For many modern travelers, the best way to see a new city is to find an apartment in a hip residential neighborhood using short-term home rental company Airbnb. The numbers bear this out: The San Francisco-based company is currently valued at $24 billion, and every month sees steady growth in its number of hosts and visitors.
But lately Airbnb has come face to face with a serious threat: hostility from local governments. Last year, the New York state attorney general declared most Airbnb listings illegal in the city of New York, and officials in Paris conducted raids of illegal Airbnb units. Now some smaller cities are going even further, as evidenced by the Santa Monica City Council’s recent ban of all short-term rentals there.
As Airbnb looks for ways to address this situation, it would do well to look a few miles northeast of Santa Monica toward Hollywood, where 15 years ago a similar drama played out in the music industry.
Napster operated an upstart online platform that created problems for establishment media companies as it matched songs with consumers on the Internet by cutting out record companies and other traditional gatekeepers. In the end, Napster’s success was cause for its downfall — the music industry unleashed an onslaught of litigation that crippled the company so profoundly it is no longer a major player in the music business.
The lesson here is that in circumventing the existing system, Napster ignored the possibility of collaboration with existing stakeholders in the industry, and had it chosen another path, things could be very different for the company today.
Airbnb finds itself in much the same place with respect to some city governments.
In its rush to corner the home-sharing market, the company risks engendering a serious backlash in certain metropolitan contexts that threatens its business model. Although there is only mixed evidence so far that Airbnb is either cutting into hotel taxes or pulling a significant number of housing units off the market, cities are understandably concerned about any possibility of lost revenue and the prospect of long-term rental units being taken off the market in neighborhoods where increasing housing supply is unfortunately not possible. Residents of many neighborhoods have their own worries over how a sudden increase in the amount of short-term rental properties affects the character of their neighborhood.
As tempting as it might be for Airbnb to charge ahead on its current path, perception matters, and a good lesson of this can be seen in a company that found success where Napster failed. A few years after the Napster showdown, Steve Jobs and Apple released iTunes, offering record companies a business model that charged for songs on a digital platform. Apple’s willingness to work with the music industry led to outstanding profits for the company in the 2000s, and such collaboration continues to infuse its approach to launching products and services.