Decoupling – A Great Tool To Analyze Business Strategies & Disruption

What is Decoupling? In an insightful working paper, Thales Teixeira and Peter Jamieson described Decoupling as “the separation of two or more activities ordinarily done in conjunction by consumers”. The separation’s purpose is to increase value for consumers by focusing on the value-creating activity while reducing exposure to the value-capturing or value-destroying one.

Breaking down a business’ success or failure is not a straightforward exercise. There are so many factors at play. The same goes for disruption. However, I believe Decoupling offers a simply yet powerful tool to analyze business strategies and disruption.

Below are a few examples of how I use Decoupling to look at companies:

  • Uber: consumers have a transportation need to go from A to B. That’s the value-creating piece. However, before Uber, there were several non-value-creating activities. If someone wanted to drive themselves, they had to physically and mentally stay alert for some time and look for a parking slot. If riders used a taxi, they had to somehow manage to get a cab and in some cases, suffer from an unhygienic car/driver. Uber decoupled the act of going from A to B in a comfortable manner from all other noises by providing consumers a way to book a decent car with just a few taps on a phone and a driver that is already vetted.
  • Aldi: at grocery stores, consumers want to buy groceries that they deem worth their money & time. That’s the value consumers need. Some stores; however, sell many more items, stack different variations for one item (cereal, milk or ground coffee, for example) and, as a consequence, have bigger stores that take time for consumers to navigate. Aldi competes and, dare I say, wins over consumers by focusing on selling good groceries on the cheap by 1/ leveraging private labels which are cheaper than national brands; 2/ eliminating activities like market research, advertising or unnecessary expenses; 3/ keeping their stores small and just acceptably decorated. They decouple affordable groceries from everything that threatens to increase costs.
  • Venmo/CashApp/PayPal: Consumers always need to send money to and receive money from other folks as quickly, cheaply and seamlessly as possible. Before the likes of Venmo, CashApp or PayPal, it was either cash on hand which necessitated an actual time-consuming meet or a check which took some time to settle. These apps decoupled the money exchange activity from the time wasters. Consumers can exchange money in almost real time.
  • AWS: every company needs IT infrastructure to operate and compete in this day and age. What they don’t need is to go out, scrap all the components, stand up an IT stack and maintain it over time, including hardware replacement and software update. AWS decouples the use of IT resources from the act of acquiring and maintaining it. Because of AWS, startups can get going quickly without saddling themselves in high expenses while big companies can leverage the cloud and scale down IT workforce.
  • AirBnb: ordinary hosts that don’t operate a resort or hotel have three essential activities: hosting, finding guests and verifying that such guests are trustworthy enough to let into their homes. Guests, on the other hand, have to travel and find a place where they can feel safe. AirBnb functions as the decoupler that allows hosts to focus on hosting and guests to focus on traveling. The brand name of AirBnb and the network effect bring one party to the other. Their review mechanism fosters the trust in the ecosystem.
  • TSMC: the production of computer chips involves design, manufacturing and assembly of chips. Each step requires different expertise and cost structure. Semiconductor shops in the past used to do everything. Then, companies like TSMC decoupled from the value chain. The Taiwan-based firm focuses on building the best fabs in the world and manufacturing chips, leaving the design and assembly to somebody else. The result is that TSMC is now the market leader in the chip manufacturing market and the indispensable player in this industry.

Decoupling works because it reduces costs for both the decouplers and consumers. From the consumer perspective, the more activities, the more costs. And I am not merely talking about monetary costs. Time spent on non-creating activities is also a significant cost. From the decoupler perspective, focusing on one link in the value chain deepens expertise, reaches economies of scale and lowers unit economics. Aldi is still one of the most affordable and best grocers out there. Remember when Uber and AirBnb used to be cheap when they had their breakthrough?

Decoupling, in my opinion, is a useful concept and powerful tool to look at businesses. Thales’ book will have more details. If you are interested in learning more, I’d recommend that you read it.

Weekly reading – 7th May 2022

What I wrote last week

Apple’s Q2 FY2022 results

Book Review: Just Keep Buying

Business

DTC brands are slowly warming up to Amazon. The ability to tell stories and appear authentic to shoppers on Amazon is hugely important. The commission may cut deep into margin, but Amazon commands the kind of online traffic that few others can rival. Some retailers now use Amazon as an acquisition tool. Sell part of the catalogue on the site, lure shoppers to their own native page and hopefully convince them to buy what is not on Amazon. It’s not as straightforward as it should be, but if you can’t win every battle, you may as well pick the ones that can help you win the war

Amazon Will Close Six Whole Foods Stores in Four States. I look forward to seeing how Amazon’s physical store strategy unfolds. Will it transition all Whole Foods to the cashierless version that Amazon Go pioneers? Will it keep both brands at the same time? Or will it designate Amazon Go as the flagship store brand moving forward?

Snapchat’s flying camera Pixy. Kudos to Snapchat for making a portable, small and allegedly easy-to-use drone. There is certainly a niche market for Pixy: consumers who want to film drone footage but can’t afford a drone or do not want to carry a heavy one around. I am certain that Snapchat will iterate furiously to improve Pixy: longer lasting batteries, higher quality cameras, better integration into the Memories section and more AR effects. Snapchat is already great at software. Hardware is hard, but if it can be great at it too, it’ll be formidable (ask Apple).

Formula One Finally Found a Way to Get Americans to Care. Cracking the America code is fantastic for Formula 1 as a sport and a business. A long-time fan of Formula 1, I noticed the difference after Liberty took over. Prior to the take-over, clips in which experts explain aerodynamics, rear wings or floor of F1 cars didn’t exist. Beautiful charts that discuss where one driver is slower than another in a lap were the stuff of imagination. For a global sport such as F1, it was unfathomable to think that it didn’t even have a subscription app to watch races. The Americanization of the sport is not perfect. I am not a fan of how much Drive To Survive excessively dramatizes F1. Just ask Max Verstappen or a few other drivers about it. Having more than one race in the US is…nice, but the final verdict should wait till we get a feel of how the new tracks are. Austin is a great spectacle that provides awesome racing. Miami and Vegas should offer a gigantic boost in popularity, but I am not sure about the racing. We’ll see. For now, I am happy for the sport that I have loved for the past 17 years.

Mercedes-Benz Says Self-Driving Option Ready to Roll. Mercedes is the first car manufacturer that achieves an internationally valid certification for self-driving level 3. This looks a big progress in this space. From the technology perspective, I am excited about self-driving cars. From a practical perspective, I still don’t grasp the actual benefits of driving a driverless vehicle on busy urban streets. Accidents happen all the time. Reliance on computers just makes careless drivers more careless. Plus, if you are in a car and don’t have to drive it, what could you do in the meantime? It’s not like you can go to the back seat and have a nap…

TikTok’s Work Culture: Anxiety, Secrecy and Relentless Pressure. The older I am, the more put off I become of a workplace like TikTok. Imagine needing marriage therapy because you spend your dinner time with your husband on the phone discussing work.

American Consumers Are Shopping, Traveling and Working Out Like It’s 2019. Among a slew of bad news such as high inflation, supply chain constraints and stock market crashes, this is probably the best silver lining for companies. The question is: how long can this strong consumer spending last?

Other stuff I found interesting

103 Bits of Advice I Wish I Had Known. A lot of goof stuff that I wish I had known 10 years earlier

The Arc of the Practical Creator. “A Practical Creator doesn’t view a boring job as a dead-end endeavor, but as an active patron of their creativity. When you’re in this first stage, you must rigorously work on your creative endeavors after your day job responsibilities. This is an absolute must “. I love this website.

Stats

Zenly, a subsidiary of Snapschat that is very popular in Russia, has 35 million monthly active users

Internet companies in China raised $3.51 billion in Q1 2022, down from $15 billion in Q1 2021

The average price for ground beef in America grocery stores has jumped 18% from a year ago

Dr Strange 2 minted $36 million in preview performance, the 8th largest of all time. For comparison, Avenger’s Infinity War notched $39 million and Spiderman: No Way Home did $50 million

US reaches 1 million Covid deaths

Airbnb said more than 800,000 people flocked to its careers page after it announced that employees could live and work anywhere

Weekly reading – 9th April 2022

Business

From Belonging to Burnout, Five Years at Airbnb. An interesting story from a former employee at Airbnb on the culture and how full-time staff and contractors are treated differently.

Instacart Faces Turbulence After Pandemic Boom in Grocery Delivery. Covid-19 might be a great business boost initially, but for some companies, the pandemic may expose their flimsiness and fragility. Fast is shutting down after raising millions of dollars and riding the wave of Covid. Instacart is another firm whose future looks bleak. Merger talks went fruitless. IPO plan was put on hold. Valuation plummeted. The market that Instacart is in is tough, not only because of the competition, but also because of the unit economics. The $24 billion valuation as of now may likely be looked back as a fond memory in a few months’ time.

Amazon to Spend Billions on Space Launches as SpaceX Ramps Up Satellite-Internet Service. Amazon is authorized to launch more than 3,200 satellites into orbit by 2026, but it must have at least half to be operational by then. The thing is that it hasn’t sent anything up yet.

Banks Weigh Using Zelle to Challenge Visa, Mastercard. Some banks are in favor of curing the fraud issue first while others want to expand the current scope of Zelle beyond P2P payments. I am firmly in the first camp. Fraud is rampant on Zelle and a real serious threat to the service. Why enlarging the scope when such a threat hasn’t been properly addressed?

Octahedron Capital compiles quarterly reports of trends and interesting observations. Here is the latest report.

Other stuff I found interesting

Earth is a desert planet compared to these ocean worlds in the solar system. “Our home planet is a desert compared to some places the solar system, both in terms of its total water volume and the amount of liquid on Earth relative to its size. Consider Jupiter’s ice-encrusted moon Europa, which is smaller than Earth’s moon. Scientists recently used 20-year-old Voyager data to find even more evidence that Europa has twice as much water as our planet. Even tiny Pluto may have an ocean nearly as large as Earth’s.”

Deep Roots. “When you realize you can’t connect one dot without a million other dots entering the picture, you realize how impractical it is to predict what the world will look like in the future. The craziest events – good and bad – happened because little events, each of which was easy to ignore, compounded. Innovation in particular is hard to envision if you think of it happening all at once. When you think of it as tiny increments, where current innovations have roots planted decades ago, it’s more believable – and the range of possible outcomes of what we might be achievable explodes.”

Shanghai’s stunning fall from grace. I am very glad my country didn’t follow what is going on in Shanghai. Am I nervous that we live with Covid nowadays? Yes. But what is happening in Shanghai is just awful. Folks are forced to shelter at home and take rations from the government for an extended period of time. Yes, we had stay-at-home orders in the US but we still could go out and buy groceries. The draconian measures from the government just doesn’t seem to make sense. I get it. They do not want to lose face and admit mistakes, but it’s just horrible to sacrifice others’ lives just for that

Stats

Credit card late fees in the US hit $14 billion in 2019

March Madness Final drew 18.1 million viewers

US teens spend 30% of their daily video consumption on Netflix and YouTube each

Advertising employment gained 3,200 jobs in March 2022

On average, US households spend $148 on groceries in 2022, up from $142 in 2021, due to inflation

16.6% of all US retail sales in 2021 were returned by consumers. The rate of returns of online sales was 20.8%

Weekly reading – 29th May 2021

What I wrote last week

My review of Amazon Unbound

Business

A long post that outlines a bull thesis on Peloton

An excellent review of the new Apple store in Rome. Apple’s retail stores are great valuable assets. They build up the brand image of the company and function as hubs where customers can try out products, receive services and just really connect with the brand.

Instacart kicks off Priority Delivery. This new move by Instacart to deliver items in 30 minutes shows how cut-throat this market is. Competitors such as Instacart, Uber Eats or DoorDash strive to cut the delivery time to gain customers and market share. What remains to be seen is how it would affect Instacart’s bottom line. I don’t think that they are profitable yet. So, we’ll see when they release their S-1.

DoorDash and Uber Eats Are Hot. They’re Still Not Making Money. A pretty telling piece on delivery services

Amazon Briefing: A look inside Amazon’s cloud gaming ambitions

What I found interesting

Financial and emotional risks of working for a startup. Somebody took the time to write about the potential downsides of working at a startup. There are a lot of things to love about startup life and I am pleased to see people talk about it. But it’s also important to shed light on the risks as well

Google now lets you password-protect the page that shows all your searches. Privacy and security are powerful user preferences that are NOT going away any time soon. In fact, they will only get stronger. Google should do more and talk more about what they do in this area. I haven’t seen a lot of marketing efforts in talking about their initiatives to protect user data and privacy

How a Japanese Company Cut 80% of the Time Needed to Manually Count Pearls

Payment links from Stripe. This is what innovation should be

No, Millennials Aren’t Poorer Than Previous Generations. What stood out for me is that Millennials have more non-mortgage debts.

Stats that may interest you

As of 5/24/2021, 40%, 43% and 62% of Airbnb bookings for the summer of 2021 in Seattle, LA and NYC respectively were more than 28 days

75% of Target’s digital orders were fulfilled by their stores. 30 million Americans shop at Target every week

2.5% – 3.5% is what Costco reported as inflation in the latest quarter

iMac 2021’s thickness is 11.5mm, 1 mm slimmer than iPhone 2

Overwork Killed More Than 745,000 People In A Year, WHO Study Finds

Weekly reading – 20th march 2021

What I wrote last week

The economics of a credit card

Business

Hy-vee CEO shared how Covid shaped the company’s operations moving forward

Why Amazon Fresh stores will likely rock a few boats. As its competitors do more shipping from their own stores, Amazon can get on level terms in that sense with having more stores of their own in strategic locations. Plus, if they can get these cashierless stores to run properly, they will be able to cut back a significant line item on the Income Statement, paid employees!

How Trader Joe’s $2 wine became a best-seller

Telegram App Is Booming but Needs Advertisers—and $700 Million Soon 

The new Google Pay repeats all the same mistakes of Google Allo

Apple brand loyalty hits all-time high as Samsung loyalty dives

Austin Rief: How Morning Brew went from college newsletter to $75 million in 5 years

She Came to the US to Study With Only $300 in Her Pocket — Now She’s a NASA Director For the Mars Rover

What I found interesting

Does Atlantic Canada have a blueprint for rural revival in the post-pandemic era?

Facebook’s GDPR bypass reaches Austrian Supreme Court

Stats you may find interesting

BNPL grew by 215% year over year in Jan and Feb 2021. Total eCommerce spending reached $121 billion so far

As of February 2021, 45% of Square sellers accept online payments, up from 30% a year ago

56% of the people surveyed by AirBnb preferred domestic travel post-pandemic

AirBnb – an outstanding success, one not as great as many thought

AirBnb recently filed its S-1 as an important step before soon going public. Finally, the curtain on one of the household names and one of the most anticipated IPOs is now pulled back a little. The filing is pretty long. I stuck through it, well most of it. Here is what I found

Background

Unless you have lived under a rock for the past 4-5 years, you should be familiar with AirBnb. It’s that website where you can book a spare room, an air mattress in somebody’s house or the entire house for a period of time. In 2007, two of the founders were trying to make more money to cover the expensive living cost in San Francisco. One time, there was a popular conference in town and all the hotels were booked. So they quickly came up with a website that could let people book for an air mattress at their place. The seed for AirBnb was planted on that day. 13 years later, they are on the verge of going public.

The problems AirBnb solves are two fold. 1/ They increase the efficiency of the travel market. Hosts, whether it’s an individual or a professional management company, have spare resources (rooms) that can be exploited while guests can have an alternative choice in addition to traditional hotels, often at a cheaper price. 2/ Trust. Guests come to stay at traditional hotels because they somewhat trust the safety there. Imagine that you are an individual host. How could you trust a stranger enough to let him or her in your apartment, let alone sleeping a few feet away from you? At its core, AirBnb operates as a middle man between hosts and guests, and facilitates the searching and booking of travel products.

Who does AirBnb compete with? Here is the list of competitors AirBnb detailed in the filing

Online travel agencies (“OTAs”), such as Booking Holdings (including the brands Booking.com, KAYAK, Priceline.com, and Agoda.com); Expedia Group (including the brands Expedia, Vrbo, HomeAway, Hotels.com, Orbitz, and Travelocity); Trip.com Group (including the brands Ctrip.com, Trip.com, Qunar, Tongcheng-eLong, and SkyScanner); Meituan Dianping; Fliggy (a subsidiary of Alibaba) Despegar; MakeMyTrip; and other regional OTAs

Internet search engines, such as Google, including its travel search products; Baidu; and other regional search engines;

Listing and meta search websites, such as TripAdvisor, Trivago, Mafengwo, AllTheRooms.com, and Craigslist

Hotel chains, such as Marriott, Hilton, Accor, Wyndham, InterContinental, OYO, and Huazhu, as well as boutique hotel chains and independent hotels

Chinese short-term rental competitors, such as Tujia, Meituan B&B, and Xiaozhu; and

Online platforms offering experiences, such as Viator, GetYourGuide, Klook, Traveloka, and KKDay.

Source: AirBnb ‘s S-1

The order of this list should tell you which AirBnb considers their fiercest rivals. Not only do those incumbent OTAs offer a marketplace for room nights at traditional hotels, but they also have their own homestay marketplace offerings, similar to what AirBnb is. With an esteemed competition like this, how well has AirBnb performed in the past few years?

Incredible growth in the past 5 years

According to the filing, the number of Nights and Experiences (like a virtual cooking session or a tour to a sight nearby) booked grew at a CAGR of 46% from 72 millions in 2015 to 327 millions in 2019. Meanwhile, the gross booking value (the dollar amount of all Nights and Experiences booked) grew 47% every year from around $8 billion in 2015 to $38 billion in 2019. Those are impressive numbers. Put it this way, in the first 9 months of 2020, 6 of which were amid Covid-19, AirBnb booked more Nights and Experiences and dollars than they did in the entire year of 2016. On this note, I wish AirBnb were a bit more transparent. I’d love to see a breakdown of booked room nights and booked Experiences. Booking.com breaks down their bookings for accommodation, flights and car rentals. I don’t see any reason why AirBnb shouldn’t do the same to help investors understand more the dynamics of their business.

Before the pandemic, AirBnb’s revenue grew 51% every year, from $919 million in 2015 to $4.8 billion in 2019. The first 9 months of 2020, despite the deadly Covid-19, saw the company book almost as much revenue as the entire year of 2017. If we look at the take-rate which is the ratio between revenue and gross bookings, it has been flat at around 11-12% every year between 2015 and 2019. The commission in the first 9 months of 2020 is 14%. Given that AirBnb pushed for virtual Experiences during the pandemic and saw their rental bookings demolished, that’s why I argue for more transparency in the way AirBnb reports their numbers. To really understand the dynamics of their business. Even at 14%, it’s still a bit lower than what Booking.com has globally on average at 15%.

Covid presents a massive challenge and a silver lining

Covid-19 is perhaps the biggest and most damaging crisis to the travel industry. AirBnb isn’t immune to it. Bookings (Nights and Experiences Booked) were up 25% and 17% year-over-year in January and February 2020, before the bottom fell off under AirBnb’s feet. Covid-19 hit. Bookings dropped by 114% and 103% in March and April, respectively. The situation recovered as folks travelled more after April, but as of September 2020, bookings were still down 28%. The decline in bookings leads to a drop in revenue in the first 9 months of 2020 of 32% YoY. Operating loss is almost 4 times bigger than the loss of the same period last year. The damage was so devastating that the company even considered not going public this year.

But why do I say that Covid-19 presents a silver lining?

Before Covid-19, AirBnb showed signs of inefficiency. After being profitable in 2018, every cost item as % of revenue increased in 2019, in comparison to 2018, resulting in the company’s operating loss of 10% of revenue. Even though it still suffers loss in 2020 due to a rise in costs, the cost mix is different. What AirBnb expensed in 2020 is mostly related to Covid-19. The growth in G&A, Operations and Product Development is offset by the decline in Marketing expense. Specifically, the company didn’t spend as much money on marketing, particular online ads as it did a year ago. In fact, for the nine months ending on September 30, 2020, only 9% of their traffic came from paid marketing channels. In an interview a few months ago, CEO Brian Chesky revealed that the company had the same booking in the US market in 2020 up to that time as they did in the same period in 2019, despite NO spending on paid marketing, to the tune of a saving of $1 billion.

Despite all the damages Covid-19 has caused the company, the pandemic looks to be an opportunity for AirBnb to recalibrate and refocus. They might have got carried away with expanding too fast without a tight control of the expenses. At least, they now learned that they could still keep the business in a good shape without wasting money on paid marketing. Whether they can apply the same lesson to other expense items remains to be seen, especially when Covid-19 is still engulfing us around the globe.

Source: AirBnb’s S-1

Moving forward, I hope that AirBnb will be more transparent with regard to the breakdown of their online and offline marketing expenses. Booking.com did a very good job on that. They have a specific section dedicated to online marketing spending while AirBnb mixes it with brand marketing; which doesn’t let investors and analysts have a true feel of how much the company spends on paid performance marketing, in comparison to its rivals.

Source: AirBnb’s S-1

Legal threats

Like many other companies, AirBnb has a couple of looming legal threats on the horizon. One significant threat comes from possible restricting local regulations. In their filing, AirBnb wrote:

For example, listings in New York City generated approximately 2% of our revenue in 2019, and when new regulations requiring us to share host data with the city are implemented, our revenue from listings there may be substantially reduced due to the departure from our platform of hosts who do not wish to share their data with the city and related cancellations. A reduction in supply and cancellations could make our platform less attractive to guests, and any reduction in the number of guests could further reduce the number of hosts on our platform.

Source: AirBnb’s S-1

To be honest, I never understand the beef between local authorities and AirBnb. If it’s about tax, then just raise taxes on the company, but I don’t fully support passing regulations that restrict its business and by extension, individual hosts that operate on its platform. Nonetheless, it’s the reality that AirBnb has to deal with. There are a host of legal issues in various forms that AirBnb is encountering. Even though they don’t necessarily threat its existence, it may harm the top and bottom lines.

The second threat comes in the form of a $1.35 billion tax bill. According to AirBnb, they were served in September 2020 with a notice that they would need to pay $1.35 billion in taxes, plus penalties and interest related to their alleged failure to pay enough of their dues in 2013. That figure can amount to 30-33% of total revenue in 2019; which is a significant sum.

My thoughts on AirBnb

AirBnb is a spectacular story in a sense that it opened up a market that had been there before. Before AirBnb, no company had been able to take homestay rentals to the level that it did. Would there have been another company that achieved the same feat? Possible, but the fact and the matter is that it is AirBnb that revolutionized this market and has grown to be a multi-billion dollar company. It warrants nothing but praise and admiration. However, from a financial perspective, the last 18 months haven’t been great. Even before Covid, AirBnb registered a loss while they should have made some profit.

At its core, AirBnb is similar to other OTAs. The difference is that while the incumbent OTAs, the likes of Booking.com and Expedia, rule the world of traditional hotels, AirBnb dominates the homestay world. Yes, the incumbents have their homestay offerings too, but is Vrbo a verb or as popular a noun as AirBnb? Not even close. While the OTA giants are making inroads into AirBnb’s territory, AirBnb also starts to have some hotels listed on their platform. I think in the future AirBnb and OTA giants can co-exist together and thrive in their respective stronghold. AirBnB understands how to manage homestay, but doesn’t have the expertise to deal with hotels, especially chains like Booking.com. On the other hand, OTAs don’t have the brand name in the homestay world like AirBnb nor the expertise.

In the near future, here is what I think will be AirBnb immediate priorities for the next one or two years

  • Recover to the pre-covid level of business. Even after travel is opened up again, it won’t be the same as it was for a while. Would travelers be comfortable in a stranger’s house without knowing if it’s clean enough? How about traveling internationally to somewhere that still struggles with Covid? Would business travel recover fast enough?
  • Deal with the legal challenges as I mentioned above
  • Get used to the scrutiny that comes with being public
  • Keep control of the costs. 2019 wasn’t a great example of cost management. Would AirBnb keep up the lesson it learned during Covid?
  • What’s next for Virtual Experiences?

In short, once travel industry recovers, however much, from this deadly pandemic, AirBnb will no doubt increase its bookings and revenue. I do have some confidence in their adapting to the new style of travel. What they will be more judged on is their profitability and that remains to be seen. 2019 wasn’t great. 2020 so far has been a year of exception because of Covid-19. Their performance on the stock market will be much affected by whether they can stay disciplined with their expenses.

I do want to make a point about my personal experience with AirBnb. The site is helpful, but it is annoying. What bugs me is that AirBnb isn’t upfront with all the fees. Once you settle on a listing for $100/night, by the time you get to the checkout page, it will be already $150/night with service and cleaning fees. It feels like you were duped, cheated or fooled. I’d much rather know all the fees up front, from the very beginning. I do believe that my experience isn’t unique. Many others share the same view on this issue. Hence, I hope AirBnb will fix it soon.

Interesting facts about AirBnb

Besides the main points above, there are a few other statistics that I think are pretty interesting.

  • As of September 2020, AirBnb had 4 million hosts over the world, 55% of who are women and 86% are outside of the US
  • In 2019, 23% of new added hosts were guests first. 50% received a booking within 4 days of becoming available and 75% within 16 days
  • During 2019, 69% of revenue came from repeat guests
  • AirBnb’s debt as of September 2020 stood around $2 billion
  • AirBnb committed to $1.2 billion for a single cloud vendor (AWS, I think) through 2024
  • Twelve months ended September 30, 2020, the average annual earning per host with at least one check-in was $7,900.
  • As of September 30, 2020, 21% of all hosts were Superhosts
  • In 2019, 68% of guests left reviews
  • Chargebacks in the year ended December 31, 2019 and nine months ended September 30, 2020 were $92 and $95 million respectively
  • By my calculation and data provided by AirBnb, their average merchant fee rate was 1.85% in 2019 and 2% in the nine months ended September 30, 2020
  • Nights and Experiences booked in the Top 20 cities made up less than 5% of the total every month
  • Nights and Experiences booked for 28 nights or longer made up between 3.5% and 6% of the total every month
  • As of December 31, 2019, 90% of all hosts were individual and 72% of bookings were with individual hosts. “Of the reviews they received in 2019, 83% of ratings for individual hosts and 75% of ratings for professional hosts were 5-star.”
  • “In 2019, the average number of guests on an Airbnb stay was 3 people, and 77% of nights were booked for entire homes”
  • “14% of nights booked in 2019 and 24% for the nine months ended September 30, 2020 were for long-term stays”

Weekly readings – 18th July 2020

What I wrote

Uber’s latest chess moves

An interview with AirBnb CEO Brian Chesky on the future of his company and travel

What I think of a potential Twitter subscription feature

A groundbreaking and disheartening study on violence against women in Vietnam

Chris Evans started a project to facilitate communication between voters and elected officials. It’s called A Starting Point

Business

Kroger conducted a test in which they moved plant-based meat into the meat section at some select stores. The test proved that the move lifted sales of plant-based meat. This is great news for suppliers such as Beyond Meat and environmentalists.

In the past, I was somewhat bearish on Netflix’s prospect, but I have grown more bullish over the past year. The high retention figure below bolsters the new position

Source: Second Measure

Lidl’s entering the Long Island market caused competitors to reduce item prices by 8% to 15%. It’s worth noting that Lidl commissioned the study, but it was independently conducted.

Amazon is formidable in online grocery. The company leads many aspects in the latest study on consumer satisfaction with online grocery services.

Technology

US Netflix Subscribers Watch 3.2 Hours and Use 9.6 GB of Data Per Day

This company presents an interesting concept when it comes to encryption. Slack-rival Element wins largest ever collaborative software deal

A government’s role in stimulating demand and widespread adoption of next generation products is at play here. Europeans get substantial subsidies for electric cars from their government

How SHA-2 Works Step-By-Step (SHA-256)

What I think is interesting

According to JP Morgan, 19% of eCommerce transaction value in Vietnam in 2019 was through digital wallets while 34% was through debit and credit cards

How Parmesan cheese is made and how you can identify the real Parmesan cheese. Fascinating stuff

I didn’t know there is a company that has an exclusive deal with airlines to buy lost luggage

‘Absolutely No Mercy’: Leaked Files Expose How China Organized Mass Detentions of Muslims

Scale and Loyalty are more important online than offline

The competition for immigrants will heat up soon as women are giving birth less, especially in developed countries

Graph of number of children women have
Source: BBC

AirBnb CEO on how Covid-19 changed travel and what is going on with the company

AirBnb CEO Brian Chesky had an interview with Bloomberg two days ago. First of all, I think Brian seemed very real and genuine in this interview. Watching him speak didn’t give me a sense that he was a robot reading script or a politician giving all kinds of lip services or false hope. For example, he admitted to being unfocused in the past, working on too many things at AirBnb at the same time. He also publicly committed to publishing data on diversity at AirBnb one year from now. That kind of genuineness and down-to-Earth attitude are refreshing to see. He talked about his commitment to diversity & equality, how he thinks about IPO this year, what mistake he made while running AirBnb, Online Experience, how Covid-19 changed travel behavior and so on. But I will only discuss two topics as follows:

How Covid-19 changed travel

While many people said that travel pre-Covid as we knew it is forever gone and we will never see it again, I am much less certain on that. Humans are quick to forget. Once we have the vaccine or have this virus under control, no matter how many years that will take, I think we can get back to where we were travel-behavior-wise. Things tend to be cyclical, you know. Nonetheless, Brian talked about what he has seen in terms of behavioral changes of travelers:

  • Business travel will take a lot longer to recover
  • EU has recovered solidly from the pandemic. Asia started the recovery path. Latin America hasn’t recovered much. He said that the US “has been really really strong” and it “has seen a temporary recovery”. I am not quite sure how to think about it. The US has repeatedly seen a new high on the number of cases in a day for quite a while now. Even if a portion of the population traveled, what would that do to the full recovery? Would take delay the recovery much longer?
  • Less interest in travel to urban areas with dense population and in cross-border travel
  • Travel will be more local

For the foreseeable future, there will be major changes in how businesses operate in the tourism industry. Attractions will have to take into account social distancing when designing tours. Travel agencies will have to arrange transportation for small groups only and avoid trips to crowded places. Hotels or AirBnb hosts will have to increase the hygiene level and how to communicate that to travelers.

If you look at countries whose tourism plays a huge part in the overall economy such as France or Italy, they were decimated by the pandemic. However, they have recovered since and started to take on tourists. The picture is very different for the US. Not only does nobody want to travel here at this time, unless they absolutely have to, but the people living here are now banned from visiting Europe. The lack of commitment to take on short-term losses for future prospects and, by extension, the absolutely atrocious handling of this pandemic are setting this country back months in recovery and perhaps even longer for the US tourism industry.

Online Experiences

AirBnb launched Online Experiences in April 2020 due to the pandemic. The service allows hosts to craft a unique experience online for a small group of guests. After reservations are confirmed, guests receive a Zoom invitation through which they can live participate in the Experience. For instance, you can book to learn how to cook with this Michelin chef from Italy in a live stream session along with 9 other people around the globe without leaving your home. All you need to do is to make a reservation, prepare ingredients beforehand and join the Zoom session.

Source: AirBnb

Brian Chesky said that it is the fastest growing product of AirBnb, even though he didn’t specify whether it’s the fastest growing product ever or it’s just during the pandemic. He did reveal that the service has had 400 Experiences listed so far and generated $1 million in bookings.

AirBnb is quick to improvise and pivot during this pandemic that severely affects travel. I can see some value in this service. Firstly, for folks who feel lonely during this crisis (and there are a lot of them), this is a great and inexpensive way to meet new people and learn something useful without enduring more risks. The live stream format is key because if this were an on-demand video clip like what we have with streamers like Netflix, it wouldn’t work. There needs to be a real and tailored human interaction. That’s why I think it makes sense to limit the number of participants to maximize the interaction with each person.

Secondly, take Vietnam as an example. Our borders have been closed for months. Hosts can take advantage of this opportunity to offer local tours or experiences and gain revenue that wouldn’t have been possible otherwise.

Regarding the future prospect of this service, I am not convinced yet. Covid-19 necessitates online interaction. However, when this blows over, though it may take some time, how much will people still prefer online interaction and how much time will they have for these experiences? There are many other services that can offer similar online lessons. Once people are free to leave home, they no longer need some strangers on the Internet to bond with to alleviate the loneliness as there are countless distractions. I don’t have any data, but that $1 million bookings in 3 months globally seems a bit soft. Furthermore, the live stream nature and the small group requirement of this service don’t necessarily let host scale their revenue. They are constrained by their time, being the presenter physically and the number of participants. Hence, I suspect that revenue from Online Experiences may just shift to Experiences post-Covid.

In sum, it will be interesting to see what the future holds for the tourism industry and AirBnb, in particular. The pandemic threw its plan to go public in the trash bin and significantly altered its business. If you are interested in the company, have a listen to Brian’s talk. Once again, I really like his down-to-Earth tone and genuineness.

Weekly readings – 25th April 2020

IEEE has an article outlining the role of mainframes even before the crisis. I am always of opinion that mainframes aren’t going anywhere soon. The legacy system has its strengths that work in favor for data-processing companies such as financial institutions. I had a professor in Omaha before who was an executive at Mutual of Omaha. He told me in 2018 that one of the important applications at the insurance company is still on mainframe and they fly periodically a mainframe developer from Chicago for maintenance work.

In the last 70 years, the physical size of Kansas City has quadrupled while the population has remained relatively stable. (Put another way, every resident of Kansas City is on the hook for maintaining four times as much of the city as his or her predecessors.)

Source: We’ve Built Cities We Can’t Afford

Everyone is baking — and entrepreneurs are rising up to meet the demand

Uber’s Paid Sick Leave Policy Is a Perpetually Moving Goal Post

Magic Keyboard for iPad Pro: A New Breed of Laptop

Bloomberg’s story on AirBnb and the state of the known startup

Gruber’s review of iPhone SE

A report by WSJ on how Amazon allegedly uses merchants’ data to launch its own private labels. There is nothing wrong with Amazon launching private labels. The problem is that the company vehemently denied using merchants’ data to help it do so

A decision by Supreme Court that can prove to be defining in the future. I understand the logic behind deporting folks who committed crimes. What concerns me here is that the process didn’t take into account the recent behavior.

A damning report on Bird. I haven’t been a fan of the company or products. I get its value proposition, but coming from a country where scooters are the primary transportation method, I am as enthusiastic about Bird scooters as others. Plus, the high valuation in a short period of time, despite an unproven unit economics, always feels wrong to me.

Weekly readings – 14th November 2019

FDA Approving Drugs at Breakneck Speed, Raising Alarm

Climate change: Oceans running out of oxygen as temperatures rise

Should I delete Tinder? These millennials think so

The lesson to unlearn

Why some of America’s top CEOs take a $1 salary

The Video-First Future of Ecommerce

How Airbnb Profits From Our Love of Experience

This article talks about how Apple’s stance on privacy makes life harder for advertisers.

Startups and Uncertainty

A very interesting study on podcasts