Airbnb Wants To Sell Experiences - Finds It's Harder Than Renting Apartments

Value-added services make sense, but sometimes tourists just want to be tourists - and for that, there is a lot of competition. JL

Greg Bensinger reports in the Wall Street Journal:

Airbnb billed Experiences as its “biggest product unveiling since our founding in 2008.” The bet was that people who used the site to book accommodations would also want to find unusual activities, like knife making or mountaintop yoga, in the cities they were visiting. Airbnb has lost over $100 million on Experiences. Customers remain wary of spending an afternoon in Dublin learning vegan cooking with strangers. Experiences hosts've eke out a living because of access to Airbnb’s millions of customers.
In November 2016, Airbnb Inc. featured photographer Martin Cohen in a public presentation touting its newly launched “Experiences” business line, which would let travelers book unusual and offbeat classes, tours and outings with self-proclaimed experts.
Mr. Cohen was initially confident that, with Airbnb’s backing, he would have a steady stream of customers for his night-sky photography class. But he says he stopped offering it last year, as bookings fell from a handful a month to an average of one.
“The initial impetus [by Airbnb] was to offer things that people wouldn’t do otherwise,” said Mr. Cohen, of Santa Monica, Calif. “But when you’re a tourist in L.A., you want to go see the Hollywood sign, not photograph the stars and sun.”

His results underscore the early challenges for Airbnb as it tries to branch out beyond its core home-rental business and develop a new revenue stream in time for an initial public offering expected as soon as 2019.
Airbnb billed Experiences as its “biggest product unveiling since our founding in 2008.” The bet was that people who used the site to book accommodations would also want to find unusual activities, like knife making or mountaintop yoga, in the cities they were visiting.
Airbnb has lofty expectations for the division, which has been personally overseen by co-founder and Chief Executive Brian Chesky. The company projects Experiences will be on a pace to achieve $200 million in annual gross sales by year-end, which would translate to about $40 million in revenue for the company after its 20% commission.
If the company can maintain that pace, it would be a steep jump from 2017, when Experiences generated about $10 million in gross sales, with Airbnb taking roughly a $2 million cut, according to people familiar with the matter.
Airbnb, which investors value at $31 billion, had revenue of $2.57 billion in 2017 and was close to breaking even, with a $75 million loss, according to financial statements reviewed by The Wall Street Journal.
One person familiar with the business estimates Airbnb has lost over $100 million on Experiences. Airbnb in a statement says that figure is inaccurate, without elaborating, and that Experiences is on pace to be profitable by the end of 2019.
“We are excited that the returns from the launch of the Experiences product have more than validated the investment and exceeded our expectations,” Airbnb said.
The company has rejiggered Experiences after a sluggish start, emphasizing shorter excursions rather than multiday trips. It has experimented with changing variety and pricing, which is typically less than $200 per event per person. But people familiar with its operations said many customers remain wary of, say, spending an intimate afternoon in Dublin learning vegan cooking with strangers.
Airbnb says it’s still early for Experiences and the business is growing faster than the home-rentals business did in its first year. An Airbnb spokesman said the company is taking a cue from companies like Apple Inc. and Amazon.com Inc., “which is to test a product in the market, figure out what works best and apply that quickly.”
Companies that make their name with a single product or service often find it difficult to compel customers to sample a new offering. Amazon’s smartphone failed to attract customers, while Snapchat-parent Snap Inc.’s foray into camera-equipped sunglasses sputtered, resulting in write downs for the companies of tens of millions of dollars in excess inventory. Office-rental space firm WeWork Cos., valued at $20 billion, has struggled to achieve growth at its fledgling dormlike apartment-rental division.
Corporations have to be willing to sustain many years of losses on new business lines, said Ed Zimmerman, an attorney with Lowenstein Sandler LLP, who has advised tech firms. “At the management level, the tie-in here makes all the sense in the world, but customers have to want to do these activities,” he said.
Airbnb guaranteed some hosts the equivalent of a full slate of bookings in the first few months after Experiences was launched, amounting to $2,500 a month for Anthony Laurencio and Cuci Amador in Miami, who offer a music-recording experience in a sound studio. The pair, bandmates who also were featured by Airbnb during the Experiences launch, say they get one or two customers a month now and struggle to make it profitable, since hosts are expected to carry through even if underbooked.
Some other Experiences hosts say they’ve been able to eke out a living or supplement their existing businesses in part because of access to Airbnb’s millions of customers. Nick Hormuth, who offers bicycle and food tours of San Francisco, said he gets 20 or more customers a week through the website. “It especially fills the gap during off-season periods,” said Mr. Hormuth, whom Airbnb suggested the Journal contact for this article.
The Experiences division has divided investors and employees, some of whom feel that Airbnb has displayed it too prominently on the website, overshadowing home rentals, and that its expenses are too high for the sales return. Profits are quickly eaten up by the cost of insurance to protect against injuries or other accidents on, say, airplane-flying lessons, the people familiar with the matter said.
Airbnb is nonetheless doubling down, with its board’s support. “Experiences is an example of how Airbnb is working smart and building for the long haul,” said Alfred Lin, an Airbnb board member and partner at venture firm Sequoia Capital, in a statement sent by Airbnb. “The strategy is working.”