Airbnb just just finished raising funding to the tune of $113 million from Andressen Horowitz and DST Capital. The website aims to hook up people with a spare bedroom or even a second home with people looking for cheap accommodation in that city. In theory a great idea and one that I am sure many will find very valuable.
However this is nothing new as I have previously myself used websites which specialise in renting out holiday villas and cottages in Spain and Britain. The good thing about these sites was that the operators of the site would personally look at every let that was on their books and as a client you could be sure that you knew exactly what you would get. I am not sure what Airbnb's model for home verification will be, but this is bound to be very important. Maybe the social media aspect of the site will somehow aim to fill the gap here. However given their stated aim of wanting to be all over the world I think it will be very difficult to provide quality control.
There are also some concerns about issues such as local taxes and regulations that this site may not be complying with - apparently there may be issues in New York with bed tax not being paid. I am sure these will be worked out over time however. Also if the main selling point is the cheapness of the site - then of course it is worth pointing out that couchsurfing is completely free. I think Airbnb will also face a lot of copycats and me too websites which will start eating into their market and may well force their commission rates down. Add to this the company seems have some past history with some dubious shenanigans.
The main question is however the valuation that has been put on this site. The recent funding round puts the market value of this company at $1.3 billion. Let us say that the company has been valued at 10x revenue - this would mean that the company needs to be turning over $130 million a year. As we know that they take 10% charge from the rentals of properties this would imply that the $1.3 billion worth of property must be rented out every year. If we now assume that the average rental may be in the region of $50 per night then we are looking at somewhere in the region of 26 million nights being sold per year through this site. Thats a lot of nights. From what I have read they are selling somewhere between 1 million and 2 million. So the growth will have to be absolutely stratospheric before this valuation can be justified. To me this looks like irrational exuberance on the part of VC's and the bubble seems to be forming - yet again.
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