Brian Chesky, co-founder and chief executive officer of Airbnb Inc., admits there are deep cracks in Airbnb's foundation. Image Credit: Bloomberg

Airbnb Inc. CEO Brian Chesky hasn't had an easy 2023. First there was the "Airbnbust" frenzy in March, in which hosts took up arms on Twitter (now X) about shrinking profit margins and a potential short-term rental bubble. Then competitor Vrbo beat Airbnb to a feature that customers have long requested with a loyalty program. And in September, New York City vastly tightened its rules on short-term rentals, nearly squeezing Airbnb out of a market that in the early days represented roughly 80% of its business. Never mind the increasing strictness of return-to-office policies, which has hampered the flexibility that spurred Airbnb's business in the pandemic years.

By mid-September, when he rolled out a handful of site improvements, it seemed as if Chesky had found himself in a Catch-22, caught between the conflicting demands of guests and hosts. Top of mind among them: Guests want to spend less money and be guaranteed a better product, while hosts are worried about potential declines in bookings and their bottom lines.

The new improvements are incremental and largely designed to benefit guests. They revolve around five common pain points, from affordability to customer service. On the cost side, the promise is to show consumers total prices per listing"-including transparent and lower cleaning fees, a subject of particular ire"-while giving hosts insights that ensure competitive nightly rates. Moreover, a new listing verification system is reducing calls to customer service by identifying and removing fake listings, and search was improved with new filters for king-size beds and pet-friendly homes.

Chesky, who co-founded the company in 2008, has been prone over the years to hyping up small updates as major features. But the CEO I spoke with recently over Zoom was grounded and realistic, confessing that the latest improvements are, in fact, patches over deep cracks in Airbnb's foundation.

"We need to get our house in order," he says. "We need to make sure the listings are great, we're providing great customer service and we're affordable. And I've told our team that we can get back to creating new and exciting things once we've fixed that foundation."

The Airbnb website Image Credit: Bloomberg

Here are six takeaways from a candid chat with Airbnb's founder, ranging from his AI ambitions to the company's future in New York"-and how he plans to rebuild the proverbial house.

Airbnb still hasn't nailed the core aspects of its service.

If you haven't had the experience yourself, you've likely heard the horror stories: Someone shows up to their Airbnb and finds the pool is overgrown with algae. The heat doesn't work. Or a booking gets canceled at the last minute leaving travelers without a place to stay. Consistency and reliability have become an enormous Achilles heel for Airbnb, an issue that Chesky has long described as a managerial crisis that requires wrapping his arms around millions of hosts in hundreds of thousands of locations"-and not stripping them of their individuality.

"Our system," says Chesky"-referring to the disruptive tech platform where "adventurous travelers" could buy and sell products (in this case, rooms or homes), process secure payments and leave reviews"-"was designed for a much smaller company which grew like crazy."

"To use a precise metaphor, it's kind of like we never fully built the foundation. Like, we had a house and it had four pillars when we needed to have 10."

Math aside, there are three core pillars Chesky says would add up to "a really great service" : affordable prices, reliability and proper customer support when things go wrong. But retrofitting a large house isn't easy. "The bigger you are, the more effort it takes to increase quality," Chesky says. "And that's what we've been really focused on."

Lowering prices isn't a liability for hosts. It's their competitive advantage.

Consumers have shown an enduring willingness to splurge on travel, Chesky says"-but the limit to that may be slapping a $300 cleaning fee onto a weekend house rental that asks you to also take out the garbage, run the laundry, and clean the toilets. "A lot of people were introduced to our service from a pricing standpoint," he says. And it remains a key business driver. "The more affordable Airbnbs are, the more bookings we get."

Chesky walks a delicate tightrope as he tries to motivate profit-hungry hosts by encouraging (some of) them to shrink their margins.

But affordability has to be a competitive advantage, especially in markets that have robust hotel scenes. "We want prices to move and to be more competitive vis-A -vis a hotels"-that is really important," he asserts, adding that hotel prices went up 10% in the last year but that prices for one-bedroom Airbnbs declined 1%. "When our hosts provide better deals, they tend to make more money."

He suggests the solution is in giving hosts dynamic pricing insights. "We're [currently] giving tools to hosts to compare the prices of their listings to others in their neighborhood"-and while we don't yet have a hotel comparison, we do encourage them to look at rates for hotels in their area just so they have a sense of what travelers are getting on other platforms," Chesky says.

AI is the key to quality control.

While many companies are using generative AI to power customer service chatbots, Airbnb is applying the technology for quality control purposes.

"AI is the first line of defense we're using to verify listings," Chesky says. He says that for each listing, hosts are being asked to submit both interior and exterior photos"-these are put into a system that uses computer vision technology to read the photos and match them up with other databases to create a confidence score. If the photos don't match the exterior of the house at the same address on Google Earth (or similar satellite imaging services), for instance, the score will be lower, and the listing will be submitted for human review.

Purging fake listings will help stem some of the site's most challenging customer service situations, which happen when a guest shows up to an address where no short-term rental property actually exists.

The AI technology can be used to vet guests, too: Throwing house parties in Airbnb rentals violates the platform's policies, yet remains a common issue for hosts. "We've used machine learning techniques to look at the last billion and a half guest arrivals and see which yielded a party and which didn't," Chesky says. "If you try to do this through a human eye, you might not notice any patterns, but AI can look through over a billion data points, find a lot of similarities and create a rule set." If an attempted booking raises flags, he adds, "we either stop them or we ask them for more information, until we either get comfortable with you or we don't get comfortable with you."

Chesky says more AI developments are on the way before the end of the year, hinting that verifying the legitimacy of a listing is just the first step. When I ask if there will be an effort to verify a listing's amenities, he stops short of revealing the next iteration. "Guests have left over 300 million reviews on Airbnb," he says. "In November we will have a really big update to what you're talking about."

If and when Airbnb creates a loyalty program, it will have nothing to do with points or free stays.

"I've always believed at the most fundamental level, the best loyalty program is to build a product that people completely love and that you should first focus on that," Chesky says. "And then maybe on top of that you could build some type of program."

He calls this a "longer-horizon thing."

If and when it does happen, he says, "it would probably be more novel than a standard points program"-not like a subsidy program, which is what most of the programs are, but something where when you use it, the service actually gets better."

Experiences, not homes, will be the way forward in New York.

"New York was the very first city we started having challenges in," begins Chesky, with a rare tinge of bitterness, "and I thought it would be the first to figure this out. It's turned out New York might be one of the last.

"But here's the important point," he says, with a characteristically upbeat spin. "In 2009, 2010, New York was like 70%, 80% of our business. Now no city comprises more than one-half percent of our business."

That said, a half-percent still represents a $42 million slice of the pie for a company that reported $8.4 billion in earnings in 2022"-and Chesky isn't about to let that evaporate entirely.

"There are other services we could launch in New York," he says, referring to "experiences" the platform has started facilitating, where people post not rooms but services such as guided tours, bar crawls or photo shoots. "There's a lot of opportunity there." He also points to the option of visiting Manhattan but sleeping in New Jersey, which for many consumers would equate to a real sacrifice in convenience. He insinuates that this may be necessitated if the absence of Airbnbs drives up demand"-and by extension, prices"-for hotels in the city.

"If you take a lot supply off the market, and you don't build proportionately more, then what happens to prices?" he asks. "They're gonna go up. That means it'll be less affordable to visit New York, and that's very unfortunate."

Chesky's big solutions are well underway.

"We're about ready to turn the corner," Chesky says of his Airbnb retrofit journey. "This year has been the year of perfecting our core service, with over 50 upgrades in May, five important updates now, and another series of upgrades coming in November."

And yet it may take a little longer than that for the jokes and memes to subside.

"Hopefully by next travel season it'll be a materially better service," he says, referring to next summer. "And then you're gonna start to see many new things from Airbnb."