by Rocco Tarasi A few days ago I wrote about the problems of “ misaligned incentives ”. The focus of that article was on the sales compensation models of inside sales reps, and the importance of aligning the company’s objectives with the compensation plans of its salespeople. Another example of misaligned incentives has come up in the last 2 days in a story that has been widely reported in the tech press. An Airbnb customer used the service to rent her house for a week to a visitor, and when she returned her house was destroyed and looted . I’ve written about Airbnb several times, including The Risks of User Feedback and Never Stop Innovating . If you aren’t familiar with Airbnb, it allows anyone to rent out their house, apartment, spare bedroom, or even their couch. For most people, the idea of inviting a stranger into their house is unthinkable, and investors overwhelmingly ignored the the company in its early days – until they continued to grow and grow, proving the skeptics wrong and recently closing a $100M investment round at a company valuation north of $1 billion. But maybe the skeptics weren’t so wrong after all, now that a very public story has come out about the dangers of renting your stuff to strangers. Most people think that something like this was bound to happen. And like many other companies (start-up or otherwise), Airbnb is fumbling with their crisis management (first being overly helpful, then practically cutting off contact with the victim when the story went viral). So where do the “misaligned incentives” come into for this story? It was the victim that actually helped to point it out. What did I get in exchange for my 20-something dollars? What was the advantage of using this service over Craigslist, which is free? Ironically airbnb.com’s site states “the promise of our site is that it is entirely transparent” when in reality, it is not. And therein lies the fundamental, though not immediately apparent, difference: on Craigslist, I am warned loudly and repeatedly that use of the site is at my own risk. I am encouraged to take certain precautions, and I have the ability to do so by gaining quick access to the email addresses, phone numbers, and other identifying information of the person(s) I am communicating with, all of which can be researched and at least somewhat verified by means of basic internet searches. Alternatively, airbnb.com tightly controls the communication between host and traveler, disallowing the exchange of personal contact information until the point in which a reservation is already confirmed and paid for. Therein lies the problem. Craigslist is a free service. As a result, they have no incentive to keep the two parties in a transaction from contacting each other. Airbnb on the other hand makes its money as a marketplace. As the victim wrote, they purposely disallow exchanging personal contact information until it is basically too late . Why? If they allowed the two parties to communicate outside of Airbnb, then people would use the system to connect with each other, but then bypass the system when the buyer pays the seller in order to save on the fees from the marketplace. Airbnb has an incentive to keep personal contact information hidden, contrary to what its customers want. This isn’t unique: Facebook makes it hard for me to export my social graph so that I can’t easily switch to another service. The telecom companies get me to pay for a mobile data plan but don’t let me tether other devices to actually use the data I’ve paid for without paying an additional fee. The cable companies don’t offer a la carte programming like I want, instead forcing me into a bundle of hundreds of channels I don’t watch. Business interests are often not aligned with their customers – that is nothing new. Airbnb’s problem is the misalignment has now proven to be physically dangerous. Don’t miss an article (2,950+) – Subscribe to our RSS feed and join our Innovation Excellence group! Rocco Tarasi was an accountant, investment banker, and CFO before becoming a technology entrepreneur. He writes about innovation at www.InnovationMinute.com with a focus on “everyday” innovations in business models, sales strategies, products and services.
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