Case Study: Airbnb's Journey from Air Mattresses to Global Marketplace

Unlocking Strategies: From Selling Cereal to Three-Click Design at Airbnb

Founder's Story

In October 2007, Brian Chesky and Joe Gebbia, two designers fresh from the Rhode Island School of Design, found themselves in a financial bind in San Francisco. Struggling to pay rent for their spacious apartment after their third roommate, Nathan Blecharczyk, moved out, they saw an opportunity during a local design conference when hotels were fully booked. They transformed their living room into a makeshift bed-and-breakfast, setting up three air mattresses and offering a stay for a modest fee. This impromptu venture netted them nearly $1,000 in a week, enough to cover their rent and spark a business idea.

Chesky, who had impulsively quit his job in Los Angeles to join Gebbia in San Francisco, and Gebbia, with their design backgrounds, recognized the potential in their solution. They enlisted Blecharczyk, a talented developer with a Harvard education who had funded his studies through a high school startup, to build a more robust platform. The trio’s complementary skills—design from Chesky and Gebbia, and technical expertise from Blecharczyk—formed the foundation of what would become Airbnb.

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Company Evolution

The initial concept, dubbed "Airbed and Breakfast," was a simple website created overnight to rent out their apartment for the conference. The first guests—a man from India, a 35-year-old woman from Boston, and a 45-year-old father of five from Utah—defied their expectations of a younger, backpacker demographic, revealing a broader market. Encouraged by this, they targeted the South by Southwest (SXSW) conference in Austin in March 2008, building a basic web app in three weeks. This second iteration attracted 30-40 hosts, strangers who listed their spaces after early press from design blogs like Core77 and swissmiss.com.

Despite early traction, the company struggled financially. In a creative move during the 2008 Democratic and Republican National Conventions, they launched Obama O’s and Captain McCain’s cereals, limited-edition collectibles sold for $40 per box. Selling around 800 boxes brought in approximately $30,000, providing a critical cash injection. This stunt, rooted in their design sensibility, also garnered significant press, amplifying awareness.

In January 2009, Airbnb joined Y Combinator, a turning point that brought mentorship from Paul Graham. Graham’s advice to “do things that don’t scale,” such as personally meeting users in New York City, proved transformative. Chesky and Gebbia flew to New York, photographed listings, hosted meetups, and gathered user feedback, leading to improvements like larger photos and the option to list entire homes. This hands-on approach boosted bookings and quality, helping Airbnb achieve profitability during Y Combinator without relying heavily on the program’s funding.

By 2010, Airbnb had listings in 2,200 cities across 110 countries, with 75,000 travelers using the platform. The company’s focus shifted to international expansion, targeting major cities like Paris, London, and Barcelona, leveraging their U.S. success.

Business Strategy

Airbnb’s strategy evolved through necessity and ingenuity:

1. Solving the Chicken-and-Egg Problem: Initially, Chesky and Gebbia leveraged local events with housing shortages, like the San Francisco design conference and SXSW, to attract both hosts and guests. Early press from niche design blogs created a feedback loop, drawing hosts who saw others listing spaces.

2. Frugal Marketing and Press: Lacking funds, they relied on grassroots press efforts, starting with small blogs and working up to major outlets like CNN and The New York Times. Their cereal campaign was a masterstroke, blending creativity with branding to generate buzz and revenue.

3. User-Centric Design: Their design background informed a focus on user experience, evident in the “three clicks to book” principle and larger listing photos. Meeting users face-to-face in New York allowed them to refine the platform based on real feedback, such as adding entire home listings after meeting a musician who toured with Barry Manilow.

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4. Y Combinator Mentorship: Paul Graham’s guidance to focus on a single market (New York) and engage directly with users was pivotal. His philosophy of doing unscalable tasks early on helped Airbnb build a passionate user base, which fueled organic growth through word-of-mouth.

5. Revenue Model: The 10% transaction fee provided a sustainable model, allowing Airbnb to fund operations without immediate need for further investment post-Y Combinator.

Lessons Learned

Do Things That Don’t Scale: Paul Graham’s advice to engage directly with users, even if inefficient, built a loyal early user base and informed critical product improvements. For example, meeting hosts in New York led to larger photos and new listing options, driving bookings.

Make Something People Need: Airbnb’s mantra, inspired by Graham’s “make something people want,” emphasized solving real problems. A user email highlighted how listing their apartment saved a couple from financial ruin, underscoring the platform’s impact.

Iterate Through Multiple Launches: Instead of a single launch, Airbnb used multiple events (conferences, conventions) to refine their product and story, each time gaining press and users. This iterative approach kept the narrative fresh and engaging.

Leverage Press Hierarchies: Starting with niche blogs and progressing to mainstream media amplified their reach cost-effectively, as smaller outlets were more accessible and led to larger coverage.

Statistics

Initial Revenue: Earned ~$1,000 in one week hosting three guests in October 2007.

Cereal Campaign: Sold ~800 boxes of Obama O’s and Captain McCain’s at $40 each, generating ~$30,000 in 2008.

Transaction Fee: Implemented a 10% fee per booking, enabling profitability by 2009.

Market Reach: By 2010, listings in 2,200 cities across 110 countries, with 75,000 travelers.

FounderPedia’s Take

Airbnb’s journey from a living room experiment to a global marketplace showcases the power of resourcefulness, user focus, and strategic pivots. Chesky, Gebbia, and Blecharczyk turned a personal financial challenge into a platform that met a universal need for affordable, authentic travel experiences. Their design-driven approach, coupled with Y Combinator’s mentorship, enabled them to iterate rapidly, leverage press, and build a passionate user base. By 2010, Airbnb was poised for global expansion, proving that unscalable early efforts could lay the foundation for a scalable, impactful business.

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