Airbnb Slips a Grand Experiment Into Its IPO

Airbnb’s long-anticipated IPO filing showed impressive resilience despite a pandemic that has battered the travel sector. But there’s something else notable in the documents: The company is holding out 9.2 million shares for a host endowment that it is aiming to grow to upwards of $1 billion. It could be a model for the future of the sharing economy.

At the moment, Airbnb operates like most companies in its sector: It offers a marketplace that enables users (in this case, travelers) to transact with suppliers (people who rent out their spaces); the platform receives a cut of each transaction in return. It’s a relationship that doesn’t so much “develop” as persist from one transaction to the next.

By creating an endowment, Airbnb is investing in a durable partnership with the hosts at the heart of its business. An advisory board made up of them will be guiding how the endowment is spent.

At first glance, the idea might sound like corporate posturing — or worse, unnecessary dilution of the firm’s shares. But the fund will have the effect of reassuring hosts that if there’s a downturn (like the company faced this spring), there will be a pot of money that can help them stay afloat.

When the economy is booming, meanwhile, the endowment can enable hosts to innovate and grow their businesses. This sort of benefit is especially effective because it provides the greatest value to the most active and entrepreneurial hosts.

That means Airbnb’s customers should benefit from the endowment, too. The more top hosts invest in refining the experiences they can offer, the better the overall service quality Airbnb can provide.

The Japanese company Raksul, which I co-authored a case study on last year, pulled off a similar success in their printing services marketplace. The company helped their top suppliers fine-tune their operations and invest in better equipment. As a result, the suppliers increased profits, improved the customer experience and increased throughput all at the same time.

In the same way, Airbnb can continue to grow its services and offerings without having to own and maintain properties — a core part of the company’s original value proposition. It’s a natural next step for the sharing economy: turning suppliers on the platform into partners who are strongly invested in making the platform work.

Other marketplace platforms should be treating their suppliers as partners, too — even if they can’t fund an endowment outright.

As Ian Macomber of Drizly and I argued in Harvard Business Review over the summer, it would make a lot of sense for delivery service companies to start investing in the restaurants, retailers, and drivers crucial to their success. But so far, most delivery platforms have taken the opposite path, squeezing suppliers in order to offer greater discounts to customers. That’s shortsighted because it means suppliers have little incentive to grow and improve their delivery operations.

Sharing economy companies have revolutionized how we travelshop for groceries and get around town. But many of them are built on a shaky relationship between suppliers and the platform. Airbnb’s host endowment is a test of a different path — a long-run commitment to help hosts’ success grow alongside the company’s. That could amount to a serious investment in Airbnb’s business.

As a side note: This is part of why it makes sense for Airbnb to structure its host fund as an endowment rather than, say, just giving hosts equity or dividends directly. The endowment reduces hosts' incentives to attrit, and means that at least some of the funds will be invested in innovation that increases the overall value for hosts and platform alike.

One delivery platform that is trying to give suppliers a stake is Dumpling, which I learned about from marketplace expert Li Jin, who is one of the platform's early investors.

Not to mention how we walk our dogs.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Scott Duke Kominers is the MBA Class of 1960 Associate Professor of Business Administration at Harvard Business School, and a faculty affiliate of the Harvard Department of Economics. Previously, he was a junior fellow at the Harvard Society of Fellows and the inaugural research scholar at the Becker Friedman Institute for Research in Economics at the University of Chicago.

©2020 Bloomberg L.P.

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