Airbnb’s Guest-Host ‘Flywheel’ Advantage Is More Myth Than Reality

Online Travel This Week

Airbnb indeed has a brand advantage over many of its competitors, but what about its inroads in organically recruiting new hosts? Does that set Airbnb apart, as well?

In a recent research report, Alliance Bernstein analyst Richard Clarke touted Airbnb’s guest-host “flywheel,” sparking verbal allusions to Amazon’s business momentum through its flywheel effect, a business principle that is a self-reinforcing loop fed by key strategic initiatives.

“Airbnb benefits from a peer-to-peer flywheel of guests becoming hosts, hosts becoming guests — which leads to more unique product, loyal customers and less reliance on third parties,” Clarke wrote. “Ultimately this is expected to mean higher margins and the opportunity to extend into new verticals such as experiences and longer term lets.”

Airbnb didn’t user the word “flywheel” in its initial public offering registration statement in November, but made a similar argument about the organic way that it attracts new hosts.

“Hosts come to our platform organically, offering stays and experiences in nearly every community around the world,” Airbnb stated. “We attract new hosts through our community — hosts recruit hosts, and guests often become hosts. 23% of our new hosts in 2019 were guests on our platform first.”

Well, it turns out, that Bernstein’s flywheel analysis may be catchy and appealing, but it doesn’t match reality on the ground. Airbnb’s host recruitment efforts go way beyond organic sign-ups.

Although it varies widely by geography and timeframe, we’ve seen Airbnb through a variety of plans, including its Ambassador program, hand out hefty payments to hosts to refer and encourage new hosts, and cash in when these new hosts complete bookings.

We’ve seen UK hosts in the first quarter of 2020 pick up rewards of $625 (£450) per host referral, and Atlanta-area hosts get offers from time to time of $250 payments per host referral.

The pricing of Airbnb’s referral programs, which aren’t available in some markets at various times, seems to be contingent on supply and demand, and where the company strategically wants to grow.

Even more important than the referral programs, Airbnb is currently carrying out a global advertising campaign to recruit new hosts, and has spent more than $20 million on national TV ads in the U.S. alone since the brand marketing blitz began February 22, according to TV analytics firm iSpot.tv.

Airbnb declined to comment for this story about any flywheel effect.

Clarke of Bernstein said Expedia Group’s short-term rental unit, Vrbo, doesn’t benefit from an organic flywheel effect, and makes no promises of higher margins, which declined “from 2016 to 2019 despite double-digit revenue growth suggesting limited operating leverage.”

Asked about Airbnb’s alleged flywheel advantage in attracting hosts, an Expedia Group spokesperson said: “Vrbo is a different business that lists whole, private homes and has a higher average income per homeowner. It’s in a strong position for inventory growth because it is, among other things, attracting both first-time hosts and seasoned hosts coming from other platforms and building strong relationships with local governments. It’s paying off that we’ve spent decades operating with a partnership approach — taking host needs and community needs into equal consideration with traveler needs.”

There are several zingers in that statement from Expedia. It’s no secret that many Airbnb hosts are deeply angry over Airbnb’s decision to refund guests — a decision I endorsed — early in the pandemic, leaving hosts in harms’ way. Expedia’s statement that it is signing “seasoned hosts coming from other platforms” and that it is “taking host needs and community needs into equal consideration with traveler needs” is an apparent reference to that malaise.

Does Airbnb get some positive impact from guests trying out Airbnb and then becoming hosts? Yes, the company’s 2019 statistics referenced above trumpet that fact.

But Airbnb itself acknowledged last year that it took hosts for granted. With all of the alienation that many hosts feel toward the company, host recruitment these days is hardly organic and is part of a multimillion dollar global effort.

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