online travel agencies devoted 5 percent of its marketing budget to developing better tools for hosts.

Gurley said the online travel agencies should give away these tools to owners and property managers, adding that real estate marketplace Zillow, in which he was an investor, killed the market for real estate software because Zillow developed its own tools and distributed them to the real estate industry.

All of the main players in travel have been scurrying to add better property management tools for homeowners.

Fogel of Booking Holdings agreed that it is vital to provide great tools and experiences to both consumers and property managers, both sides of the marketplace, as he put it.

“We are building tools for the hosts to enable them to do what they need to do easier, faster and better so they have a better relationship with us,” Fogel said.

Asked about Gurley’s suggestion that an online travel agency should perhaps dedicate 5 percent of its marketing budget to developing host tools, Fogel said: “If that was an area that we were going to spend a lot of money on, I would certainly not let people know about it now … ”

He added that Apple doesn’t go around sharing its plans with Samsung.

“By the way,” Fogel said, “you don’t have to build everything yourself.”

Asked if an acquisition of a vacation rental property management company would be beneficial, Fogel said: “It may or may not be. There are so many factors to consider. The question is how much money, who’s going to have to do it, who’s going to spend the resources on it. If you do that then you can’t do something else.”

He said his job is to decide the best use of the company’s resources, including finding the right balance between performance marketing and brand marketing, as well as investments and acquisitions.

“You can’t invest in everything all at once,” Fogel said.

A HomeAway spokesperson said the said its tools for property managers “provide transparency and data-driven insights, and we have received positive feedback on the tools we’ve introduced.”

For example, HomeAway’s MarketMaker tool enables owners and property managers to optimize rates to bolster occupancy, the spokesperson said. “HomeAway tools like MarketMaker will become even more powerful as we continue to incorporate data from Expedia Group.”

Tools are vital, but they are only part of the equation as HomeAway focuses on “creating the best short-term rental marketplace possible, including world-class products and solutions for the industry,” the HomeAway spokesperson said.

Amazon Could Afford to Buy Expedia

Speaking of Expedia/HomeAway, Amazon CEO Bezos, and the question of whether Amazon will re-enter the travel arena, Gurley said it would be “pretty interesting” if Amazon bought Expedia, adding that they are both Seattle, Washington-area companies. Skift discussed this prospect in a Skift podcast about Amazon several months ago.

Pulling out the calculator on his phone, Gurley figured that Amazon could probably buy Expedia, with its roughly $18 billion market cap, for around $25 billion. It would therefore only take a little more than 3 percent of Amazon’s $766 billion enterprise value, he noted, to buy Expedia. He added that Facebook spent more than 10 percent of its market cap when it acquired WhatsApp.

HotelTonight Initial Public Offering

Talking about the initial public offering market, Gurley noted that the market for taking companies public has been very active over the last year. Asked about HotelTonight’s prospects for going public, an action that its CEO Sam Shank has discussed in the past, Gurley said, “I think they do” have a shot.

“I mean, I haven’t seen the math, but the market wants growth,” Gurley said. The market “is interested in fun new things and growth. And so there’ve been a lot more IPO’s in the past 12 months, a lot. And not all of them are massive. So I think it (HotelTonight) could. I think it’d be fine.”

He added that Shank is well-regarded. And that’s a factor that sometimes gets overlooked.

For his part, Shank said an initial public offering is one of several options, including taking a strategic investment or partnering with a big player, in terms of potential exits or the future of the business.

Shank said HotelTonight is winning market share, and that the extension of its booking window beyond “tonight,” as well as its global rollout of a desktop application is attracting incremental business. He said the vast majority of HotelTonight desktop users are new customers.

While many hotel-booking sites are plunging into the alternative accommodations market, Shank said HotelTonight has a relatively small number of such properties because they have to be suitable for last-minute bookings in terms of having a front desk or smooth check-in process.

“You’ll see us be more involved” in the sector, Shank said.

He added that as a private company, HotelTonight can’t discuss details about how it might view the idea of an initial public offering.

When told that Airbnb has discussed it, Shank said they have “a different style.”