Yes, I agree. I think hosts focus too much on what they pay, and not enough on what guests pay. It doesn’t make so much difference that guests are paying it. It’s still driving up the cost of the reservation, and affecting their business.
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But the real thing is -
They take that guest’s money immediately when the reservation is made. And they take it breath-takingly fast. Of course they are then investing it and, presumably, this is the true source of any profit they make - those millions/billions of dollars sitting around earning money for them.
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My neighbor was once a B&B owner and she has told me the nightmare stories of cancellations, bounced checks, etc. I’m very very glad to not have to deal with that side of the business. It sounds horrible. Airbnb made it possible for me to get into a business I always wanted to try. I don’t have the energy, time, or expertise to handle the reservations through my own site. I’m on Wimdu but they send me few guests. So with Air I’ll stay.
As a guest, when you book a hotel room and want flexible cancellation, you pay more. You save money if you want it to be flexible. This puts the burden on the guest, where it should be. It seems that the sliding scale should be on their side, with a portion of the extra cost passed to the host.
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I don’t think anything said here will change the economic realities these booking agencies face.
Airbnb (as well as the others) start with an absolute value of profitability that they must have: it appears that figure is roughly15%. Now who pays what is the question. There are only two people they could possibly get it from: host and/or guests. It appears they are experimenting with different combinations right now what they charge each one (the slider dc mentioned above); but one thing is a mathematical certainty - they must get 15%. The 15% didn’t come from outer space, it is determined by roughly what they need to stay in business.
Meantime, back at the ranch, new competition will inevitably rise, bearing better temporary gifts, and look good by ‘giving away the store’ at first, till they have to make a profit to stay in business in the long run, and then they will have to join the ‘15% crowd’. And then that leaves room for the next one that arrives at the scene, and the beat goes on.
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Somewhat like what new hosts do, right? We undercut our competition either out of ignorance (me) or to earn reviews. After which we bump up the price to make a profit commiserate with our efforts.
Exactly dc. Perhaps it is why we tried harder when we started, and better continue to think of the ways to always improve our places; fear (of not getting bookings and at a good-enough price) is always a great motivator.
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I used to work for Paychex, its a company that does employer taxes. And thats how they made their money by collecting upfront taxes from employers every month, and then paying them quarterly. So, all these money were sitting in Paychex account for 3 months collecting interest. Some big companies with 100s employess Paychex did not even charge any fees for processing taxes because they made tons just from interest. And anyway those fees were very little. What a smart idea. From every account very little, but eventually they had thousands and thousands clients, and profit was enormous.
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I saw on Craigs list people putting bad hosts announcements “Do not rent from this and that person”
Interesting. But it’s not systematic, so not so useful. Unless someone had the time and energy to maintain a list.
I dont have many inquires with separate house, only one, and she thought that was price for the month, not week.
Rooms i am renting back to back, and people keep calling and calling
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Guests from Craigs list dont really need reviews as they do not book blindly. With AIrbnb you never know. Guests dont know even with review in what condition the house is, and other little details. I think Air guests tend to leave timid reviews, and dont disclose many unforable details. I am guilty of that too. If i liked my host, i did not mention things i did not like. Pictures can lie too. With Craigs they come to the house and see for themselves
They ask questions, i give them tour, go over my rules, and they can decide.
I just rented my friend’s studio to a guy. I asked him if he knew about Airbnb. He said, of course he knew and used them couple of times, but did not have good experience. He said, he asked hosts to see the place before, and noone agreed, but he did not feel comfortable to rent for a longer term without seeing a place.
I think that host , a woman, pissed her guest significantly, because the guest described in every little detail what happened, and kept on reposting for months. I think it did the damage. That host had a habit of contacting people who posted on “rooms wanted”, and she called them offering her place. I did it once too, but then stopped contacting them, because its a huge descrepancy between “wanted” prices and actual.
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Those are all good points. But if you are coming from far away (as international travelers typically are) the fact that the place can be checked out in advance is not so useful to them. I’m not saying that’s a major issue one way or the other. And I agree reviews, at least the way Airbnb do them, don’t work that well. How often do you see negative reviews? Much more rarely than one would expect. Funny thing, I was in a chat room Sep 2015 (this is before I actually started renting on Airbnb), and I remarked to the room at large that the reviews were “improbably positive”, and said that I didn’t understand why. (I just happened across that conversation the other day.) Now I understand. 
Sorry, I’m missing the context. What host was this?
The one on Craigs list.
True with international guests. But since i am doing longer terms now, i dont get these many international guests. These 2 that i have now, are not locals also, but work here, and usually the scenarium is they first book a hotel, and then look around and see if they can save some money and book a room. For them its the same as for me, they want to be sure they are comfortable and have everything they need, and i want my kind of guest.
I left one of my rooms open on Air calendar just out of curiosity to see if i ever will get any inquires. For the past few weeks not a single inquiry. I started getting inquires from Roomlala, Flipkey, almost everyday but so far into the future, like New year, or April. I am worried about renting through AIr now, there are so many rooms there in my price range that it looks like a lottery.
While I’m not a business or economics person, it seems to me that businesses are motivated by trying to make as much money as possible, any way they can, while still staying in business and within the law (in places where the law is actually functional). Occasionally considerations of morality and ethics intrude, but rarely.
This is, in large part, how the world functions. Anyone who thinks differently, is, in my opinion, naive or delusional. (I hope this doesn’t come across as arrogant. This just reflects my experience at that estimable university, the School of Hard Knocks.)
I think Airbnb is just trying to make as much money as it can, as fast as it can. While the sun is shining, so to speak.
And the 15% cut is only part of the money it takes it. There’s also the interest it makes on money it’s holding before handing it to hosts. This probably only accounts for a few percent on the value of the money, but it’s not nothing. Also, as others, e.g. @cabinhost have pointed out, they keep fees from cancellations. That isn’t nothing, either. I’m pretty sure that holding the money is not such a common thing to do for traditional renting sites. booking.com doesn’t do it.
A random example of how a company behaves when they can do what they want is Microsoft. For a while they were really raking it in - it’s an interesting story.
@faheem I thought the point of the interest that cabin mentioned that Airbnb makes a good point also, but they only get more than their competition, remember the others also get deposits up front, to a lesser degree. I was just figuring out for fun what Airbnb is holding for just for my place, a small fortune. Good for them, but be cool if they send me 50% because presumably we are ‘compadres’. Right.
Interesting you should mention Microsoft, I am, well aware how he started, how he ‘borrow’ the original operating system to satisfy IBM, and how dominant it was before the rise of other systems. Got to meet Gates a few times in the 80’s, long story, another time. Heck, Paul Allen parked his yacht oftentimes right next to mine right here in Placencia, Belize till last year; small world.
To the matter at hand, of course companies try to make as much money as they can, but their greed is always harnessed by what their competitors are doing, unless they can all collectively set up a silent or not-so-silent cartel. The 15% is offered as an example of the minimum they may need to make, to do stay in business, in the long run. The maximum one supposes is ‘what the market will bear’, of that I have no illusion.
Yes, one really learns about the world from the ‘School of Hard Knocks’; my Ivy League education in economics/law taught me squat in comparison.
Hi @Mearns,
Yes, I think we’re broadly in agreement. And you are no doubt a very experienced businessman, so I wasn’t attempting to educate you - not that I would presume to do so. Just some stray remarks.
I suppose my contention was regarding Airbnb needing to make 15%. It seems to me rather than making calculations, this about how much they thinking they are able to make, for now. It’s hard to say how much they “need”. Need is a somewhat ill-defined term. By any conventional measure, they’re doing extremely well - they don’t really do much for the money they receive. But I suppose they’re sinking money into a variety of issues, including legal stuff, and expanding the company.
You’ve met Gates and Allen? Interesting company you keep. What did you think of them? Did you read the interview/memoir Allen wrote about Gates? Not very flattering. How Gates and Ballmer conspired to try to defraud him, among other things. MS is a natural choice for me to think about; they’re an example of a company solely driven by profit. And I personally hate (and have always hated) their ghastly operating system and other software, since I first encountered it in the 1990s.
I wouldn’t be surprised if they charged a % in the future for anyone who wants future payments to be released asap. However this complicates things with cancellations and/or hosts disappearing etc so it is quite difficult to find a decent formula. Maybe only to superhosts or hosts that generate income consistently
I bet @faheem you of all people must have special disdain for Microsoft; nothing in its history merits so much of their lucky fortune. I give you one example that will not make your day: when he went to demonstrate Windows '95 (you know it came well after) in the Electronics Show, it failed to boot, and he admitted it had exactly 756 knowned CTD serious bugs at the time. It was hilarious. Gates and Jobs are two of the most driven individuals I have ever met, they were like machines. In time Gates has changed, and has gained more humanity, no doubt. Allen is a gracious classy fellow, his yacht is like the Taj Mahal, yet we were invited for dinner.
I will state once more that it does not really matter who pays the 15%, the more you pay as a host, the more you will increase your price. Guest will pay the same amount either it is just a listing’s price or a listing price together with airbnb fee. Imho this shared model doesnot work anymore as it only makes pricing more confusing to guests and I assume it was first implemented in order to boost the supply side of host as a marketing stunt, i.e. ‘‘you only pay 3%’’
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That is precisely what they did, and why. They insured supply (hosts), the first rule of business, and once that was established, now are more focusing on demand (guests). Beware of the man bearing cheap ‘gifts’. LoL