You Only Have to Be Right Once (11 page)

There are also those who believe the category may not be here to stay. While smartphones killed the need to own camcorders like the ill-fated Flip Video camera, they may also have the capacity to one day become the device that takes out GoPro. Valley venture capitalist Greg Gretsch called GoPro an “ephemeral opportunity.”

“The issue is that they're a hardware manufacturer in a world that's quickly moving to the überplatform: the smartphone,” he added, pointing out that iPhone and Android operating systems have hundreds of developers writing software every day.

Meanwhile, GoPro must now deal with the big boys, who have finally taken note of his success. Sony shipped its first action cameras in 2012 and is positioning itself as a “strong number two” with features like image stabilization and stereo sound, which GoPro currently lacks. “We're a camera company first,” said Sony product manager Greg Herd. “GoPro is a mount company first that sourced to cameras.”

Woodman said that the market he created is big enough for multiple companies. And he was only too happy to point out the stat about outselling Sony at Best Buy in December 2012. “For the first time Sony got beat, and it was GoPro?” Woodman asks rhetorically. “That's pretty awesome.”

Nonetheless, he's also smart enough to know that GoPro needs to step up its game. That explains the Foxconn deal, which brought in a key strategic partner, and the IPO, which allowed GoPro to tap into Wall Street. “Would being a public company put us in a better position to compete?” Woodman asked rhetorically. “We'll see.”

• • •

TWO MONTHS AFTER CLOSING
the Foxconn deal, Woodman tried to say the word “awesome” again, but in an open cockpit at 2,000 feet, it's a little hard to talk. Soaring above the vineyards of California's Sonoma County in a World War II–era biplane, GoPro's founder flapped his arms in sheer bliss. He took the pilot's barrel roll to little ill effect and saluted a stomach-knotting midair stall known as a hammerhead with his trademark yell, “YEEEEEEEEEEEEEEEOW,” which was quickly swallowed by the sound of the plane's propeller.

Having conquered the slopes and the sea, Woodman now wanted to make GoPro the go-to device for capturing “life's precious moments.” He's not the only who thinks that.

“My vision is to help global consumers build an ecosystem in which capturing, sharing, viewing, and creating content on any device at any time in any place is convenient, effortless, and cost-effective,” says Foxconn CEO Terry Gou. “GoPro fits well into that ecosystem.”

That's a big leap. But GoPro's trajectory still remains up and to the right, and will continue that way as long as it finds new uses and markets for its cameras. “If we can become the de facto standard for image capture of unique perspectives around the world, we have a lot of growth ahead of us,” Woodman said. Capturing some of those unique perspectives were the eight GoPros trained on the CEO as he exited the biplane. As he unbuckled himself from his harness and hopped out of the plane, the cameras caught some of his first words once he was back on the ground: “This does not suck.”

Brian Chesky, Airbnb:
The Sharing Economy's Broker

While the classic path to Internet riches holds that you should blow up an industry, Brian Chesky, thirty-two, has built a billion-dollar personal fortune for himself and two partners by creating an entirely new one. His company, Airbnb, is a clearinghouse that matches people who have extra space in their home with visitors looking for a place to crash, the most advanced example of the new, multibillion-dollar peer-to-peer “sharing” economy. There may be no truer Web 2.0 company, existing entirely on the shoulders of earlier Internet innovations: feedback rating systems, which provide crowdsourced seals of approval for both sides of a transaction; social media, which can be used to verify identities and conduct background checks; and smartphones, which allow us all to become stores, wherever we are. As
Tomio Geron
discovered in 2013, this phenomenon is far bigger that Chesky realized when he made some easy money letting designers crash on his floor, and it's not going anywhere, as Airbnb's recent $10 billion valuation demonstrated.

 

O
n paper, Frederic Larson is just one data point in five years of U.S. government statistics showing underemployment in dozens of industries and stagnant income growth across the board. The sixty-three-year-old photographer with two children in college was downsized by the
San Francisco Chronicle
in 2009. He now spends his time teaching at Academy of Art University, with occasional lecturing gigs in Hawaii. A far cry from the salary, benefits, and company car he used to have.

But Larson is also a data point in an economic revolution that is quietly turning millions of people into part-time entrepreneurs, and disrupting old notions about consumption and ownership. Twelve days per month Larson rents his Marin County home on website Airbnb for $100 a night, of which he nets $97. Four nights a week he transforms his Prius into a de facto taxi via the ride-sharing service Lyft, pocketing another $100 a night in the process.

It isn't glamorous—on nights that he rents out his house, he removes himself to one room that he's cordoned off, and he showers at the gym—but in leveraging his hard assets into seamless income streams, he's generating $3,000 a month. “I've got a product, which is what I share: my Prius and my house,” said Larson. “Those are my two sources of income.”

Welcome to the
sharing economy,
where asset owners use digital clearinghouses to capitalize on the unused capacity of things they already have, and consumers rent from their peers rather than rent or buy from a company. Airbnb is the poster child for this phenomenon, sprinting ahead of one-hundred-plus companies which have sprouted up over the past five years, offering owners a tiny income stream out of dozens of types of physical assets that would never before have been considered monetizable. A few dozen square feet in a driveway can now produce income via Parking Panda. A pooch-friendly room in your house is suddenly a pet penthouse via DogVacay. On Liquid, for $20 a day an unused bicycle becomes a way for a traveler to cheaply get around while visiting town.

“People providing these services in many ways are entrepreneurs or micro-entrepreneurs,” said Airbnb cofounder Brian Chesky. “They're more independent, more liberated, a little more economically empowered.”

With an estimated $250 million in revenue in 2013, generated mostly from commissions on all this dealing, Chesky's company is singlehandedly funneling billions of dollars into people's wallets (one study estimates that in New York City alone, it generates $650 million in economic activity) creating an income boost in a stagnant wage market—and a disruptive economic force.

And it's not just a bicoastal thing. Chesky is quick to point to one heartland town, where his company has three hosts willing to rent their place for as low as $40 a night.

Peoria.

• • •

THE GENESIS OF THE
modern-day sharing economy can be traced to San Francisco in 2008, where Chesky and Joe Gebbia, recent Rhode Island School of Design graduates who had fled west, thought they could make some pocket cash by housing attendees at an industrial design conference on air beds in their apartment. They put up a site, Airbedandbreakfast.com, to advertise their floor space. After three people bunked with them that week, they decided to max out their credit cards and build a bigger site with more listings. “We never considered the notion we were participating in a new economy,” said Chesky. “We were just trying to solve our own problem. After we solved our own problem, we realized many other people want this.”

To beef up their tech chops the two designers brought in Nathan Blecharczyk, Gebbia's former roommate. Early on, the trio focused their site—rechristened Airbnb—on large events where hotels were sold out, such as the 2008 Democratic and Republican conventions. In 2009 they got into the hot Silicon Valley accelerator Y Combinator, yet cofounder Paul Graham was dubious. The Airbnb partners impressed him with wacky gambits like “Obama O's” and “Captain McCain” breakfast cereals, which they first gave away to bloggers to get publicity, then ended up selling for $40 a box to support the company. “We were skeptical about the idea but loved the founders,” said Graham. Chesky and crew then won over Sequoia Capital, which came up with $600,000 in seed funding.

Airbnb started slowly, facing the critical mass problem that all marketplaces do—buyers want more sellers and vice versa. There was also a social stigma around sharing. A lot of people told Chesky that renting to strangers was a “weird thing, a crazy idea.” To attract more hosts the Airbnb founders went to New York in 2009, where many of its users lived, to meet them personally—the opposite of what an Internet company typically does—and learn how to improve.

Newspapers brokered the swapping of assets for a century. Various Internet innovations have allowed Airbnb, and its ilk, to exponentially improve the opportunity. Ebay's much duplicated rating system bestows commercial credibility on individuals. With Facebook you can go further, checking people's profiles before renting to them. Smartphone apps let sharers transact anywhere, see what's being shared nearby, and pay on the spot.

Airbnb has a broker's model. In exchange for providing the market and services like customer support, payment handling, and $1 million in insurance for hosts, Airbnb takes a 3 percent cut from the renter and a 6 percent to 12 percent cut from the traveler, depending on the property price.

In 2009, Airbnb ended with 100,000 guest nights booked, but growth started to tick up faster after adding features like escrow payments and professional photography services, and allowing different kinds of spaces such as whole houses, driveways, and even castles and tree houses. By 2010 the site had gone international and guest nights booked rose to 750,000. By 2011 it passed 2 million total nights booked. And by 2012, that figured approached 15 million. Critical mass had been achieved. On New Year's Eve that year, 141,000 people worldwide stayed at an Airbnb. In single-occupancy terms, that's almost 50 percent more than can fit in all the rooms in all the hotels on the Las Vegas Strip.

Those figures still pale next to the entire U.S. hotel industry, which sells more than 1 billion nights a year. But if you add Airbnb's 600,000 listings to the equivalent type of places available on vacation-oriented sites like HomeAway, suddenly house-sharing is larger in terms of room count than all the Hilton-branded hotels in the world. Wedbush Securities analyst Michael Pachter believes that Airbnb will eventually get to 100 million nights per year.

Chesky and his crew have the war chest to go for it. In 2011, Airbnb raised $112 million from the likes of Sequoia, Greylock Partners, and Andreessen Horowitz, at a valuation of $1.3 billion. “The potential is huge,” said Sequoia's Greg McAdoo. “In 20 years we won't be able to imagine a world where we didn't have access to things through collaborative consumption.”

Then in 2014 came the whopper: a $400 million round, valuing the company at $10 billion. On paper, Chesky, Gebbia, and Blecharczyk have now all joined the billionaires club. And their company has yet to turn a profit.

• • •

AIRBNB HAD GREAT TIMING
and fast-moving founders but benefited equally from a sea change over the past five years in consumer attitudes about ownership, a shift that could prove to be the longest-lasting legacy of the Great Recession.

The lesson learned was basic and deeply ingrained: Borrowing to buy assets above your means is a sketchy proposition, as 16.5 million foreclosed houses attest. Ownership, the root of the American Dream, took a hit. “It's changed, especially with the younger generation,” said Shannon King, chair for strategic planning at the National Association of Realtors. “Also they like the idea of not being tied into a property. They can move to different areas of town and live a more flexible lifestyle.”

And that new paradigm trickled down far past real estate. With cars, for example, the old ideal of buying a ride after high school to squire friends and dates is eroding. The share of new cars bought by Americans eighteen to thirty-four dropped from 16 percent in 2007 to 12 percent in 2012, according to Edmunds.com.

Millennials, the ascendant economic force in America, have been culturally programmed to borrow, rent, and share. They don't buy newspapers; they grab and disseminate stories à la carte via Facebook and Twitter. They don't buy DVD sets; they stream shows. They don't buy CDs; they subscribe to music on services such as Spotify or Pandora (or just steal it). Sabrina Hernandez, twenty- three, used to work at Starbucks, but she isn't going back after averaging $1,200 a month this fall hosting strangers' dogs in her apartment through website DogVacay. “It's so much more rewarding than working in a customer-service setting.”

Old industries are scrambling to adjust. While hotels so far are letting regulators do the dirty work of targeting Airbnb—from occupancy taxes to insurance to apartment building bylaws, the sharing economy presents a raft of sticky issues—the auto industry is pivoting. Besides the Avis acquisition of Zipcar, Mercedes-owner Daimler has been rapidly expanding its car2go sharing service that rents its Smart Fortwo cars by the minute. And General Motors invested in a $3 million round in RelayRides. The reason? Marketing. GM hopes people sharing a Chevy will eventually buy one. Additionally, GM can incentivize sales by promoting the idea that a new car can now come with a rental income stream attached. You can even open your GM car with RelayRides' iPhone app using GM's OnStar system.

Economists remain perplexed as to how to measure all this activity. “We're going to have to invent new economics to capture the impact of the sharing economy,” said Arun Sundararajan, a professor at the Stern School of Business at NYU, who studies this phenomenon. The largest question for academics is whether this all creates new value or just replaces existing businesses.

The answer is surely both. It's classic creative destruction. There may be a short-term negative for the economy because a person isn't buying a car. But long-term economic efficiencies result, and that's ultimately good for everyone. Chesky's Airbnb commissioned a study of its economic impact on San Francisco and found a “spillover effect.” Because an Airbnb rental tends to be cheaper than a hotel, people stay longer and spent $1,100 in the city, compared with $840 for hotel guests; 14 percent of their customers said they would not have visited the city at all without Airbnb.

“It's never been the case in our economy that utilizing assets more efficiently leads to fewer jobs,” said Robert Atkinson, president of the Information Technology and Innovation Foundation. “If I were in hotels, I wouldn't lose a lot of sleep over it.”

And perhaps it's even artificial to divide the world into the individual versus the corporation. Many critics deride Airbnb and the like as short-term fads for slow economic times. (Airbnb's report found that 42 percent of hosts use the income to pay everyday living expenses.) Safety, value, customer service, and quality of goods remain areas where it could stumble.

But human beings have been swapping before money even existed. New technologies only grease the wheels of these ancient transactional instincts. Even if growth levels off, it doesn't change the fact that peer exchanges like Airbnb are simply another way for entrepreneurs to reach customers.