February 13, 2020

Airbnb Wants You to Be Loyal

Airbnb Wants You to Be Loyal

The only headline you really need to know from the fintech world in 2019 is that big tech is getting into fintech. Many cite Apple and the Apple Card, Uber with its Uber Cash program, Facebook & Facebook Pay/Libra, and Google and its upcoming checking account. But Airbnb has been interested in fintech for a while. Airbnb acquihired a crypto startup in April 2016 (a story Ian broke at Quartz, btw) and has always had a really robust payments team (hey, Logan!).

Under the surface of being a marketplace connecting people and homes, Airbnb is a fintech company – processing billions in payments annually – through both accepting payments from consumers and disbursement of funds to its hosts. Airbnb also partnered with major mortgage companies to offer refinancing with home-sharing income included and have also heard rumors of Airbnb spreading into home improvement loans and insurance products.

But last week, Ian and I discovered that Airbnb has an open job posting on their site for a director of loyalty, which piqued our interest. What does an Airbnb loyalty program look like and how does the impact the future of their business?

I’m sure I’m not the only one who feels this way, but it’s about time. Airbnb technically isn’t a hotel chain, bust almost every large T&E company has a loyalty program, sometimes resulting in a business that’s as big as those companies core businesses themselves. I’ve personally been waiting/expecting an Airbnb loyalty program for a long time and so it’s exciting to see them staffing up and moving in this direction.

Hiring this role doesn’t come as a surprise – Airbnb announced a loyalty program for guests in February 2018 but postponed the project in September of that year. Based on this article from Skift, it seemed like a guest loyalty program was a bit more difficult than they initially anticipated:

“We decided that it wasn’t differentiated enough, we didn’t have enough community involvement for us to launch it,” he said. “So we’re actually back to the drawing board. We have nothing else to share on that, but I can tell you the team is waking up every day thinking about how we can have a great Superguest program for those loyal guests that are asking for it.”

Let’s Start With the Job Posting

From the post, the ideal candidate will:

  • Define the vision, strategy, and roadmap for Airbnb’s loyalty and membership program
  • Work with Business Unit leaders to understand the unique needs of each business unit to inform the product strategy
  • Lead a cross-functional team across product management, design, research, engineering, finance, partnerships, operations, and external vendors to execute the program.
  • Launch a series of pilots in order to validate the value proposition and strategy.
  • Partner with Finance to develop a sustainable business model for the program.
  • Define the go-to-market plan and partner with cross-functional teams like Marketing, Partnerships, PR, etc. to execute.
  • Manage program buildout and performance.
  • Work cross-business to align the loyalty strategy to Airbnb’s overall business strategy.

Woof. This is a BIG role – building a loyalty program from scratch as part of a multi-billion dollar organization that already has millions of active members and processes billions in transaction volume yearly is no small task.

Let’s start with bullet 1 – this person is going to define the vision, strategy, and roadmap. This gives us some insight into a couple of things:

  1. Airbnb is still far away from launching a loyalty program. Even if this person started tomorrow, we likely wouldn’t see any new launches of these pilots for 6-9 months.
  2. They’re still unsure of what their loyalty program is going to offer or how they are going to make money from it

In Airbnb’s defense, they’re looking for an 🦄employee. They need a product person with deep experience in conceptualizing, scoping, and launching products at scale, combined with a background in loyalty, topped off with the financial acumen to understand how the heck loyalty program P&L’s work.

Combing the second, third, fifth and last bullet (since they’re all related) this same person will “W\work with business unit leaders to inform the product strategy”, “lead a cross-functional team”, “partner with finance”, and “work cross-business”. Let’s start by looking at all the departments currently on Airbnb’s careers website:

I count 20 – although not all of these divisions are necessarily applicable to a loyalty program launch. However, this launch is definitely going to interact with many teams (especially the ones noted in the job description itself), but most importantly:

  • Business development – there are lots of partners involved in the launch of a loyalty program, but I’ll take a guess that this involves BD work for both merchants and other brands and loyalty technology providers (Epsilon, Aimia, or someone similar).
  • Data science/analytics – Airbnb is likely going to set some serious KPIs around the loyalty program, with the goal to encourage repeat purchases, increase brand affinity, attract new enrollments, open the door for ancillary revenue opportunities, increase margins on reward breakage, etc
  • Design, Engineering, Product – More in the next section
  • Finance – For the sake of granularity, I need to break this into two parts:
    1. Economics: In Airbnb’s case, this is going to be an exercise of how much margin they are willing to eat into with their core business (booking stays), secondary businesses (experiences and other services), and at some point credit card interchange. If there are non-straightforward monetary perks (upgrades, stocked kitchens on arrival, tier status, flexible cancellation, etc), this will have to be accounted for as well. Finally, loyalty programs built on a virtual currency (points or miles) have balance sheet liability implications, and breakage (how many people don’t redeem rewards for whatever reason or redeem at a lower value than what they were issued as).
    2. Payments – issuing loyalty currency brings about a whole new set of payment complexities, from earning and managing a loyalty ledger to customers redeeming rewards
  • Marketing – building the loyalty program is one thing, marketing it to existing and new users is another. I expect a similar marketing push to what they’ve done with the launch of every net new part of the business.
  • Operations – a new loyalty program means training CSRs, dealing with fraud (and preventing it!), collecting feedback, running promotions, etc.

Airbnb is obviously putting an emphasis on finance (make this a sustainable loyalty program and don’t just give away free shit), strategy (aligning with plans for the IPO, perhaps?), and product (good luck doing all of these things AND managing and overseeing this launch). The more I think about it, the more this feels like a GM role.

Speaking of actually launching this thing, bullets 4, 6, and 7 layout the roles and responsibilities for this person shipping things in market and constantly iterating pilots to make sure they are launching something that resonates with Airbnb members.

“Lead a cross-functional team” and “launch a series of pilots” scream product, and I’d look for a strong product leader to fill this role and who can staff up across the various functions with people who have loyalty experience – or can quickly learn how loyalty works.

Why this Loyalty Program is so Important

This loyalty program is crucial for Airbnb because it not only establishes them as a travel company who competes for the same clients as the Marriott’s and Hyatt’s of the world, but a strong loyalty program is a predecessor for launching a credit card program with most big issuers. Which.. I hope is on the Airbnb roadmap?

A credit card really locks a consumer into the Airbnb ecosystem, especially if it becomes a general-purpose, top of wallet card.

It’s the perfect consumer engagement flow; use your Airbnb card anywhere, earn Airbnb rewards, gamify spending and stays to earn status on Airbnb, book Airbnb over a competitive option (especially for business travelers), redeem your Airbnb rewards in the Airbnb ecosystem – which will likely have the best redemption value.

For big credit card issuers, a loyalty program is a signal of an engaged customer base who has a reason to upsell into a card. When you tie loyalty perks to the card (example, an Airbnb SuperPlus membership valued at $59 a year that’s included with your card) you’ve got more incentives for consumers to open this card over your traditional co-branded or travel-oriented credit cards. You also get to play with loyalty economics, which are a boost to the P&L (if the issuer is sharing the risk) as without a loyalty program you’re just building a cash back card.

Uber built a solid playbook for this (granted, I have no idea if that portfolio is sustainable). They kind of launched both their loyalty program and credit card at the same time, building in status, Ubercash, and other perks to lock consumers into the Uber ecosystem.

Why Now

It’s easy to say “IPO imminent, diversity revenue and product offerings!”, but I think that’s too simple of an explanation for a loyalty push.

I believe that Airbnb didn’t launch a loyalty program years ago because they hadn’t yet expanded into additional business lines with higher margins than its core business. So now with experiences rapidly growing and hotel bookings through the acquisition of HotelTonight, Airbnb has some flex to fund a new loyalty program, especially if those rewards are redeemed right back into the Airbnb ecosystem for things other than just booking nights.

Per their website, Airbnb makes ~15% of gross bookings through fees passed to either consumers and/or hosts. They appear to have done a good job of keeping operating expenses relatively low – Airbnb reported 67% gross margins late last year. But a loyalty program built solely on their core bookings business without the other offerings would quickly eat into that 15% take.

In Q1 2019, Airbnb booked $9.4bn in gross bookings. Let’s assume that in 2019, Airbnb booked $37bn in gross bookings, generating $5.4bn in revenue through fees (.15 * 37).

If Airbnb rewards ate into 3% of gross bookings (assuming 3x points/$ spend on Airbnb stays, worth $.01 each when you redeem for more Airbnb stays), that would actually be 20% of gross revenue! (3% / 15%). And with gross profit margins at ~4% (according to Bloomberg), this doesn’t feel sustainable. Compare this to someone like Hilton who had 8.6% net profit margin in 2018.

How I Would Launch this Program

If I were launching the Airbnb rewards program via an interactive, pilot process, I’d probably focus on lots of merchant partnerships to drive personalization and go at it like this:

  1. Start with status and perks, no rewards. One idea is to focus on partnerships with companies like Doordash (food delivery when you arrive), Uber or Lyft (rides to your airport, or upgrades) or airlines (they aren’t competitive, after all). Book enough nights and status could earn you something like free turndown service if your stay is longer than 3 days or exclusive inventory for Airbnb Plus stays. Model the economics of subsidizing these perks by encouraging more incremental spend and roll this pilot out to a specific slice of users that you can gamify to earn these perks. The important thing is to get users in the mindset of spending more to unlock rewards and earn exclusive status – and everyone likes to feel exclusive!
  2. I would then take the above model and duplicate it across other segments of consumers, adding and subtracting both merchant partnerships and perks on Airbnb which I think would be most important for each traveler. For the budget explorer, they might prefer discounts. For the HENRY, they may want a similar experience to that of a hotel where breakfast is included, which could be solved through partnerships with local cafes. Launching pilots with Amazon, grocery chains, restaurants, delivery companies, local cleaning services, dry cleaning companies, etc, are part of this pilot.
  3. Rewards come next. How can we encourage consumers to spend more and earn rewards – both on lodging and experiences. Do we become a transfer partner with a large credit card issuer – like Amex or Chase? I think the key to launching points is when I’ve successfully proven that the loyalty program drives incremental spending and recurring stays, therefore justifying the value being passed back to the consumers.
  4. While launching these pilots I think it’s absolutely crucial to be concurrently developing a credit card program. If Airbnb really wants to build a competitive, long term loyalty program, they need the credit card economics to fund the program – interchange and interest. And given their size, they shouldn’t have any issue finding a bank partner.

All of this said, there’s a general theme around companies expanding their financial offerings, whether via products like loans, banking services, or cards, or through other mechanisms, like loyalty programs. I find an Airbnb loyalty program exciting because it means a consumer credit card is likely to follow soon after, it just requires the right foundation to launch correctly. A generic cashback isn’t the “innovative and differentiated” experience that Airbnb is solving for.


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