I've been waiting for some time to call out Airbnb, and I think this is the right time.
Firstly, the idea of short term residential rentals is not new. Long before Airbnb major cities, Paris, London, New York, and Toronto were dealing with the issues and the problems of short term / nightly residential rentals. In fact the latest condo boom in Toronto has been ascribed to international investors buying condos explicitly for this quasi-hotel rental market. Many cities have been passing local laws trying to prohibit this type of rental use for residences because they carry a whole host of problems. Some of those include -- emptying the downtown core of residences, artificially increasing housing costs for residents, removing the stability and security that comes from having permanent and community-invested residents, shorting cities on their hotel taxes, providing unlicensed locations for short term illicit activities, etc. So by increasing the market in these short term rentals, the communities will also feel the increase in the unfortunate side effects of these short term rental impacts. These are long term market problems that Airbnb will have to address.
Secondly, it's not a new idea because in the recent past, these rentals were managed by hotel brokers. So in that respect, Airbnb major idea is simply to replace the traditional broker that used to handle the short term rentals with a direct owner to renter model. Across the internet we see great success in online services removing brokerage inefficiencies to various markets, and for this they should be congratulated, but not overly so.
And finally, about their execution. Airbnb is not the market leader. In fact --http://www.vrbo.com/ is. This is what amazes me the most. Vrbo (I have no professional relationship or otherwise) regularly get better reviews in online discussion boards comparing the two services. Their price structure is much more competitive, their review structure is much more robust, in fact aside from Airbnb's more sophisticated visual design, Vrbo leads in many segment of this space.
So, to what do I think Airbnb's success comes from? I think it's Airbnb's marketing / hype / buzz that has been carefully choreographed to maximize their valuation. And to this, I congratulate Airbnb on their latest success, and to a dance well done.