Platforms That Grow Are More Than Matchmakers

In 2011, Airbnb, the vacation-rental website, learned it wasn’t just in the business of pairing up short-term renters with people who had a spare room or an empty apartment. It was also a risk manager — or would have to be if it wanted to continue to grow.

That lesson sprang from Airbnb’s hometown of San Francisco. A local woman — she identified herself in a blog post on her experience only as EJ — rented out her apartment via the site and came home to find it ransacked and her jewelry and electronics missing. Her first call, after the cops, was to Airbnb. She said she waited 14 hours to hear back. One of the early responses from the company, according to EJ, wasn’t pretty: An Airbnb executive asked her to take down her blog post because the bad publicity might hurt his company.

And that bad publicity did arrive. Within days, media outlets ranging from TechCrunch to Time and CNN had picked up EJ’s post. Soon, Airbnb’s CEO, Brian Chesky, was issuing a public apology. It said, in part: “In the last few days, we have had a crash course in crisis management. I hope this can be a valuable lesson to other businesses about what not to do in a time of crisis.” The vandal ended up being arrested, and Airbnb announced a raft of new protections for hosts, including providing $50,000 worth of property insurance. (In 2014, the insurance coverage rose to $1 million.)

Seven years after EJ’s misfortune, Airbnb is booming. It raised $1 billion in funding last year and is estimated to be worth $31 billion. I’d credit at least some of that success to the company’s realization that it had to think differently about risk and to manage it.

Platform businesses, like Airbnb, the transportation service Lyft, and even the dating site Tinder, often talk about themselves as if they’re merely matchmakers (and some of them certainly are that). That’s an appealing pitch — when a company is negotiating with a prospective investor. After all, bringing buyers and sellers together online and taking a small cut of their transaction is comparatively cheap and infinitely scalable. That’s exactly what investors love.

But any platform business that wants to thrive will have to learn what Airbnb did: Matchmaking isn’t everything.