It all started with two young designers renting out a couple of airbeds on the floor of their spare room for a few days to help pay the rent.

Today Airbnb – the service that allows anyone to turn their spare room or home into a hotel – is a global business, operating in 34,000 cities across 192 countries and offering accommodation ranging from traditional houses and apartments to converted aeroplanes, historic castles, river boats and tree houses.

The growth of the company has been phenomenal; in just six years it has grown into a global business with almost 500,000 rooms listed on its website. To put this into perspective, Intercontinental Hotel Group – the world’s biggest hotel group as of January 2013 – has 675,000 rooms worldwide. Four million guests have booked through the site since its launch, and in early 2013, the company was valued at a staggering $2.5bn.

“It’s incredibly exciting to be doing things on a global scale and to realise that what you’re doing is not only helping individuals but also creating a macro economic trend – the sharing economy. It’s just amazing to be changing the world,” says Nathan Blecharczyk, who co-founded Airbnb along with his friends Joe Gebbia and Brian Chesky in 2008.

It’s a grandiose statement, but Airbnb has certainly changed the travel industry, and it has transformed the way people view travel. It has also become the poster child for the burgeoning sharing economy, which uses technology to bring buyers and sellers together to share access to everything from homes and spare seats in cars to electrical appliances and dog walking services (as Brian Chesky said last year, “There are 80 million power drills in America that are used an average of 13 minutes. Does everyone really need their own drill?”)

The company’s swift international growth has brought challenges at times, with parts of the hotel industry seeing Airbnb as a threat, and lobbying for a crackdown on people renting their rooms, sometimes in contravention of local laws. But it shows no sign of slowing down, with Asia being targeted for huge growth over the next year.

The premise is simple – hosts get to share their homes, connect with other people from around the world and make some extra money, while users get a more unique and personal experience than they would in a hotel. Airbnb takes professional photos of the properties, advertises them on its website and deals with payments, and in return charges the host 3 per cent for each guest booking. The user is also charged service fees of between 6 per cent and 12 per cent, depending on the price of the booking.

HOW IT BEGAN
The idea was born when Blecharczyk moved out of the San Francisco apartment he shared with Joe Gebbia and Brian Chesky, and Gebbia and Chesky found themselves unable to pay the rent. The pair were both designers, and knew there was a design conference coming to San Francisco, so they decided to rent out their spare room.

“They were going to advertise it as a bed and breakfast, but the room had no bed, so instead they used airbeds and called it Airbedandbreakfast,” says Blecharczyk (the name was shortened to Airbnb in 2009). They cobbled together a website and welcomed several guests into their home, cooking for them, giving them transportation passes and passing on details of their favourite restaurants and places to visit in the area.

The pair enjoyed the experience, but did nothing more about it until three months later, when Blecharczyk left his job as an engineer, and the trio decided to go into business together.

Airbedandbreakfast launched in August 2008. “It was all about being able to stay with another person and getting that very personal experience – basically about recreating what Joe and Brian offered to their first guests,” says Blecharczyk.

For the first few months, the three entrepreneurs worked from Gebbia and Chesky’s apartment, struggling to stay afloat. “The early days were quite tough,” says Blecharczyk. “We financed part of the company through credit cards – we tried to raise money from angel investors and venture capitalists, but they didn’t see what we saw. No one would give us any money.”

Desperate for funding, they bought breakfast cereal in bulk, designed limited edition packaging to tie in with the upcoming US election, and sold their Obama O’s and Capn McCain’s cereal for $40 a box. This raised $30,000, but by the end of 2008 the company was still struggling and the trio were almost ready to quit.

As part of their last ditch attempt to make the business a success, Gebbia, Chesky and Blecharczyk agreed to take part in a programme called Y Combinator – a seed funding accelerator that provides funding and advice for start up companies. This proved to be a very good decision.

“We got some great advice from Paul Grahams [one of the founders of Y Combinator]. He encouraged us to go and meet our users and build products to meet their needs,” says Blecharczyk.

Over the next few months, they used the funding from Y Combinator to fly to New York several times. “We only had about 25 users in New York at that time, so it was a very manageable number,” says Blecharczyk. They took professional photos of their users’ properties, showed them how to use the Airbnb website and listened to their feedback. “We basically built a rapport with them – even inviting them out for drinks in the evening,” he says. “We told them our story, so they wanted us to succeed, and as a result they bought into the whole idea.”

The trio also helped their users write better descriptions of their properties and gave them advice on what prices to charge. “Once we’d hand curated the inventory and made the properties look very attractive, they started getting bookings,” says Blecharczyk. “Once they started getting bookings, they told their friends. Their friends signed up as hosts and emulated the quality they saw on the site; meanwhile people were coming from around the world to New York and then going home. Often the guests would become hosts themselves in their home towns. Right from the start, there was this international cross pollination going on.”

At the start of the Y Combinator programme, they drew up a revenue graph. Their goal was to get to $1,000 a week – what they termed ‘ramen profitability’ (enough money to pay the rent and buy noodles). Revenue quickly increased, from around $200 a week in January 2009, to $5,000 a week by April 2009, and during that period Greg McAdoo, a partner at Sequoia Capital, offered to invest $600,000 in the business.

From that point on, the company grew rapidly, and in November 2010 it raised $7.2 million in Series A funding from Greylock Partners, Sequoia Capital and other angel investors. By January 2011, it had had more than one million bookings; by the end of 2011 this had risen to four million, and by June 2012 they’d had 10 million bookings. In May 2011 the actor Ashton Kutcher made a ‘significant investment’ in the company and joined the team as a strategic advisor and in July 2011 the company raised a further $112m in funding. The money was used to expand into new countries, and in 2012 Airbnb opened 11 new offices in cities including Barcelona, Paris, Milan, Moscow, Sydney and Delhi, and launched in nine new markets.

A PERSONAL EXPERIENCE
The Airbnb founders have always seen themselves as more than just accommodation providers, says Blecharczyk. “We want to provide experiences. That’s done through the property itself and through the host; through being in an area that’s not your typical tourist neighbourhood, and being introduced to local cafés and restaurants and other people.” The website facilitates this, with each listing featuring detailed information about both the property and the host, as well as reviews from people who’ve stayed there.

Around a year and a half ago, the founders shifted their focus. “We realised that a lot of what we’d done to date was to invest in the website, which is really just there to help with bookings. What really matters is the offline experience,” says Blecharczyk.

In order to help enhance the users’ experience, the company recently hired Chip Conley, founder of Joie de Vivre Hospitality, as head of global hospitality. “He’s thinking about how we can give our hosts guidance and education on hospitality; really set an example of what great hospitality looks like,” says Blecharczyk. “We want to show them the minimum expectations that people have, and also share aspirational standards – examples of people going above and beyond. People are incredibly motivated, but sometimes you need to be a bit more explicit about what the possibilities are.”

One example of hosts going above and beyond happened during Hurricane Sandy in 2012. When the hurricane hit New York, Blecharczyk and the team spotted a tweet from one of their users, who said she would make her room available to anyone who needed it, free of charge. “We thought, wow, that’s really inspiring. I wonder how many other users would be willing to do the same.” Blecharczyk – who’s in charge of the company’s technical strategy – got the team together, and they spent all night working on the website so that people could list their properties for free.

“We sent out an email to all our users the following morning and within a couple of days there were around 1,000 rooms available free of charge to people who needed them.

“It was so cool to be able to use our platform for something that it was never intended for but which made a real positive difference for people in a time of need.”

TRICKY TIMES
There have also been a few hitches along the way. In 2010, a host’s house was vandalised and robbed. Back then, Airbnb didn’t offer insurance for hosts, but recognising that security was a vital issue for them, they introduced the host guarantee property protection programme, which insures hosts up to $600,000. They have also worked hard on security, introducing a verified ID system in early 2013, which requires people to scan or photograph a piece of photo ID so that the company can compare it to the information in their online identity, via their Airbnb, Facebook or Linkedin profile.

“The idea is that it’s easy to steal someone’s online ID, and easy to steal someone’s offline ID, but it’s very difficult to do both,” says Blecharczyk.

In some parts of the world there have been calls for a crackdown on people renting out their homes for short stays without permits. New York has been the most problematic market for the company – in early 2013 an Airbnb host was accused of violating New York’s illegal hotel laws and fined $2,400. This decision was reversed on appeal, but the case has highlighted how complicated New York’s laws are (the gist being that it’s only legal to rent out your home if you’re in it).

“It’s frustrating, but that’s part of doing something new,” says Blecharczyk. “Historically there have been rules for businesses and rules for people, and suddenly the line is blurred between them. I think everyone is realising that there’s a good thing happening, but in order to fully accommodate it, some of these lines need to be redrawn and the rules rethought through.”

The New York Attorney General also wants Airbnb users to pay hotel occupancy taxes, something which Airbnb has said it agrees with – Blecharczyk says the company would love to partner with the city to make paying the taxes easier for individuals. The founders are less keen on the demands by the Attorney General for information on all 15,000 users who have rented out their homes in New York. They argue that the demand is unreasonably broad, and lobbying group the Internet Association has backed them up, saying that it would set a “dangerous and harmful precedent,” allowing local governments to request information without any proof of wrongdoing.

LOOKING AHEAD
As well as educating hosts about hospitality, another big focus for Airbnb is on developing the mobile experience for users. “We’re really investing in our iphone and android mobile applications,” says Blecharczyk. “Our hosts often have full time jobs and are hosting on the side, so we’re giving them tools to respond to messages, update calenders and accept reservations on the fly.” In November, the company launched new apps on both iOS and Android so that hosts can do everything they need to do while away from home.

The next year or so will see the company targeting Asia, which is seen as having huge potential for growth. “We’ve had properties in Asia for a long time, but for the first time we have critical mass and sustained growth and we’re going to continue to invest over there,” says Blecharczyk.

I ask him what he does for fun, and he grins. “I love what we’re doing at work – it’s totally thrilling,” he says, before adding that one of his favourite things to do is meet the hosts. The founders hold regular nights worldwide where they invite hosts to their office and talk to them about their experiences with Airbnb.

“You realise you are impacting people’s lives,” he says.

Blecharczyk concludes with a story about a couple he met during one of these events in Beijing. “They’d adopted four children, who all had complex medical needs. Last year, the father lost his job and they couldn’t afford the children’s medicine. They decided to host travellers for Airbnb. They told me that not only were they making enough money to pay for the children’s needs, but they’d got the whole family involved. They’d turned it into a family activity, and an educational, fun and constructive experience.

“That was a really awesome, warm and incredible story.”