By Leigh Gallagher
October 23, 2017

Airbnb went from tiny startup to global travel behemoth at blinding speed. When it came time to launch its second act, though, it took the opposite approach: keeping it small by design, says CEO Brian Chesky.

Last November, Airbnb introduced a platform for travel services known as Trips, the hallmark of which was Experiences, a new category of bookable one or two day excursions with locals. Earlier this month, the company launched its Experiences marketplace in New York City, its 40th market and its biggest so far, with an inventory of 150 options ranging from gospel singing in Harlem to touring thrift stores in Brooklyn to a historical tour of tattoo artistry on the Lower East Side.

Fortune sat down with Chesky for an update on how the much-heralded business is performing almost a year in and the economics of “experiences.”

FORTUNE: You launched your Experiences platform in New York last month. This rollout is a lot different from your homes business: For starters, you have to actively “launch” in each new market, and unlike with their apartments, people can’t just throw up an ad for their Experiences by themselves. Why do it that way?

CHESKY: With Experiences, we tried a different model, a more managed marketplace where people would have to qualify and we’d have to then approve them. It was important to do that for two reasons. The first is [we were] trying to [apply] some lessons of the core [homes] business. Obviously having been an unmanaged marketplace, the benefit was it allowed us to grow and really quickly build a really strong network. And we probably wouldn’t have had the resources to manage it if we wanted to. But we also felt that with Experiences it was more important to start with a managed marketplace because with a home, it has to be at least good enough for somebody to live in, so there’s an inherent quality bar. With experiences, because it was so new, there was no established quality bar. When we were doing pilots, some experiences were amazing, some weren’t even experiences. So having some kind of management [made sense].

Do regulators in New York City have any beef with Airbnb Experiences the way they have with homes?

I think significantly less. I mean I don’t ever want to say no one will have a beef.

Have they yet?

No.

Well, I guess it’s been a day.

Yeah, we’ll see what they say. But I think that the process has been different. Number one we consulted a lot of stakeholders when we were building it, including regulators. Number two, we had a lot of partners. So we have a lot of nonprofits and community organizers and people that were part of the creation of it. Number three, it’s a lot more managed. I think people want things managed, and the less they feel like it’s managed the more they want to move in with regulations. So that’s kind of expected. And I also think, frankly, [that] though we don’t have a new law in New York, we have a lot of important partnerships in New York and we’ve made a lot of headway. And we have a partnership with the NAACP, and we work now with Danny Glover. And we’ve done a lot of disaster relief work. So we’ve done a lot of really important things that I think are going to move the ball forward in New York. I think our reputation has improved in New York. That’s at least the indicator I’m getting when I meet with officials. They say, ‘Oh it’s good to see you’re doing these things.’ So I think that’s helped us a lot.

And how is the overall Experiences business going so far?

It’s grown 12x from January until now. For its age, it’s growing about thirteen times faster than homes business was at the same time. We’ve earned about a half a million dollars from social impact experiences. And most of the business is just starting to take off. So we have some pretty audacious goals for our revenue next year. And I have a goal that we want Experiences in a few years to be another business that can stand alongside homes as like a material business for the company.

So far, I haven’t heard people like talking about it organically the way they did with the homes.

So this is a question for you. Just out of curiosity, when did you start hearing about homes? Do you remember?

Probably 2009 or 2010.

I’ll make a prediction. My prediction is that a year from now I think you might start hearing people talk about [experiences]. I think it will take another year. I think people talking about it requires people experiencing it. [With the initial homes platform], people were probably talking about it because people were experiencing it—or it was just so new and novel people just couldn’t believe people were doing it. But I think for the most part we’re going to need a critical mass of people to do [experiences] for people to talk about it. And I think that’ll take probably another year. We have 3,000 Experiences hosts, but we have a wait list of tens of thousands. Nobody knows how big exactly it will become, but I have a kind of intuition that it’s going to be really large.

What are the economics of this business and how do they compare with homes?

The economics, from a business perspective, are really compelling. Number one, it’s less occasional [than Airbnb’s homes business]. Most hosts on Airbnb earn $7,000, so they’re more occasional—which means you have to onboard more people and there’s more churn. Whereas with Experiences, people are able to do it on a more full-time basis, and because of that, you get more income per person. So we have numerous hosts earning $100,000 to $200,000 a year. That’s 10 times what I forecasted. I was forecasting people making $10,000 to $20,000 a year, and with very minimal assets up front. This guy Dave Coleburn is a host in Seattle. He’s got this nonprofit called Predators of the Heart. And essentially it’s a wolf conservation, so you go hiking in the woods with wolves. And he’s going to make $200,000 a year doing that. We have people outside of Florence, two chefs who are going to make $140,000 a year and they just pick people up at the train, take them to their house, and you learn to make pasta at their home and make a meal with them. It’s a really great experience, people love it.

Is there more overhead because it’s more managed?

Yes, to a point. Hosts have to now request to list, so it’s like an application. We vet them, we approve them. We have a much tighter management feedback loop. So if somebody leaves less than a five-star review, we’ll follow up on a case-by-case basis with the guest and give the feedback to the host. It’s a bit more hands-on coaching, so in that way it’s a little higher overhead. And that’s partly why we take the slightly higher commission [Airbnb takes 20% of the fee, compared with 6-12% for its homes listings]. The benefit is that they are less occasional, so a smaller number of people can do a lot more business. Which makes it pretty healthy.

But 3,000 Experiences is still a lot smaller than 4 million homes.

We’ve purposely kept it kind of small. That’s part of the lesson I learned from the core business. It’s not that we did the core business wrong, because we probably did it right, which was when you’re a tiny startup you have to grow as fast as possible to survive. But because we’re now not in that state, we should be very thoughtful about the ramifications, the consequences of the business we create. So we decided, let’s nail quality, let’s really understand our business, let’s go city by city. And then once I feel like we’re really solid, and like I understand the product, I understand the product market fit, I understand the categories—then we’ll open the flood gates. And then it can grow within reason as fast as we want.

The most important metric I always look at is, ‘Do people like what I’m making?’ Because if they love what I make, then it’s going to grow into something really popular. If they don’t like it, it’s not going to grow. Nearly 90% of experiences that people book get five stars. With homes, that number is less than 80%. So the customer satisfaction is higher. And in many markets a fifth of our guests are hotel travelers. So hotel travelers are booking experiences. And in some markets a huge percent of locals are booking them. So it’s starting to open up the door I think of people that wouldn’t otherwise use Airbnb to try Airbnb. So that’s kind of where we’re going with Experiences.

You mentioned something a while back about wanting to be the “Hilton of the daily spend.” Is that why you’re doing Experiences?

I think you could say there’s three reasons to do it: Guest, host, and Airbnb. The guest reason to do it is because our strategy is to create magical trips. As for the business, the travel industry is the size of the oil industry, the product in travel is trips, and the best trip wins—that’s my three-sentence strategy. So if we create the best trips end-to-end, then we think we’ll be the defining travel company. And that’s what we want to do.

We also think that people travel to have experiences. And so we say, ‘How could you be in the travel business, providing experiences but not actually provide experiences?’ It’s totally differentiated inventory. So even if it wasn’t a big business, it would be worth doing because it’s differentiated. And we want to be in the business of having lots of differentiated inventory in a world of OTAs that have commodity inventory. Even if you have some overlapping inventory, as long as you are the one that has the most unique, you’re very well set up.

It’s all part of our strategy to kind of do what Amazon did to retail, we want to do [that] to travel, which is to be the one-stop shop. We’re looking at about a hundred services. We have a drum beat. We have an absolute drum beat.

This story has been updated to reflect that Airbnb has earned half a million dollars from social impact experiences specifically, not overall experiences.

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