This article originally appeared on LinkedIn.
Airbnb recently hit a mark most upstarts never do: profitability. In 2022, nearly 394 million nights and experiences were booked via Airbnb, revenue hit $8.4 billion, and the hosting platform made a profit of $1.9 billion. It’s quite a comeback for a company that in 2020 lost 80% of its revenue in just 8 weeks as the world shut down with Covid-19.
Scott Galloway, a professor at NYU’s Stern School of Business, highlights the fact that 70% of Airbnb’s site traffic comes from direct visits, compared with 40% for competitors, and that its net margin in the third quarter of 2022 was more than twice theirs. This indicates that Airbnb is generating superior levels of Earned Growth, which likely explains why its sales and marketing spending as a percentage of revenue was only 18% in the second quarter of 2022, compared with more than 50% for some competitors.
Generating customer flow without paying for customer acquisition completely changes the economics of this business, and the market seems to recognize that. Airbnb’s sustainable, organic Earned Growth engine is being awarded a valuation of about $80 billion as of the end of February, a much higher multiple than its competitors.
One thing I admire about Airbnb, and something I think has helped it stay in business and grow back stronger, is its focus on feedback. To my mind, Airbnb’s review system really offers customers the best options for them. The company has helped build community by creating a trustworthy feedback and rating process by and for real customers and real hosts. It’s not perfect. There are issues that need improvement—including grade inflation, which I will come back to in a future post—but it is, nevertheless, continually improving. That’s what makes it world-class.
My family recently rented a home for a vacation in the Florida Keys through Airbnb. There were some real highlights of the home, which was beachfront, but some drawbacks too, many of which could be easily fixed.
A few days after our stay, I received a reminder from Airbnb saying how much they valued my feedback, and that I could not see my ratings from the host until I provided my own rating of the property. I am a big fan of two-way rating systems—especially those that guarantee feedback will be revealed simultaneously, thereby avoiding retribution or mutual backscratching. Airbnb’s feedback system starts with a simple star rating of your overall stay, communication, location, check-in, cleanliness, and accuracy of the listing description, and then—and this is critically important—provides space for verbatim input.
When I had a chance to sit down and fill out the form, I took care with that verbatim input. Why did I put so much effort into an honest review? Number one, to help future renters get a clear picture of what they could expect. Number two, to help the host improve their customer experience. For example, I suggested the host might provide a small welcome gift with a note apologizing for the construction project going on next door. The project was not their fault, but they could have changed our reaction to that noisy surprise with such an acknowledgement.
I should note here that it was my daughter Jenny who found this Airbnb for our family—and her search revolved around reading the reviews of recent guests at this and similar properties in the general location and price range. We chose this particular listing because of the reliable feedback that the Airbnb system provided.
Jenny was very concerned that I might provide too much constructive feedback in the public portion of the review, possibly damaging the host’s ability to attract more guests. I decided to make the point about the construction project in the private feedback section for hosts, but I did publicly call out some problems with the pool vacuum and skimmers, which had also been noted by previous guests in their public reviews. By neglecting to fix those problems, the host, a distant investor who employed a professional management company, had failed to respond to feedback. That is important data for prospective guests.
Neither Jenny nor I have put comparable effort into writing reviews for our hotel stays—and we don’t depend on their inferior feedback systems for making decisions about which hotel to choose. Could this be part of the reason that hotels have lost so much market share to Airbnb? Perhaps it is time for hotels to begin building feedback systems that rival (or exceed) Airbnb’s current state of the art.
At the end of the day, the companies that win generate superior Earned Growth. They treat customers so well that they return again and refer their friends. A world-class feedback system plays a vital role in making this happen.