Taking the air out of bnb?

Early last week the Wall Street Journal reported that "the billion-dollar start-up club has a new member: Airbnb Inc. (the) San Francisco Internet company, which offers a marketplace for people to book vacations in other people's homes, has raised a $112 million round of financing. The investment values the company at $1.3 billion." The report goes on with a crowing account from the founder about how Airbnb is to "space what eBay is to stuff"  adding "Airbnb could some day be even bigger than eBay, which is currently valued by the market at nearly $44 billion." Maybe.

A little later in the week the company hit what could be more than an air-pocket. The San Francisco Chronicle reports on the story of a EJ, the anonymous woman who blogged that her San Francisco home was burglarized and vandalized by a guest who arranged to stay there through the service Airbnb. In an interview with the paper she denied the canard that she worked for the hotel industry while the paper dismissed another that claimed she does not exist by verifying "through a public records search that matched identifying details she offered with those provided by the SFPD (San Francisco Police Department). The Chronicle also reports that the "SFPD has made an arrest related to the case".

While the internet company's founder's glee at the stratospheric valuation of his company by the market is to be expected, the comparison to eBay is more than a little overwrought and probably downright premature. For starters, eBay attempts to comply with all local and national regulations whether foreign or US. In contrast, it is unclear that Airbnb's operation does not violate New York's illegal hotel law. Secondly, it is not clear that customers are getting the bargain they assume to be the case.   As a commenter in the online version of the Wall Street Journal's article rightly points out "the price per night is equal or higher than a typical hotel room, so what's the point?"  What's more, there is also little if any recourse for customers for disputes arising from differences, real or otherwise, between what was promised and what was offered.

Far more importantly, as the EJ incident highlights, security both for renter and "landord" is virtually non-existent. Were a situation like the infamous DSK case to occur in an unattended room in a potential predator's house, prosecuting the perpetrator in the absence of any of the security measures found in hotels is likely to be significantly harder if not impossible. It is also unclear what liability issues are there for the person renting out the room were a renter to indulge in illegal activity including the sale/and or use of narcotics.  Nor does it help that customer reviews via user generated content in independent sites like Tripadvisor are a non-starter as individual "rooms' are never identified. In the end, it will take more than "caveat emptor" to bring about real customer satisfction much less forestall a repeat of EJ like incidents.


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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.