Now valued at $10bn, Airbnb decides it no longer has to disrupt hotel taxes
Of the factors that might go into the "Risk" column if or when Airbnb prepares to IPO, one will certainly appear right at the top: Government.
That makes Airbnb's latest news all the more noteworthy: Starting this summer, the company will be paying San Francisco's 14 percent hotel tax. Or, to be more precise, the Airbnb hosts will be paying the tax. It's the second city in the U.S. where Airbnb has struck such a deal with the government, the first being Portland, announced last week.
Portland and San Francisco aren't the only cities Airbnb is hoping to win over. A few days ago the company sent a letter to Mayor Bill de Blasio of New York City, pointing out that the government could rake in $21 million in occupancy taxes from Airbnb hosts, if it so chose. That money could go to one of Mayor de Blasio's pet projects for helping homeless families. That letter comes more than five months after Chesky published a blog post saying, "Our hosts are not hotels, but we believe that it makes sense for our community to pay occupancy tax, with limited exemptions for those who earn under certain thresholds."
For anyone who has followed the history of the company, this pro-tax serenade is a pretty new tune for Airbnb. It was only two years ago that the company was fighting taxes in San Francisco by sending 120 employees to a city meeting about whether Airbnb should pay the hotel tax. At the time, The New York Times published accusations that newly elected mayor Ed Lee was working to waive hotel taxes for Airbnb because Airbnb investor Ron Conway asked him to.
Airbnb's new stance is an about face, and it has everything to do with the company's reported attempts to raise funding at a $10 billion valuation, possibly in preparation for an IPO. A valuation which, by the way, puts it on the level of being bigger than some of the world's biggest hotel chains, like Hyatt.
Whether that valuation -- almost triple Uber's rumored valuation -- is reasonable can be debated, but there's one thing that's crystal clear: Airbnb can't grow into that massive valuation by being a hospitality alternative. It has to become as mainstream as The Hilton. Likewise if it wants its IPO to be on par with the big boys, it needs to diffuse lurking problems and assuage investors' fears.
It's great to be disruptive until you're looking for an exit. Then the status quo is something you want to make friends with, which is exactly what we see Airbnb doing. It has gone from fighting taxes to openly asking to be regulated.
In the early stages of a company, disruption is a great marketing meme to rally supporters to your cause. "The cult of disruption" drives a wedge in the market, setting up a David and Goliath theme between the "innovative" and "efficient" new startups and the old, sluggish, entrenched players. Who doesn't want to root for the little guy?
At the same time, the "cult of disruption" ploy buys time for these companies to raise war chests of venture and start pulling in big revenue before they're required to play by the rules of the sector and pay up in taxes or safety features like insurance.
Once you can afford the regulatory oversight and industry-level security, why keep fighting The Man? Winning over the average Joes and Josephines will take a move towards the mainstream. Government legalization is a crucial step in the process.
Airbnb isn't the only company to do a 180 on its approach to safety, security, and taxes. Even the most rash of disruptors, like Uber, start changing their tune once they get to the size and scope where a big exit is imminent. We saw this with Sean Parker in his transition from founding Napster to the board of Spotify. He learned his lesson -- that disruption only takes a company so far -- and on his second time around he bent over backwards to work with labels and abide the law.
[illustration by Brad Jonas for Pando]