Hospitality Networks:


In the last four posts we’ve explored the different operating and revenue models of Couchsurfing and its various competitors. Since then I’ve had a chance to talk to some of the founders of the other sites I wrote about, and had some interesting discussions with other readers too. Now it’s time to tackle the big questions we’ve been circling around:

  1. How should Couchsurfing make money?
  2. How can the other existing networks make money?
  3. What could a new network do differently?

That’s probably too much for one post, but let’s start with the first two.

How Should Couchsurfing Make Money?

As I’ve already suggested, I think the best answer for CS is advertising — probably a combination of affiliate programs with online booking sites and some kind of umbrella partnership with a brand sponsor.

Whatever their intentions, this will inevitably lead to optimizing for site content and traffic rather than maximizing real-world hosting and meetups — more of a “Facebook for travellers” than what it was in the past. This is not going to make everyone happy (I worried about it as far back as 2012) but it’s still the best of their three main options.

Coming in second is a “freemium” model in which members can pay a monthly or annual fee for extra features. The problem is that there’s probably only one thing that people will reliably pay for in meaningful numbers, and charging for it would dramatically curtail user growth: namely, the ability to send a “couch request” (to ask someone to host you).

I wrote about how charging just to make it easier to send a request creates the wrong incentives; a complete paywall around this feature may not be as bad, but it would also go straight to the self-interested motive for the majority of new users signing up, and you’d lose them for good as soon as they hit that credit card form.

This would still be a bold move, and might result in smaller-but-stronger network with higher long-term revenue potential — but it’s probably also too much of a risk. The safer path from here is to keep the “premium” features relatively minor, accept that they won’t lure many users into upgrading, and count on advertising for most of the revenue. So it’s not surprising that this is the path the company’s taking.

How Should the Others Make Money?

Couchsurfing’s third option, transaction fees, is by far the worst in my opinion, and the company seems to agree, since it’s the only one they’re not implementing. But the other networks don’t have the scale for a freemium or ad-based approach, so it’s natural that some of them are turning to door number three. Unfortunately, it’s still not likely to work out very well.

Why not? Because as soon as you put a price tag on the transaction, you’re completely changing the mindset for both parties. It doesn’t matter what you call it, and it doesn’t even matter where the money goes. When someone’s paying at the point of booking, you’re no longer competing with Couchsurfing, you’re competing with AirBnB and HomeAway and all the other commercial networks — with much less funding, an inferior website, and a vastly smaller pool of both travellers and hosts.

If there is a real niche for a cheaper AirBnB, it will probably come from starting with the existing AirBnB market and trying to compete to list the cheapest inventory, like shared rooms — not starting with the Couchsurfing ethos and trying to drop the whole range of rental and home swap options on top of it, which is what Trampolinn and Nightswapping seem to be doing.

Of the other sites I discussed, there’s only one that seems to have a credible business model, and that’s Horizon. I recently had the chance to meet one of their co-founders in New York, and we discussed it in some detail.

horizon logo

The basic idea is to find large alumni networks (universities, fraternities, volunteer programs, etc.) and try to match up people within the same network to stay with each other. Users are obviously much more likely to trust (and want to meet) their fellow alumni than complete strangers. And here’s the important part: many of these networks are already collecting voluntary dues or donations from the most engaged of their members, and spending some of that money in trying to reach more of the less engaged members.

So now we’ve finally got a fourth option beyond freemium, ads and transaction fees: a third party with a budget to spend and a real interest in the network’s success. And unlike a paid corporate sponsor, their interest is not just in tapping into an existing large network like CS but helping a new network grow. It’s almost a perfect alignment.

The beta version I’ve tried is based on Facebook groups, which generally command much looser allegiance. (Do you even remember all the Facebook groups you’ve joined?) And it involves making a charitable donation when you’re hosted, with the site taking a commission; as I mentioned above, a transaction fee by any other name is still a transaction fee, so I’m skeptical. But it doesn’t seem like this is representative of what they can do when they sign up one of their real target groups.

Now, they’re obviously considering different revenue models around this concept. One is that the alumni network would use this as a form of fundraising: instead of paying your host to stay, you can make a donation to your dear old alma mater. Another is simply that the members pay a transaction fee, with the organization paying nothing and just delivering the traffic/promotion. But to me those are both non-starters (have I mentioned my feelings on transaction fees?) and in any case they’re getting things backwards: Horizon would be providing a valuable service to these networks, and they should be willing to pay for it at the organization level even without directly tying member stays to donations. It’s hard to imagine anything that strengthens the alumni bond to your school or organization more than hanging out with other alumni, and more engaged members will donate more through other channels. Any alumni group that subsidizes real-world events for their members should be willing to subsidize something like this.

What About the Non-Profits?

To the extent they’re committed to running on donations, I think they’d be better served by shifting them to an annual subscription model than running occasional pledge drives like BeWelcome.

But even before that, the volunteer/non-profit networks face a serious hurdle in maintaining user engagement long enough to reach critical mass. At CS, a new user looking for a host can at least find enough potential hosts that they’re motivated to set up a profile, send some requests …they may drop out when they don’t get any positive replies, but at least they’re visiting a few times over the course of a week or two, and giving the site a fair shake.

A new network with bold plans can benefit from an initial burst of a few thousand members signing up at once — and these are particularly valuable signups because they’re less likely to be selfishly motivated, and more likely to want to host themselves and contribute to the network. But then they visit the site and there’s not much there yet, and they’ll probably only come back once or twice more before forgetting about it and moving on. Meanwhile, the clock is also ticking for the volunteer programmers maintaining the site, who have built out only the most basic features to start, and won’t be as motivated to add more without anyone to use them — which gives users even less reason to come back, and so on in a downward spiral.

(Obviously this is a broader problem with applying the minimum viable product approach to a social network, where your “product” is not the site itself but the user-generated content that fills it up.)

BeWelcome has presumably had that burst of new members twice — once when they were first founded as a reaction against Hospitality Club, and again a few years later, during all the bad press around CS becoming a private company, when angry CS users were looking for an alternative. But even according to their own stats, they have struggled to convert this into the kind of exponential growth that CS once experienced; the total member count keeps increasing, but at a decreasing rate, and the metrics tracking actual site activity have flatlined.

One way to lessen this problem is to focus on a niche group of users who already have a shared sense of group identity that will keep them engaged longer. This is what WarmShowers has done, and what Trustroots is trying to do. But what are the groups that aren’t being tapped into, and what are the other ways to increase initial engagement without limiting yourself to a certain demographic? We’ll focus on that in the next (and final) post.

2 thoughts on “Hospitality Networks:

  1. Peter
    Great to meet in NYC a month or so ago, and thanks for including Horizon in this analysis (and glad you agree the business model is credible).

    One thing to note — since we spoke, we’ve shifted away from Facebook groups sooner than expected since Facebook shut off permissions to the groups APIs last week as part of migrating everyone from fb graph 1.0 to 2.0:

  2. ” it involves making a charitable donation when you’re hosted, with the site taking a commission”

    Note that our current plan is to not take a commission IF the traveler-host belong to a specific community that is on our enterprise offering.

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