Ebay has a trust problem. The seller needs to trust the buyer will send whatever is sold. The buyer needs to trust the seller to pay.

Part of this is handled by the transaction process where the seller doesn't typically send something until paid but the buyer if unnscrupulous can always do CC chargebacks, cancel checks or the like. The buyer just has to trust the seller.

Reputation is the big part in this but is no guarantee. Actually what Ebay needs is to show the total value of buy and sell transactions separately, not just the number of transactions.

AirBnB seeks to solve these same problems with reputation.

The problem? At worst on Ebay, the buyer or seller loses 100% of the transaction's value. On AirBnB, the potential loss is many thousands time the value and can include irreparable harm (eg murder, serious assault, rape, etc).

What's more they're facilitating people doing something generally not allowed by their leases (if they rent) or by legislation or regulation. That's potentially a huge problem.

So it's fitting they set up this kind of insurance guarantee. Much like Ebay securing transactions (to some degree at least), the extra confidence in the system promotes its use.

I don't believe this is an end to AirBnB's problems however. They're simply kicked the can further down the street.

Imagine this scenario: someone rents a house through AirBnB while the owner is away. They set up a meth lab. The meth lab explodes, burning down the house, burning down 2 neighbours' houses and kills three people, two of them innocents. What a huge liability mess that would be. Who is responsible? Clearly the person who set up the meth lab are responsible but a canny lawyer will argue that AirBnB and the owner were negligent in their actions.

ITYM "The buyer needs to trust the seller to send whatever is bought." etc.

I flagged it. Fuck this shit. I'm sure the story does a service to TechCrunch readers, but it's a drag on HN.

Please submit the original source. If a blog post reports on something they found on another site, submit the latter.

An arguably more-informative headline isn't worth bifurcating the discussion.

Either way, all the articles, from TechCrunch and on Hacker News, have been useful to me in understanding both the issue, the reaction in the press, the sentiment on hacker news and among tech circles, and beyond. This one in particular does add some new information which I found useful.

I will keep upvoting stories I find interesting about the whole ordeal and I encourage others not to be deterred by the extreme comments in either way.

It's just a pity that in this final coming clean with their customers that they couldn't, you know, come clean.

"... we weren’t prepared for the crisis and we dropped the ball".

How is it possible that no-one predicted that something like this might happen?

With multiple founders and employees thinking about the business day and night, this never occurred to anyone? Really?

And what about the investors? Not one single investor, these Gods of fine detail, raised the question of what contingency plans were in place for just such an event?

I don't buy it.

Airbnb had a plan, and that plan was to boldly deny all responsibility, to flat out ignore the human consequences of their flawed model - a flaw that affects only a tiny fraction of their hundreds of thousands of users but one that, nonetheless, has massive, life-changing consequences for the unlucky few who get caught beneath the wheels of statistical inevitability.

Brian Chesky knew this, every employee knew it, every investor new it and Paul Graham damn well knew it too.

Unfortunately for all of them, they didn't think about the possibility that one of the unlucky few might have the communication skills and, more importantly, the sheer tenacity to tear down the illusion that they have so carefully crafted. In the past few days, she became a victim again as a panicked company and horrified investors, watching $1.3bn start to swirl down the drain, launched a concerted slur campaign against her, casting aspersions on her sanity, as if that had any bearing whatsoever on the tragedy that befell her - they owe her a quite separate apology for that nasty, mean-spirited assault.

Hilariously, they also owe Michael Arrington an apology, but you shouldn't hold your breath waiting for that one.

So, yesterday is yesterday, we stride bravely into the future with a somewhat more humane policy in place. What hasn't changed is that the model is still fatally flawed and, sorry to be crude, but how is $50,000 meant to be applied to a serious beating or, God forbid, a rape?

We all hope that won't happen but, again, I look at this whole concept and I know in my heart that, eventually, it will. Does anyone really believe that this model has a future? Are we in that much of a bubble?

P.S. Just for the record, and Brian Chesky take note, this comment "reflects my true feelings".

A business model is not flawed simply because it offers a service that entails inevitable risks of injury or harm to those who use the service (airlines have crashes; banks have embezzlers and thieves; anesthesia has an inevitable x% fatalities when used with operations; eBay has frauds and swindlers, and so on).

HomeAway just went public with a different but related business model as that of Airbnb. Its S-1 registration statement identified all sorts of contingencies by which the company might face liabilities from the wrongdoings of third parties in connection with its vacation rentals - everything from bogus listings by which prospective renters are swindled to robberies and bodily injury suffered by renters to physical injuries from conditions on the premises. In spite of all this, its business model has not proved to be flawed.

This world is not perfect and much evil can lurk in and about the nooks and crevices of human relationships. The fact that a service provider can't act as guarantor against all such risks does not mean that it can't offer a reasonable or even valuable service.

Airbnb probably did downplay the risks to its users up to this point (and it certainly messed up this particular incident) but it has now gone a long way to correcting that problem. If it can offer a desired service that will bring benefits to 99.99999% of its users year in and year out, and if it guarantees against a significant range of risks as it has now done, that is a lot better than most businesses do. It may or may not succeed in its venture (I for one wish them well) but that will be an issue of execution, not of a flaw in the business model tied to the inevitable risk that people sometimes do bad things.

Airbnb's Unique Selling Point, the factor upon which its notional $1.3bn value rests, is the claim that it is a marketplace for real people to rent out their own homes - that is to say, the properties in which they themselves live - while they are away or individual rooms in their house while they are present.

This is an intriguing idea and, if you don't think it through, it is easy to jump to the conclusion that most of us have homes, most of us have spare rooms and most of us have vacations, during which our homes lie empty and unproductive. Hotels have been screwing us for years (who hasn't, at some stage, been personally offended by minibar prices?), wouldn't it be great if we could all somehow route around those archaic hotel monopolies?

So, that is the Airbnb pitch, it would clearly be of interest to investors if it could be shown to actually work and, at first glance, it appears that Airbnb has done this - over 2 millions nights have been booked through their system, each raking in a healthy commission of around 15%.

Unfortunately, Airbnb has a dirty little secret, and any of you who have used it will know this: the vast majority of the properties available are actually the same vacation rental properties that have been available for years and are still available through all the other websites, provided by professional landlords with multiple properties - the only real difference is that these landlords charge about 15% more if you book through Airbnb.

Now, when I say majority, I don't mean overwhelming majority but certainly more than half of the actual beds per night. There are, for sure, lots of people new to renting out their places, there are lots of people renting out their actual homes but the point is that they do not represent very many of those two million nights - the two million nights that supposedly prove that Airbnb's unique angle - real people renting to other real people - is a moneymaker.

On closer observation, you will notice that of the many real people listed in a given city, you can look at their photos and read their endearing bios, but their beds are not actually available anywhere near as often as those offered by the pro landlords.

This is because they are real people with real lives - they listed their room because they figured it would be a handy way to make money and perhaps they even bought into Airbnb's charming message that it is an excellent way to meet good-looking hipsters from other countries but, whatever the initial motivation to list, people with real lives often find themselves too busy with real life to deal, right now, with fricking guests.

Also, when they do accept guests, it often doesn't turn out to be the sun-dappled cultural exchange that the Airbnb promotional video so artfully and persuasively suggests. So, very often, upon learning that accepting guests is less about receiving cheeky blowjobs from stunning French models, and more about changing sheets besweated into by fat Greek geeks, a lot of the real people owners tend to drop out of the system by simply blocking off their calendars for months at a time.

So, the supposed point of Airbnb actually represents only a fraction of their actual bookings and perhaps you can see the longterm problem with that. As they reach greater scale, it becomes clear that, actually, the market there are depending upon, the bookings that are bringing in actual revenue, are not some virgin territory, exclusive to innovative Airbnb, but the same hard-bitten professional vacation rental landlords that all the other companies are chasing after.

Certainly, there is nothing there to justify a $1.3bn valuation and if you know anyone who is seriously considering sticking some of their savings into the Airbnb IPO, do them a favor and slap them to their senses.

Now, the second bomb fuse, happily fizzing away, lies in the essential difference between real people who are dabbling in rentals and those hard-bitten pro landlords: the pros know that, while most people are lovely, a regular percentage will surprise you by turning out to be complete scumbags. Pro landlords know this, they've experienced this and they accept it as an unfortunate but inevitable part of doing business.

Now, the real people owners, they aren't necessarily idiots but, certainly, compared to the pros they are sitting ducks. As yet, Airbnb has been fortunate to have been largely of interest to tech hipsters such as ourselves. As a general rule, such people are what is technically known in the industry as "nice", meaning they are unlikely to smash your toilet cistern while in a meth-induced frenzy. Unfortunately, as Airbnb grows and, more importantly, as word filters down to the criminal underclass that all these Macbook-owning fools are opening their doors to anyone, you are going to all sorts of interesting guests turning up and, inevitably, a good old-fashioned crime wave.

You are also going to see some rapes. I am sorry, I don't mean to be crude, but this is going to happen. If you look at Airbnb properties, you'll notice that they are selling the owner as much as the place. This is endearing and I have stayed with some lovely people, but I am always struck by how vulnerable young female owners are. Just for a moment, go to Airbnb and search for rooms within homes in any city. Look at a few and, in particular, take the time to look at the owners - read their charming bios, read the nice things that previous guests have said about them, click to enlarge their photos and admire their young, beautiful, trusting faces.

No, ask yourself this question: given that we know, for a fact, that there are some truly dangerous men out there. And given that we know that rapes occurs in every city, every day. Ask yourself, would you be happy if one of your sisters, needing a little extra dough to cover her mortgage, decided to start renting out a room in her apartment to a different stranger every night?

So, okay, I don't want to dwell too much on the awful implications, the all-too-likely disaster waiting to happen, so, let's think about it as investors - if just ONE person does get raped ... or .... if just one owner CLAIMS to have been raped ... what happens to Airbnb?

Well, obviously, it tarnishes the brand, that much is obvious but, more importantly, it effectively means that far fewer young women will continue to rent out rooms and, you'll notice, women in their twenties make up the majority of the real landlords. Even some who might be willing, themselves, to continue, they will be under tremendous pressure from their family and friends to quit.

So, suddenly, Airbnb's loincloth of real people landlords becomes far smaller and, suddenly, the difference between them and HomeAway is a lot less clear. Suddenly, the IPO become a much harder sell.

And that, my friends, is why Brian Chesky and Paul Graham have gone nuclear, because these two major flaws are slipping beyond their ability to control the story and, after so much hope, it is turning out that Airbnb might not be the next ebay after all, it might just be the next Pets.com.

Your reading of the whole situation is very good. The Airbnb guys right now will probably hope the worst is past, they made a PR mistake, and fixed it. But I would suggest them to read carefully your words as they are very valuable to them. Really.

> the only real difference is that these landlords charge about 15% more if you book through Airbnb.

How does it actually work? They charge 15% on top of the price set by the landlord + they charge a reservation fee? This is not very clear to me.

> Now, when I say majority, I don't mean overwhelming majority but certainly more than half of the actual beds per night.

I can't confirm the numbers but I know for sure that many professional landlord signed up and added their properties in Airbnb. There's really nothing wrong with that, and actually it could save Airbnb's ass in case the non-professional landlord model fails: they'd be one of the best (if not the best?) online reservation rentals website out there, with a social touch. Pretty solid.

> Pro landlords know this, they've experienced this and they accept it as an unfortunate but inevitable part of doing business.

I agree. And most of them ask for a cash deposit on check-in. I wonder why this has not been discussed. It really helps to reduce sensibly the damage. Of course not the 50.000 U$ damage but the many small broken/stolen things which just happen in many rentals.

Sure it has a future. There are always problems to be solved with an original business model, but they will be (or at least continuously mitigated as a proportion of the overall business). Some examples:

1. AirBnB already ties into your FB network so you can see and rent to and from friends and friends of friends. I've found this very useful, though ABB should make it a more prominent feature of the site.

2. Now they've got insurance. If I were them I'd find some intrepid banker or actuary to figure out additional optional insurance they can sell to both hosts and renters. $50k is a good start, but I bet many places will want more. If a bunch of meth addicts trashed the country of Lichenstein, $50k sure wouldn't cover it. I also bet the risk model is relatively stable and they could turn that into a secondary cash flow.

3. I was actually surprised people rent their apartment/house to strangers without being there. That was definitely a little nuts, no idea what EJ was thinking there. But who knows, maybe it's another opportunity. For example, someone with strong online rep and thousands of FB friends, or real-life security or military professional, might start up a gig where they rent themselves out to any AirBnB host in their city to stay in their apartment while the host is gone. For, say 30% of the rental, they'll be a trusted caretaker. AirBnBouncers.com.

On a side note, why are we hearing about these problems with AirBnB when Couchsurfing has been doing basically the same but free for longer? What's the difference? Has CS created a stronger, more connected/verified community, or do CS hosts never offer their couches without being there themselves?

I am saying that the $1.3bn valuation is based upon a serious misconception of the viability of the market and the extent to which Airbnb can build an unsullied brand.

In short, this is not the clean, scalable industry they are trying to tell you it is, they are pulling a bait and switch, please see my other answers for a fuller explanation.

Even if they did, how is the model flawed? I don't understand all the heat Airbnb is getting - after all, they were upfront with that disclaimer and hadn't tried to persuade their users that there's absolutely no risk... Or have they?

How is AirBnB different, as far as responsibility is concerned, from a classifieds paper that publishes adds for apartment rentals? Or from Craigslist, for that matter.

I mean, vilifying them for asking the victim to take down her blog (_if_ it's true) is one thing, but blaming the vandalism on Airbnb is completely different and something that I don't understand.

They are different from Craigslist because they take a percentage of the transaction. This makes them a participant in the transaction and this is important in legal terms.

The heat is mostly because young, inexperienced and overconfident executives overplayed their hand and then tried to salvage the situation by blatantly and very obviously lying about what their position had been 24hrs earlier. It was astonishing to watch and caused quite a feeding frenzy.

Effectively, what we will see in the future is that Airbnb will make quick assessments and zoom in to shut victims who have the potential to attract publicity, while the less savvy will be swamped in insurance red tape until they give up and quietly slink off.

The $50,000 means nothing - after the incredible amount knocked off their value this week, Airbnb was obviously going to have learnt the financial wisdom of paying off some people, that is the only real change.

Corporations have learned that, with the vast majority of people, you just have to fob them off until inertia kicks in.

The irony is that the victim in this case probably wouldn't have been a problem if they hand handled here a little more professionally in the first 24hrs. Given all that was at stake as they entered a funding round that valued them at $1.3bn, Chesky should have gone to see her in person the minute he became aware of the situation and put her straight into a five star hotel while he organized and paid for a complete deep clean, fumigation, redecoration, refurnishing and whatever else it took to soften her. Then he should have tactfully proposed that he give her a reasonable sum, perhaps ten grand, in return for her signing an NDA.

In three or four days he would have saved his company from $100m in longterm damage, possibly much more if this starts a meme of wariness about Airbnb that derails their IPO plans.

Well done.

1. Who is underwriting this insurance and–most importantly–is it still valid for hosts who are technically breaking the law of their city/county/state?

2. Are we sure this policy wont make these situations more common or targets for fraud? I'm thinking of bank heist movies where they always say "don't worry, your money is insured by the federal government" ...

3. What about guests? If I were to guess, I'd say the next big AirBnB scandal will be "guest attacked by host's dog" or "guest slips in host's shower, breaking rib". Who's going to cover that?

The AirBNB guarantee is spot on. Buen trabajo

I still give them credit for doing the right thing, but it'd be a lot more impressive if they did it back when it was just the "right thing to do" and not "the quickest way to end this crisis that threatens to destroy the company"

For one, the fix will not get nearly as much coverage as the initial problem. Many people will not hear about it and will be left with a negative impression of the company.

Second, for those carefully following the story, I think it's clear that they've handled this very badly up until now. Maybe I'm being unfair, but I award only partial credit for doing the right thing only when your back's against the wall.

The Guarantee would have been spectacularly more powerful had they announced it before the story got picked up by CNN and USA Today. I think it's silly to argue otherwise.

Finally -- and this is just my personal opinion -- I think even with the new insurance policy it's a net loss for Airbnb. This episode has highlighted just how bad the worst case is for someone using the service. The personal value of my home and safety is considerably higher than it's appraised dollar value. Bottom line, I am less likely to use Airbnb today than I was last month.

Good luck communicating their policy revisions to those who read of the AirBnB horror story on USA Today.

I'm rooting for Airbnb. I hope this incident will just spur them on to do a better job and move even faster.

[you can downvote this to your little gung-ho-yc heart's desire, but the problem won't go away as easily]

No doubt they'll need to hire some claims examiners. But if I say "omg, the person who stayed here last night has run off with my $30,000 necklace" then what evidence do I have to provide?

A police report, at the very least.

In a low-fraud world, it's probably cheaper for airbnb to insure against it themselves than to outsource that to somebody else. You don't insure against a large number of small losses, you insure against the possibility of one big loss -- this is why you buy car insurance but Avis doesn't.

By outsourcing the insurance to an insurance company it's not their problem. It's the task of the insurance company to assess the risk and Airbnb knows beforehand how much it has to pay.

One thing is, you have to require due diligence on the part of renters and vary coverage accordingly. Otherwise you just encourage carelessness now that the illusion of trust and safety is tarnished.

This fiasco might have dented their velocity but I'd say overall, better now than later. They now have a major asset, getting through a crisis. Now they need to bullet-proof it like PayPal's epiphany that their main business is not digital money transaction but fraud detection (because it can rock their bottom line and tank the business). For this you need hardcore engineers who can apply rigorous analysis to the problem of shady renters not more community guidelines.

That said I really do hope it works out, but it's to soon to tell how this will all turn out. For now I'm content with the fact that they are trying to make things right.

I'd debate that.

That said, given that the snail-news services like CNN have picked up on this fiasco, it'll be interesting to see if they also pick up on this follow-up, or if it's already outside of the news cycle and, as such, too late for an apology to anyone who follows CNN but not HN or Techcrunch.

If I can easily prove to Airbnb things like, "this is my identity on couchsurfing, that is my identity on ebay, this is my identity on [wherever]". Airbnb could provide the service of verifying those claims and presenting a summary to the seller.

Kinda like linking accounts for easier sign-in (one site becomes the identity provider, the other becomes the relying party). But in this case, the purpose is to satisfy another end user of the validity of the claims, not the site a user is signing into.

edit: the new customer service operation sounds fantastic, btw. Nice assembly in just a few days.

Read the fine print folks..it does not match..

But it's also partially on the owner for not watching their place carefully enough, and not being prepared for people who are less than honest. You can't do business with the public without having a plan for that.

Please post comments there.

What is their guarantee to guests? What prevents them from being a target for scams to collect host insurance? What statistics can they provide us about the wellbeing of all past guests and hosts?

If I'm going to rent out a room or a flat for the prices they advertise -- but apparently I better have an extra $50K of insurance before doing so -- is the two or three digit per night rent really worth it? This new guarantee sounds like an admission of failure.