Hospitality Networks:
How Can They Make Money?

In the first two posts in this series, I’ve reviewed the operating models of Couchsurfing (CS) and some competing networks. Now we’ll talk about how they can make money — and hopefully improve the member experience while doing so, rather than degrading it.

The CEO of CS, Jen Billock, lists three potential revenue models:

  • Freemium / subscription
  • Advertising
  • Transaction fees

That seems like a good list to me. Let’s take them one at a time.

Freemium / subscription

Couchsurfing is already halfway to a freemium model: there’s a way for you to pay them, but it doesn’t get you any premium features. It’s called “verification,” and I left it out in the previous posts when I said Couchsurfing has no revenue model, because I think it’s a bit sleazy and not very sustainable.

Essentially you can pay $20 to get a “verified” check mark on your profile, which is somehow supposed to improve trust and safety. As far as I can tell, all that’s been verified is that you have $20. When I did this in 2009, they also sent a postcard to confirm your address, but I’m not sure that’s even required anymore, according to this recent article:

The Post managed to create a profile with a fake name, paid for the verification with a credit card with a different name and was instantly given a “verified” account that comes with a green tick next to the profile.

Billock refused to answer questions about how this process made a profile superior to one that was not verified.

The most active CS members have always been unhappy about the “verification” process. At the old non-profit CS, which raised several million dollars this way, it was described in part as a voluntary donation, which it was, but in ominous language that made it sound like no one would ever trust you without that little check mark on your profile, which was completely untrue and essentially a way of bullying new members into donating before they understood how the network really worked.

When the site went for-profit, they eliminated the verification option, I assume because it was awkward for an opaque for-profit company to ask for “donations” and they realized it had no other practical purpose. But when they realized they might need the money, they quietly brought it back, with even more awkward language to describe what it actually does.

It sounds like they’re planning to start providing more extra features for that $20, which isn’t a bad idea — but I sure hope they change the name to “premium” or something, because “verified” is misleading and will always raise questions. And it obviously makes people less safe if they rely on it as a sign that someone is safe to host or visit.

So what should these premium features be? We got a taste of what CS was considering when they first looked at this model a couple years ago. It was mainly ways to increase a traveler’s chances of finding a host: better search filters, last-minute requests, and “guaranteed” responses (whatever that means).

cs_freemium

On a certain level that makes sense, since it targets the people most likely to pay: those who have just signed up for a particular trip they’re planning, because they’ve heard about CS as a free alternative to a hotel. Many (most?) of these people have a frustrating initial experience, sending out lots of requests and getting very few replies. Which is just when they’ll be most willing to pay to improve their chances, especially if it’s still a lot less than the cost of paid accommodation. And if you believe there’s still a good chance that they won’t find a host and they’ll give up on the site, why not offer big discounts for a longer-term prepayment to get as much of their money as possible? (That kind of discounting is often a red flag, something we’ll come back to when we cover language learning products in a month or two.)

As I wrote in 2013 about all this:

Freemium models work best when the premium features are relatively independent of the basic features. If someone else pays for more space on Dropbox, you don’t get less space in your free account. In the case of CS, the main thing they can offer a premium member is various types of priority over non-premium members. You can dress that up however you want, but in the end you’re not really adding a new service, just pitting your existing users against each other: the premium service degrades the free one. If frequent flyers board the plane first, the rest of the passengers have to wait a bit longer. If premium CS members show up higher in searches, then free members show up lower.

But now I can see a larger problem, which is a backlash from hosts. After all, what you’re really “selling” is access to their homes, or at least to their inboxes. And this plan would skew your incentives against implementing features that make it easier to be a host. For example, suppose you only want to host members with references, or members who have hosted themselves — or suppose you’re a female host who only wants to host other women for safety reasons. Well, the pool of members who are most willing to pay would almost by definition be the ones who are least likely to meet common criteria like that. So giving the host simple settings to exclude requests from those people would make the “premium” features less useful and harder to sell. But if you don’t allow that, these premium features make it less attractive to be a host by lowering the quality/relevance of your average request. Either way it’s a downward spiral.

Advertising

Right now, CS is the only one of these sites with enough active membership and site traffic for advertising to even be worth talking about. They’ve recently started running banner ads that look like basic Adwords or something similar. But they’re surely considering more lucrative options.

On Monday morning we’ll have a guest post from a digital media executive discussing these options in more detail. But for now I’ll just point out two potential problems with this site as a branding vehicle.

The first is that CS has made repeated public statements that they would never have advertising on the site. The company obviously has no problem shrugging off the small minority of members who care enough to point this out, but a company that’s actually paying to improve their image may be more sensitive to them.

cs_twitter

Second, the safety issues on CS have created a much larger image problem. Some say that terrible incidents like this or this will inevitably happen on any large enough network — but others make a good case that the company could be doing a better job of at least responding to them constructively when they do happen. In any case, I would certainly hope that CS wants to improve on this front as an ethical matter (and I’m sure they do) but it’s also a practical one if they ever want a salable “brand.”

At this point those are both CS-specific problems. My broader concern about advertising on a hospitality network is how it would shift the incentives for the team running it. Relying on page views and clicks means you’ll be pulled away from facilitating face-to-face meetings and towards keeping people clicking around the site, with more focus on “content.”

This is probably going to mean some professional content — because if we’re talking about just user-generated content (i.e. message boards) then there’s a lot more competition. Sites like the Lonely Planet Forums, Bootsnall, and many others are already all over that market. For longer-term expats there are region-specific options, like Toytown in Germany, that are just as useful. And as with many “Facebook for ____” ideas, Facebook itself is often perfectly serviceable for this purpose, and all your users are already there.

Online forums are also very hard to sustain without having them fill up with spam or trolling. There are only a few forum sites that have really lasted a long time, and those that do either rely on full-time paid moderators (like Metafilter) or on volunteer mods with discretion on how to run their own little fiefdoms (like Reddit, or the old CS where each city’s message board had its own volunteers running it). Another important tool for many of them is upvoting/downvoting of comments, which can be a little harsh for a community-oriented site.

A hospitality network has to maintain a higher level of trust among its users than a purely online forum, so the burden of moderation is even higher. Scandals like this one are bad enough for Reddit, but can you imagine how much worse they’d be if they happened at a site where strangers were actually arranging to stay with each other in person?

Transaction Fees

The problem with transaction fees is that they’re a slippery slope, however you implement them. If any of the money goes to the host, they’ll start wondering why they shouldn’t list on AirBnB and get a lot more. If it all goes directly to the site, they’ll feel exploited. If it goes to charity and the site takes a fee or commission — a too-cute-by-half idea that many of these projects seem enchanted by — then it’ll never amount to material revenue for the site.

And what about the guest perspective? If you start paying for an accommodation, you’ll begin to have higher expectations. You’ll certainly want your money back if you wind up leaving early. And if it’s more than a few dollars, you’re actually not saving that much over a hostel or cheap hotel — especially in Europe, which has massive chains of super-budget hotels. Nightswapping charges a $10 transaction fee, and more if you haven’t earned enough nights; Kayak has 40 hotels in Paris this weekend for $25-40/night, and Hostelworld has dorm beds as low as $11.

Conclusions

If I were starting a new hospitality network today, I wouldn’t want to rely on any of these approaches. I’d rather start out with a small but mandatory fee just to join the site, and maybe an annual fee to remain a member. I’ll write more about how that could work in a future post. But it’s not very useful advice for any of the existing networks, all of whom have more or less committed to a free and open signup process.

For most of them, I suspect that some kind of advertising or sponsorship will turn out to be the best of these three flawed options. As I mentioned, our next post on Monday will be from a guest writer who can explore this in more detail.

14 thoughts on “Hospitality Networks:
How Can They Make Money?”

  1. Jen (and you) forgot at least the following options:

    – Grants
    – Create software usable for other purposes
    – Directly or indirectly use the network for other purposes
    – Run it (mostly) without money, like BW, with some donations

    …and it’s possible to convert for profit companies into non profits.

    I’ll write more about this later on the Trustroots blog.

    1. Good points, but aren’t grants just another kind of sponsorship? A government or other grant-making organization may not have the same goals as a corporate sponsor, but they still have goals and they’re still sensitive to bad publicity.

  2. What do you think about “verification” being a signal that you have some trait that other people without that trait aren’t willing to incur? (eg, patience by waiting for a postcard, not being cheap by donating $20).

    1. I think that’s a good point. It does signal a certain amount of commitment. But it doesn’t signal anything about safety or trust.

      1. Well, the first step in their verification process is providing a credit card in your name to have your identity verified. (And the costs for this is higher for a dishonest person than for an honest person).

        If you don’t think that knowing someone’s real name signals any amount of trust between two strangers who are meeting for the first time, think about why there are very few female taxi drivers, compared to the number of female Uber and Lyft drivers (who only pick up fares whose identities have been “verified” by the credit card on file).

        1. “Well, the first step in their verification process is providing a credit card in your name to have your identity verified.”

          Did you read the quote from the SCMP article? They used a fake name on the profile and a credit card with a different name.

          “If you don’t think that knowing someone’s real name signals any amount of trust between two strangers who are meeting for the first time…”

          Sure it does, but that’s not what’s happening. Based on that article, CS doesn’t appear to require that the name on your profile be the same as the name on your credit card or Paypal account.

          It’s true that credit cards and Paypal accounts usually have *someone’s* real name associated with them. CS will have that name even if it doesn’t appear on the profile, and could turn it over to authorities after a crime has been committed. But that doesn’t help if the card/account was stolen from an unrelated third party, and it also doesn’t do much good if you’re trying to avoid becoming a victim in the first place.

          When I was reading comics as a kid, my mom was skeptical of Batman; she said “he seems like he’d rather let you get murdered so he could avenge you than actually protect you in advance.” So maybe we can call this the Batman approach to member safety.

          Now I’ll grant you that the Batman approach has some minor deterrent effects, since criminals do take into account the odds of future punishment and the costs of identity theft are not zero. It may also prevent recidivism. But it all depends on a chain of reporting (victim to CS to authorities) that does not seem to function very well. And in any case it’s not what most people are thinking of when they hear “verification,” is it?

          (The Lyft/Uber driver point is interesting, but I don’t know if the credit card system is really the only reason drivers feel safer. Aren’t there also two way ratings?)

          1. “Did you read the quote from the SCMP article? They used a fake name on the profile and a credit card with a different name.”

            Yes but that doesn’t mean the credit card isn’t the user’s. (If you remember, I used a “fake name” on my CS profile but had my real name verified with a credit card.)

            “The Lyft/Uber driver point is interesting, but I don’t know if the credit card system is really the only reason drivers feel safer. Aren’t there also two way ratings?”

            Yes, but couchsurfers could also use the two way rating system when deciding whom to host. And anyway, the ratings only matter if they’re tied to an identity that travels with the person, and it’s harder to make multiple verified accounts to start over.

            Another point someone made in one of the other posts is that there’s value in signaling that you’re a member of the community, rather than an interloper just hoping to save some money. Here, verification could signal group membership because the “donation” appears to support the idea of a hospitality network.

            I do see your point that it was dishonest to present a revenue model by this way because the average user would assume all verified users are safer than non-verified users.

        2. Couchsurfing has always “verified” people whose credit card does not correspond to the name being used. It also accept Paypal verification, and Paypal does not supply any nominative information to CS.

          And unlike stated in the article, the for-profit corporation never stopped taking verification payments, they simply stopped calling it a donation after it was pointed out that was illegal.

          Since the highly-publicized rape cases, CS has stated that it has again started the post card system. However it has also stated it doesn’t have the employee resources now to send the postcards. And verification is given immediately on receipt of the cash.

  3. Money also changes how people interact.

    Transaction fees:
    I’m currently having my first ever AirBnB experience (I’m not paying it myself tho) and I’m having a culture shock after almost ten years of hospitality exchange. :-) All of a sudden my host is not at all interested what kind of person I am!

    Ads:
    As you already point out, suddenly it might matter more for the site to keep its members browsing, instead of encouraging them to meet offline.
    For a non-profit this is a total no-go; I’m yet to see big scale project where this would’ve worked. For some food for thought, read about
    Spanish Wikipedia fork and
    Wikitravel community forking to Wikivoyage (Wikivoyage article).

    Compulsory membership fee:
    It could easily leave slightly bad taste if applied in non-profit site and again raises expectations towards the site, since you’re sort of buying a service.
    Trampolinn-com sort of works in this way, since they use points as a in-site currency (you either buy points or earn them by hosting). Only that they aren’t earning: “The truth is we have not earn one single euro since the beginning.” -Clément Sch*.
    Since there are so many alternatives out there already, I doubt this model would gain momentum among early adopters and most active hospex community members. For those willing to pay for CS’s verification, this model could possibly work.

    Donations:
    Donations tighten up the community and emphasise the non-profit aspect of a project. People of course feel responsible to participate in other ways than just donating money as well When they do donate, they feel really being part of the project, rather than just buying a service. Recurring donations would make donation flow more stable/predictable.

    1. Interesting points. In terms of other ad-supported wikis, what about TV Tropes?

      I agree with you the mandatory fee doesn’t work just bolted on to the existing operating model, you’d have to make some other changes. Will discuss more in a future post.

  4. I’m failing to buy-in to any fatal issues with a straight subscription model with an annual membership fee. If a site turns for-profit, especially with investors, this should not be a surprise, assuming the price-point is appropriate. Any business expected to be relevant and profitable needs to adapt and change. They question is, “How can they make money?” not “How can they survive as non-profit orgs,” right?

    So what if they had committed to a free service at some point in the past? If they’re for-profit now, they should be expected to iterate until they can meet their revenue goals. “That didn’t work—we’re sorry. We need to keep the site successful and growing, and this is the best way to do it.” The price-point should be friendly to young travelers and flexible to be paid over time, like $20 per quarter / $70 for the year.

    Sure, some users will get pissed off—color changes piss users off. I’d like to see CS’s stats on their user lifecycles. My guess is that CS is something young people do, making the active period of a lifecycle just a few years, so that a negative effect of imposing a subscription fee would die as a new generation of travelers rolls in. I’d consider shutting the site down and relaunching with the new model, since it’s such a shift. Give old users a grace period, perhaps the first year free, or the ability to pay for life up front, or earn their fee by converting friends. ***Invest heavily in marketing to bring in the new users who never knew that it used to be free.***

    Take Zipcar as a successful revenue example. It markets itself as a car “membership” service (they don’t use “share” anymore), and charges just as much as other rental companies to use their cars. In addition, they manage an annual fee on top of that. (I will note a big difference here is that competition is low, and cost of entry is high.)

    Advertising, in addition to a subscription, isn’t a bad idea, either. “Relying on page views and clicks means you’ll be pulled away from facilitating face-to-face meetings and towards keeping people clicking around the site, with more focus on “content.” ”
    – First, page views and clicks will soon be outdated metrics for advertising. Other, more sophisticated, measures of engagement will take over soon, which should help minimize effects on layout and content.
    – Second, many sites have figured out how to balance their various business goals. It’s not like UX designers are literally “facilitating face-to-face meetings.” They use blogs for their SEO- and advertising-friendly content, which adds value for interested users and creates hooks for their newsletter subscribers, while keeping their main offering separate. (Learnvest is a good example of a main service kept behind a pricey paywall, with a separate, monetized, Knowledge Center.)

    Reincarnating a previously free service as a profitable business means considering all modern, proven, revenue models available, even if they feel aggressive in comparison to the old model.

    1. There’s a lot to respond to here and we’ll cover some of it in future posts. But I do want to highlight your point about the “lifecycle” of the CS demographic …it’s important not just for how long it will take users to forget the “old” CS (I think most have) but for how it should be run in the future.

      Of course the company isn’t about to release that kind of data but it would be interesting to see. There are definitely multiple cohorts …the gap year travelers who “outgrow” it but also various types of longer term members (some are seasonal workers) and many shorter term ones who are just planning a single trip.

      1. What can be reported is that the rate of verification has dropped radically AFTER the big push for verification and pressuring members with both carrot and stick.

        The chairman of the board has signed a sweetheart deal for special-rate and special-placement advertizing with one of his other stockholdings (which occurs even on “verified” accounts that are not supposed to see advertizing, according to promises the company still makes), therefore rewarding himself doubly at the expense of other stockholders.

        Employment has dropped to its lowest level since before privatization.

Comments are closed.