If you’re in the mood for a simplified, feel-good marketing story and you’ve already watched Air then try reading the commentary around Airbnb’s recent financial results. It’ll scratch that itch much the same.
Ever since Airbnb’s CEO, Brian Chesky, announced in 2021 that he was going to reign in performance advertising spend and invest more in brand building, a narrative has taken root that this shift was driving the company’s performance, and it has been in full flourish as Airbnb reported its first full-year profit in February and posted record Q1 bookings in May.
Chesky and his CFO may have burnished this legend a little by talking enthusiastically about their marketing strategy to analysts on earnings calls over the years, but you can’t blame them. The ad industry already has a will to propagate good-news stories about brand building because that’s where they do their best work and how they make their handsomest margins.
Unfortunately, the charming story of Airbnb discovering growth after giving up the seedy gratification of performance marketing and putting its faith in brand building has a few plot holes.
For a start, there are lots of other forces driving Airbnb’s resurgence, like the pent-up demand for travel unleashed by the end of pandemic restrictions, or the new-found freedom that lots of people now have to work from anywhere. And then there are the interest rate hikes. Airbnb takes payment from guests almost as soon as they book but doesn’t pay hosts until after they check in, and the company invests that money in the interim. As strategy consultant JP Castlin pointed out on Twitter, rate hikes meant Airbnb made $146m from interest payments on its short-term investments in the first three months of the year, more than its net income for the same period ($117m).
There’s also Airbnb’s uncommon position as a category pioneer to consider. As Chesky himself likes to point out, around 90% of the traffic to Airbnb’s website is organic and the press still flocks to cover virtually every announcement that it makes. For instance, the company’s announcement earlier this month about focusing on renting single rooms again (as opposed to entire properties) resulted in over 3,000 articles, including coverage in the Guardian and Financial Times.
Most brands do not enjoy that kind of brand recognition among consumers, or the ability to turn on press coverage like a spigot, so even if Airbnb’s growth was a result of its marketing nous, you’d have to question whether it was a useful example for others to follow.
Another good question might be whether the marketing industry is as well served as it thinks by stories that peg ads to profits.
On two recent podcast appearances (here and here), professor Byron Sharp of the Ehrenberg-Bass Institute for Marketing Science has made the same argument: advertising effects are spread thin over a long period of time, which means it is vital to judge the success of marketing on the appropriate metrics.
Factory managers don’t ask for new machines by promising to increase a company’s profit or market share, Sharp notes, they do it by talking about things like wastage. Marketing should be no different. Instead of angling for bigger budgets with promises to improve sales or profit margins, marketers should talk about the increased number of households they could reach.
And while it may seem like a good idea to champion stories about how companies finally became profitable after investing in brand building, the ad industry could be making a rod for its own back by staking its success on events beyond its control.
It makes far more sense for marketers and agencies to focus on metrics that they can truly own; it just doesn’t make for a very good story.
