Friday, March 21, 2014

On Airbnb's $10 billion Valuation and the 'Sharing' Economy in General

From Dizzynomics:

Airheaded valuations and hospitality as a divine right
Airbnb is being valued at $10bn, which is $2bn more than the Intercontinental hotel chain according to the FT.

In my opinion this is a perfect example of how the capital system is failing to grasp the paradox of the sharing economy. And it will probably all end in tears.

Now I can see how at first inspection this sort of valuation makes sense.

You take the full unused spare room capacity of the United States and of course it amounts to more than the infrastructure provided by the Intercontinental group. Then you take a portal that facilitates access to that unused inventory, and even if providers operating on the platform eventually have to meet regulatory criteria and pay taxes on their earnings, you get a platform that can tap a huge proportion of those earnings.
But here’s the paradox.

You are flooding the market with untold inventory, which was previously unavailable. That knocks the potential revenue earnings of each unit in the system to the regulatory/airbnb membership cost breakeven point and initiates competitive forces that either drive out a huge proportion of supply (because the cost benefit of participating is no longer worth it, especially when regulatory burden turns a part-time venture into a full-time effort) or encourages investment in superior quality units by those operators who can be bothered.
Both factors have the effect of turning remaining participants into quasi professional service providers, that must compete with existing operators.

That means they have to compete with the standards already available in licensed b&bs and/or hotel groups like the intercontinental, even if they choose to market themselves on airbnb rather than expedia....MUCH MORE