Core Memory
Programming Note: As a reminder, every Sunday, I write pieces that are predominantly based on personal experiences which may or may not be loosely connected with investing. If you are reading MBI Deep Dives everyday, I think it would be rather useful for my readers to understand my personal lens a bit better since that presumably affects (at least in some capacity) the way I analyze businesses as well.
Over the last few weeks, my wife has been preparing for the “Principles and Practice of Engineering” or what is more colloquially known as “PE” exam. As she’s more busy with her job and can hardly study during the week, she wants to spend her weekends studying for the exam. I almost chuckle a bit thinking about how just a hundred miles away from our home hundreds of mid-20 year-old engineers are toiling through to build the machine god(s) while my wife is preparing to pass her PE exam. To be fair, unlike CFA program (which I finished almost a decade ago) that largely has a signaling value i.e. you can show your potential employer that you have put in real effort in gaining decent understanding on a wide range of topics related to investment management, PA exam has more tangible and direct impact on my wife’s prospect of getting a promotion. Of course, I find it a little absurd that regardless of how good she is in her job, she is almost automatically disqualified from applying for more senior positions or getting a promotion until she gets her PE license. I was also a bit surprised to learn that almost a quarter of US workforce requires some sort of license to work in their chosen profession, a number that crept up from just 5% in 1950.
Anyways, with a 20-month old son at home, my wife was starting to find it just as difficult to study during the weekend. So we made a plan that I will take our son outside doing various activities during the weekend so that she can focus for her PE exam.
I opened my Airbnb app to see if there are some “Airbnb Experiences” nearby that would be appropriate for some father-son weekend activity. I came across this experience that lets you bottle feed baby goats and hand feed horses at the farm. I thought not only my son may find the experience intriguing, I too never actually hand fed goats or horses. The only thing that gave me pause was it was priced at only $15 per person which was significantly lower than most of the experiences I came across on Airbnb. However, after reading handful of positive reviews, I decided to book the experience.
So, my son and I showed up at the experience last weekend. The host was there to greet us with two baby goats. My son seemed more amused to see me feed the goats and horses rather than doing it himself. See the video below to get a sense of our experience in the farm.
As regular readers can perhaps imagine, I spent half the experience chatting with the host about her business and experience as a host on Airbnb. She seemed genuinely interested in sharing her thoughts, so I ended up learning quite a bit from the conversation. She mentioned this summer was her best year on Airbnb since 2021. Following the pandemic boost, her bookings didn’t surpass the Covid high until this year. She has three Airbnb listings on her farm and anyone who books for Stays gets the “Experience” for free. However, she noticed that she’s getting more traction just for the experience itself. In fact, she started to wonder whether she priced the experience too low, especially since some guests (just like me) mentioned they were a bit nervous after seeing the prices that seem suspiciously low compared to any other experiences on Airbnb. For what it’s worth, I just checked the prices and the host already increased the price to $25 per person.
The host and I both agreed that Airbnb Experience has a serious supply problem. As Airbnb is trying to hand pick supply and approve manually, it’s taking them ages to scale supply here. She was telling me that she noticed there was a local shop nearby which was promoting a sourdough workshop class on Facebook. Why aren’t they listing on Airbnb Experience? Well, the host said even she had to wait quite a bit before getting the approval for the Experience even though she has been a host on Airbnb for a decade. A part of it could also be lack of broad awareness. Part of it may be simpler: when your daily routine feels utterly ordinary to you, it's hard to imagine strangers paying to experience it. Indeed, there are actually quite a few farms near my area and almost none of them offer anything similar. Our host seems to have been emboldened by the initial success of her “Experience”, and she’s now plotting to add one or two more experiences within her ranch.
Airbnb does seem to understand that such sluggish pace of adding incremental supply may not cut it if they want to scale this as they have recently partnered with Viator (which is a leader in this space) to bring a “selection” of tours, activities, and attractions available on Airbnb. It’s not clear which Viator supplies will be available on Airbnb, but Airbnb really needs a lot more supplies to have any chance of scaling this. I can tell you there is no other experiences left on Airbnb besides this farm experience that my son and I can do together.
Of course, adding experiences from Viator raises the question whether Airbnb’s advantage of unique supplies is getting very much diluted. Their decision to aggressively add more and more hotel supplies on Airbnb certainly adds more fuel to such concerns. if Airbnb becomes just another OTA without any unique supply, can they maintain their high organic traffic/demand in 5-10 years? My guess is Chesky does feel bit of tension around this dynamic which is why he resisted for so long to add hotel supplies on Airbnb. I do think in the age of AI, deep personalization can go a long way to assuage much of these concerns. Any guest who may be put off by hotel listings should see very few or none of them in his or her search results.
At the same time, Brian Chesky seems quite serious about injecting Airbnb to some sort of real world “social network”. On this point, a recent hiring role at Airbnb piqued my interest. Airbnb appears to have a team called “People to Meet” that focuses on experiences related to run clubs, supper clubs, book clubs, game nights etc. Airbnb has not quite discussed such initiatives in public yet, and my guess is they will talk more about it during the winter product release this year. Success in such experiences will certainly go a long way in differentiating Airbnb from other OTAs, but of course success here is far from guaranteed. And as mentioned in my recent Airbnb update, I do not suggest investors assume much success from Experiences & Services in their base case.
Chesky once mentioned why he believes people will yearn for real experiences in the age of AI (emphasis mine):
“I like to say you want to ride a trend or ride the opposite trend. And so if we’re basically creating this fantasy digital realm that is highly artificial, I think in reaction to that, people want what’s real.
This is not an anti-phone rant. This is not an anti-AI thing. It’s just about the fact that we need to have a balance. Do you ever notice that devices and screens aren’t usually in your dreams? There’s something about the digital realm that doesn’t quite stick in your memory the way physical experiences do. And I think increasingly if AI frees up more of more of our time, hopefully that time can be spent in the real world having meaningful experiences with people we care about. And to me, that’s what life is really going to be about. And I want to be a part of that.”
While driving back from the Airbnb Experience, I was actually thinking about this quote. My son will certainly not remember the experience, but I suspect feeding the baby goats and horses with my 20-month old son will become part of my own core memory.
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