Why Airbnb’s IPO Will Outdo Uber and

Lyft
Not all sharing-economy firms are created equal.

By
Ganesh Mani

The sharing economy is facing the ultimate test in 2019 with a raft of initial public offerings.
Even after Uber's recovery, there remain serious doubts not only about the future of those
businesses, but also of the entire sector. Should wise investors avoid the soon-to-IPO Airbnb
and publicly-traded Expedia Group, which gets about 10% of its revenue from its fast-
growing HomeAway-VRBO subsidiary?

Not all segments of the sharing economy are created equal. One benefits from a strong
foundation. The other is chugging uphill, hoping not to stall. The contrast is clearest in five
major areas.

Customer Experience Is Key

A car ride is a utility, a barely tolerable way to get from point A to point B. There are no
Rolls Royce Ubers or Lamborghini Lyfts, just anonymous sedans and SUV’s that, if you are
lucky, are carrying a room-temperature bottle of water just for you.

On the other hand, an Airbnb booking can be a grand experience unto itself: French chateaus,
horse farm cottages, sailboats, re-purposed shipping containers, tree houses, trullos -- even a
Spice Girls bus! Add in a Viking professional stove in the kitchen and a craft brewery in
town, and customers can easily spend weeks anticipating their stay. The combination of a
unique property and a responsive host leads to amazing Instagram posts -- the ultimate
barometer of the new economy. Uniqueness of goods was what helped eBay in the early days
and is currently responsible for Etsy’s resilience in the e-commerce world.

Houses and Cars Depreciate Differently

Sharing economy assets degrade over time, but at different rates, depending on the type. A
house and an automobile are two of the most expensive purchases for any household.
Naturally, everybody wants to make the best use of these purchased assets.

Barring recessions and buying at extreme tops of the market, the value of a house generally
goes up over time -- chiefly because they are not making land anymore. Conversely, a car
depreciates over time and has an average life expectancy of about eight years, according to
Consumer Reports. Just in the first year, a new car loses about a fifth of its value! Airbnb 2,
Uber 0.
“Living area includes pink Union Jack cinema chairs, complete with vintage 90s
memorabilia and bold interiors.”
Photographer: Matt Alexander/PA via Airbnb

Airbnb Has the Edge on Autonomy

While tremendous progress has been made on autonomous driving technology, a car still
requires an alert and capable human. That takes continuous engagement, often fighting stress
and exhaustion. On the other hand, a multi-day Airbnb stay has economies of scale for the
home-sharing host -- attention is required when the host checks in, but with lock boxes and
digital devices, home-sharing is currently capable of being largely autonomous. Another edge
for Airbnb.

Uber Isn't As Economically Efficient

Insurance, maintenance and energy expenses are additional overhead costs in the sharing
economy business. They tend to be much higher -- relative to the revenue opportunity -- for
automobiles. For shorter rides, Uber and Lyft end up claiming about 40% of the price of the
trip, trimming the driver’s take significantly. Many studies estimate the drivers’ average net
compensation to be well below $15 per hour -- the emerging target for general minimum
wages.

As a secondary or truly flexible job, rideshare driving seems to be a good option. A home-
sharing host ends up pocketing roughly 85% of a stay’s revenue currently and Airbnb
continues to tweak its commission structure to stay competitive with hotel booking sites.
Also, there is a ready opportunity for additional revenue lines: breakfast or other meals,
laundry and guided tours or “Experiences.”

Uber needs a breakthrough.

Photographer: Daniel Sorabji/Agence France-Presse-Getty Images

Scaling Sharing Isn't Easy

Investors in the ride-sharing space have to take a long-term view, hoping that cab rides are
just the beginning of services that could include food delivery and scooter rentals. They
should also carefully watch cash flows, profitability and business pivots.

Uber and Lyft will need to make some big leaps in innovation, as companies like Google turn
their significant mapping and autonomous driving expertise into competitive threats. They
can afford to undercut the current economics by offering a monthly subscription service to
both drivers and passengers. Monetizing data through advertising and cross-selling goods and
services is much easier for Google given its rich, pre-existing engagement with users and
businesses alike, globally. There are plenty of regional threats to the ride-sharing giants as
well.

Airbnb demonstrates robust network effects with almost six million listings and 150 million
engaged users, who spend more time on its website than on competing portals. Airbnb’s
continued expansion -- to places like the Gaza Strip or Cuba, for example -- has the potential
to double its EBITDA margins from the recently estimated 20% to 40% in the next few years.
Booking Holdings Inc., formerly Priceline, pulled off the same feat in the last decade.
The stomach-churning feelings of investors are well justified in the car-sharing space. But
they have every reason to look forward to arriving at the relatively tranquil side of the sharing
economy when Airbnb goes public.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP
and its owners.