How AirBnB Became a Billion Dollar Company

by Dave Gooden on 05/31/2011

Disclosure 1: I work in the vacation rental industry. While my company specializes in regional, recreational vacation homes, not metro rentals – there is an obvious conflict.

Disclosure 2: This is an opinion piece. This post is just my opinion along with some evidence to support it. Judge for yourself.

Yesterday AirBnB announced that they raised $100M at a $1B valuation. This is a huge, huge accomplishment – but a lot of entrepreneurs are probably asking how they did it. Was it their awesome design? Excellent idea? Was it their uncanny business acumen? Just dumb luck?

My Answer: Craigslist Spam!

I believe AirBnB used multiple gmail accounts to spam craigslist and grow their site to a one billion dollar valuation.

Back story: A year and a half or so ago I was looking into the amazing growth of AirBnB. As disclosed above, I work in the vacation rental sector and when a competing company comes on my radar, I always do my due diligence. In my AirBnB research, I didn’t find great SEO results or a gazillion followers on Twitter or any massive advertising spends on Google or Facebook. I looked everywhere but I couldn’t find any rational or traditional reasons for this type of growth. All of these AirBnB users can’t be coming from tech blogs, can they? Word of mouth? I didn’t think so. After thinking on it for a day or two, only one possible answer popped into my head: “These guys are black hats!”

Following my hunch, I started snooping around the place that all good black hats go to make money and get free traffic – craigslist. Craigslist is one of the few sites at massive scale that are still easily gamed by talented and not-so-talented black hat marketers. It is a literal gold mine for black hats that learn how to exploit its millions of users and curtail its terms of service. How do I know this? I was once a black hat myself. It isn’t something I am proud of – but it was a very important and very educational part of my journey (I will discuss it in a later post).

Please remember, I am not judging anyone here, I am just reporting my findings because I believe it will help other entrepreneurs.

Back to my hunch. To prove my theory I needed to setup a “mouse trap” on craigslist, so I posted a few vacation rentals using craigslist’s hidden (anonymous) email address option and I made sure to setup the ads to clearly state that I do NOT want emails from commercial interests. A couple of hours later – BOOM! As expected, I received an email inquiry from one of my cl listings…but it wasn’t from AirBnB. The email I received was from a “young lady” telling me about the upside of AirBnB.com (growing site, growing traffic, etc..) and how she really liked my property and wanted me to check out the site. She was nice enough to included a direct link with no tracking code to AirBnB.com’s homepage. I was 99% sure that the email proved my theory and uncovered AirBnB’s black hat supply-side growth strategy…but I needed to be 100% sure.

Again, the email I received was from “girlsname04@gmail.com,” not AirBnB. Maybe she was just a girl that was totally excited about AirBnB and I didn’t uncover anything. There was only one way to find out so I decided to push my “investigation” to the next level. It was time to dig into the closet and pull out my old, faded, dusty black hat. It still fit.

I spent the next weekend building a new website, rounded up some black hat software (craigslist email harvester, mass mailer) and emulated the marketing initiative that I believed AirBnB was using (elementary stuff).

After harvesting email addresses (I only grabbed real email addresses, not anonymous craigslist addresses) I did one email blast to people that were advertising vacation rentals on craigslist. I skipped over the other categories that are directly related to AirBnB’s business model because they didn’t fit with the test site I built. My results: 1,000+ vacation rental owners signed up and listed their properties on my test site.

Now that I had 1,000 new members, I took it upon myself to do them a favor and advertise their vacation rentals on craigslist. The first week I added one (1) listing to craigslist and received the following email within 12 hours:

Week two I upped the ante and advertised two (2) listings on craigslist. I received the following emails:

Week three, for good measure, I threw one (1) more ad up on craigslist and received the following emails:

My findings: After posting four ads on craigslist in three weeks, I received five identical emails from two young ladies who are raving fans of AirBnB and spend their days emailing craigslist advertisers.

When you scale a black hat operation like this you could easily reach tens of thousands of highly targeted people per day…and quickly gain 60,000 members on the supply-side, which again, is the hardest and most important part of growing a market place. I am pretty sure that AirBnB isn’t the only company that has used this strategy/technique, but I think they are the first to turn it into a one hundred million dollar investment at a one billion dollar valuation.

I know that by expressing my opinions here I am exposing what is now a billion dollar company (we are talking YouTube numbers here)…and I might piss off some powerful people by sharing my beliefs. I am shedding light on this information only because I believe it will help other entrepreneurs figure out what’s right and what’s wrong when they are at the early stages of growing their company. Some very famous investors have alluded to the fact that they look for a dangerous streak in the entrepreneurs they invest in…and while those investors will never come out and tell you what they mean, this kind of thing is probably what they mean.

Lastly, I am not saying that these black hat methods are the only thing that led to their success. I believe this strategy played a vital role in the growth of AirBnB, but these guys are obviously very smart and they work their asses off, too.

Edit: I removed the domain name and url of the test website. It has been dormant for more than a year. It was a weekend project that offered free listings and no advertisements.

This has gotten a lot bigger than I expected or wanted. My intention was to pull back the curtain on a successful startup and give some other entrepreneurs a sneak peak at the play book they were using. That’s it.

On twitter: @davegooden

Added 6/15/2011

OK. Since this story has finally died down, I am going to do what any smart marketer would do…take advantage of the incoming one-way love this article received.

If you are interested in what I do, I run a lake property website and also work with land for sale. My company recently opened two offices (one through acquistion). The first one specializes in Brainerd, MN real estate and the second specializes in Hayward, WI real estate. We also dabble in a couple of other areas including commercial real estateMinnesota resorts for sale and Minnesota vacation rentals & Wisconsin vacation rentals. We just added a Minnesota log homes section. So if you’re looking for one, you know who to talk to.

1994

by Dave Gooden on 02/1/2011

The Formula For Success

by Dave Gooden on 11/15/2010

success = time × effort × luck × ability

Its Harder Than It Looks

by Dave Gooden on 10/16/2010

If you know Dave McClure, you know this is NSFW

Why Not To Do a Startup - Dave McClure from Seattle20 on Vimeo.

We Live In Public

by Dave Gooden on 04/17/2010

I just finished watching We Live In Public – a documentary about Josh Harris – the greatest Internet pioneer you’ve never heard of. It is a pretty great story (minus a happy ending) about a true visionary…a guy who could actually see the future. I highly recommend you watch it and pay attention to the message – it’s very timely.

For the techies out there – you will see some familiar faces throughout the film. Go check it out.

Good Read

by Dave Gooden on 03/5/2010

Good Read: Your High IQ Will Kill Your Startup (via reddit)

OH, what a feeling!

by Dave Gooden on 02/27/2010

After 7 years of building, re-building and fine tuning LakePlace.com, we have found a wonderful group of people that see what we see. Oh…what a feeling!

My business partner and I recently signed a lease on a new log building in Crosslake, MN – the heart of the Brainerd Lakes vacation area. For those of you not familiar, the Brainerd Lakes area is without question one of the premiere vacation destinations in the country. Beautiful lakes are everywhere, summer nights seem to last forever and Paul Bunyan is a native son…but I digress.

We are working with a great group of professionals – each of them with their own talents and charms – and they are just as excited about the future as we are. Its a beautiful thing.

What its all about…

by Dave Gooden on 02/27/2010

I wish I would have.

I am glad I did.

A trip…back in time.

by Dave Gooden on 02/20/2010

From Newsweek 1995 – via reddit.

The Internet? Bah!
Hype alert: Why cyberspace isn’t, and will never be, nirvana

After two decades online, I’m perplexed. It’s not that I haven’t had a gas of a good time on the Internet. I’ve met great people and even caught a hacker or two. But today, I’m uneasy about this most trendy and oversold community. Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic.

Baloney. Do our computer pundits lack all common sense? The truth in no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.

Consider today’s online world. The Usenet, a worldwide bulletin board, allows anyone to post messages across the nation. Your word gets out, leapfrogging editors and publishers. Every voice can be heard cheaply and instantly. The result? Every voice is heard. The cacophany more closely resembles citizens band radio, complete with handles, harrasment, and anonymous threats. When most everyone shouts, few listen. How about electronic publishing? Try reading a book on disc. At best, it’s an unpleasant chore: the myopic glow of a clunky computer replaces the friendly pages of a book. And you can’t tote that laptop to the beach. Yet Nicholas Negroponte, director of the MIT Media Lab, predicts that we’ll soon buy books and newspapers straight over the Intenet. Uh, sure.

What the Internet hucksters won’t tell you is tht the Internet is one big ocean of unedited data, without any pretense of completeness. Lacking editors, reviewers or critics, the Internet has become a wasteland of unfiltered data. You don’t know what to ignore and what’s worth reading. Logged onto the World Wide Web, I hunt for the date of the Battle of Trafalgar. Hundreds of files show up, and it takes 15 minutes to unravel them–one’s a biography written by an eighth grader, the second is a computer game that doesn’t work and the third is an image of a London monument. None answers my question, and my search is periodically interrupted by messages like, “Too many connectios, try again later.”

Won’t the Internet be useful in governing? Internet addicts clamor for government reports. But when Andy Spano ran for county executive in Westchester County, N.Y., he put every press release and position paper onto a bulletin board. In that affluent county, with plenty of computer companies, how many voters logged in? Fewer than 30. Not a good omen.

Point and click:
Then there are those pushing computers into schools. We’re told that multimedia will make schoolwork easy and fun. Students will happily learn from animated characters while taught by expertly tailored software.Who needs teachers when you’ve got computer-aided education? Bah. These expensive toys are difficult to use in classrooms and require extensive teacher training. Sure, kids love videogames–but think of your own experience: can you recall even one educational filmstrip of decades past? I’ll bet you remember the two or three great teachers who made a difference in your life.

Then there’s cyberbusiness. We’re promised instant catalog shopping–just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obselete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month? Even if there were a trustworthy way to send money over the Internet–which there isn’t–the network is missing a most essential ingredient of capitalism: salespeople.

What’s missing from this electronic wonderland? Human contact. Discount the fawning techno-burble about virtual communities. Computers and networks isolate us from one another. A network chat line is a limp substitute for meeting friends over coffee. No interactive multimedia display comes close to the excitement of a live concert. And who’d prefer cybersex to the real thing? While the Internet beckons brightly, seductively flashing an icon of knowledge-as-power, this nonplace lures us to surrender our time on earth. A poor substitute it is, this virtual reality where frustration is legion and where–in the holy names of Education and Progress–important aspects of human interactions are relentlessly devalued.

Great Read

by Dave Gooden on 01/27/2010

Sisyphus for Startups. Good stuff.