Who are you renting my apartment to? What the hell is going on there?
—Landlord Abe Carrey to tenant Nigel Warren, September 2012
Belinda Johnson, Airbnb’s first in-house attorney, started visiting lawmakers in the spring of 2012. The rapidly growing startup was pitching its service as a financial opportunity for hosts and an economic boon to communities trying to draw in more tourist traffic. But neighborhood groups and some regulators weren’t so sure, viewing it more as a way for disreputable landlords to evict tenants and convert their buildings into condos or illegal hotels. Johnson’s job was to change their minds.
A polished executive in her forties, Johnson had worked closely with regulators and law enforcement officers for years in her previous job at Yahoo, dealing with issues like privacy and online child safety. Transparency, collaboration, and compromise—these, she vowed, would also be the operating principles for the legal and public-policy teams at Airbnb.
But her first round of meetings on behalf of Airbnb did not go well. Most legislators either hadn’t heard of the home-sharing site or just didn’t understand it. Do hosts leave their houses? Do they actually sleep under the same roof with total strangers? On a trip to New York City, one official put his thumb and forefinger up to his mouth and theatrically inhaled—suggesting Johnson and her colleagues were smoking pot if they thought such a thing would ever catch on. “We were still so small that we were under everybody’s radar,” she told me. “It seemed a little hippie-dippy. So yeah, we had to work on our story.”
The gesture would turn out to be one of the more tolerant responses from New York State regulators regarding the emerging home-sharing site.
Johnson started her career in the 1990s as a junior attorney, spending six years at a series of stultifying Dallas law firms. One day she met a high-profile local entrepreneur named Mark Cuban at her gym and asked how she could help with his thirty-person internet radio startup, called AudioNet. It was 1996, and AudioNet was operating from a three-thousand-square-foot warehouse in downtown Dallas that had mice in the bathroom and not enough chairs for employees. Johnson joined as its first lawyer, helping the renamed Broadcast.com to convince Texas colleges to put their sports broadcasts online and to navigate what were then completely unexplored aspects of copyright law. Cuban, the future owner of the Dallas Mavericks and mainstay of the TV show Shark Tank, was a visionary; he predicted that one day sports and other programming would be streamed online, breaking conventional television’s stranglehold on the media business. Cuban and his co-founder, Todd Wagner, were ahead of their time, and there seemed little chance back then that the company would ever get to the promised land of profitability. Nevertheless, in 1999, Yahoo, high on the financial narcotic known at the time as internet stock, bought Broadcast.com with its own overvalued shares in a deal worth $5.7 billion.
Johnson moved to San Francisco and spent the next decade as Yahoo’s deputy general counsel. She worked for four different CEOs at the increasingly beleaguered web portal, and by 2011, wanted to believe in another corporate cause. That’s when she started reading in the tech press about Airbnb.
Impressed by the startup’s gathering momentum, Johnson stealthily orchestrated her own hiring. Instead of sending an unsolicited e-mail to Brian Chesky, she asked well-known Silicon Valley investor Ron Conway to broker a connection. Instead of campaigning for a full-time job, she first offered her services as a consultant. She then won Chesky’s trust, in part by enthusiastically embracing the company’s sense of its own virtue, its near religious certainty of its position in the vanguard of a historic new sharing economy that could change the world.
The Airbnb that Johnson joined full-time as general counsel in December 2011 was almost irrationally consumed with its own identity. Employees avidly read and discussed the newly published book What’s Mine Is Yours: The Rise of Collaborative Consumption, by Rachel Botsman and Roo Rogers, which theorized that the twenty-first century was not about individual purchasing habits or the conventional idea of owning things but about internet communities, online reputations, and the efficient sharing of underutilized resources.
Execs spent months hashing out the company’s six core values—“Be a host,” “Every frame matters,” “Simplify,” “Embrace the adventure,” “Be a ‘cereal’ entrepreneur,” and “Champion the mission.” The last one proclaimed awkwardly: “The mission is to live in this world where one day you can feel like you’re home anywhere, and not in a home, but truly home, where you belong.”
Chesky introduced these values to employees at a company offsite held at the Sonoma estate of sculptors Lucia Eames and Llisa Demetrios, daughter and granddaughter of the famed furniture designer Charles Eames, whom Chesky had idolized in design school. The six values would be used to guide hiring decisions and employee performance reviews and to illustrate Airbnb’s ideas about itself to the world.
As part of this protracted process of self-reflection, the company executives also debated whether to move into other sharing-economy businesses, such as the rentals of cars and office space between customers. Ultimately, Chesky decided to hold off on that type of expansion and double down on home-sharing by studying and fine-tuning the process of renting and hosting on the site. Obsessed with all things related to Disney, he dubbed this internal review Snow White, after the iconic movie, and hired a computer animator from local movie studio Pixar to storyboard the “emotional moments” of Airbnb customers.1 The panels—which illustrated the Airbnb experience from the perspective of hosts thinking about what they could do with extra income and guests excitedly spreading the word about the service—were mounted on the walls of the main conference room, dubbed Air Crew, in the Rhode Island Street office.
Fresh from scattered, chaotic Yahoo, Belinda Johnson was impressed. “I loved the creativity,” she says. “When you have so much opportunity, being able to say no is going to distinguish a company that is going to do well from one that might lose its way.”
Johnson’s formal title at Airbnb was general counsel, but as Chesky’s first significant senior hire, she became more of a consigliere. She helped Chesky recruit his original chief financial officer, Andrew Swain, who came from the accounting software maker Intuit, as well as Mike Curtis, vice president of engineering from Facebook, who could help Nate Blecharczyk manage a large engineering team and a global, rapidly scaling website. Chesky trusted Johnson and befriended her; they twice attended the annual Burning Man festival in the Nevada desert together with groups of friends and colleagues and he said they spoke “every day, multiple times a day.”2
Chesky had good reason to make a veteran attorney his first major outside hire. The company had mounting regulatory challenges around the world, where its fierce sense of its own righteous mission was clashing with an increasingly hostile reception in cities like San Francisco, Barcelona, Amsterdam, and particularly New York City, its largest market at the time.
Throughout 2012, Johnson watched Travis Kalanick’s fiery battles in DC, San Francisco, and elsewhere, and believed Airbnb had to do things differently than Uber.
She talked about ethereal concepts like Airbnb’s “regulatory brand” and stated things like “It has to be authentic to who the company is,” reflecting the fact that Airbnb “operates in a principled way.” Making the rounds of influential lawmakers and talking to them face to face was the first step. “We wanted to build a positive kind of credibility with cities,” she insists. “That is just better in the long run but most importantly it was authentic to who our founders are.”
But just a year after she was accused of being high for thinking that such a business scheme could work, another reaction by a New York politician showed that the emerging dynamic was considerably more combative. By then she had hired David Hantman, another Yahoo refugee, to lead Airbnb’s public-policy team. Hantman and his colleagues were canvassing New York City, trying to spread the gospel of Airbnb’s positive impact on the community, when they encountered Liz Krueger, a fiery state senator from Manhattan who for years had battled illegal hotels in the city. Krueger’s office, it turned out, was besieged by complaints about Airbnb from angry neighbors and from hosts who had listed their apartments as short-term rentals on the internet and who, to their surprise, then faced eviction notices from landlords, since many New York City leases expressly forbade subletting of any kind.
Krueger didn’t seem to believe in the mission of Airbnb, its “regulatory brand,” its corporate values, Snow White, or the immaculate hearts of the three founders. She had a withering assessment for Hantman and his crew: “I have never dealt with a company as disingenuous as Airbnb has been over and over and over again,” she said.
To understand why Airbnb’s public reception among some lawmakers contrasted so dramatically with its virtuous view of itself, we must rewind this narrative, go from the stylish offices on Rhode Island Street, back through the garage on Tenth, all the way to the original apartment on 19 Rausch. It is once more early 2009, two years before Belinda Johnson joins the company, and Airbnb is again Airbedandbreakfast.com.
Brian Chesky and Joe Gebbia, ambitious and battle-scarred from a year in the startup trenches, were at the Y Combinator startup school when they received an e-mail from a part-time actor, famous New York party planner, and residential landlord whose activities would set the unfortunate tone for Airbnb’s future path in New York City. His name was Robert “Toshi” Chan.
A native of San Francisco whose parents emigrated from China, Chan attended Columbia University as a math major and then made millions on Wall Street trading government securities at Citibank. But after seven years, he found that lucrative life too constraining and anonymous. In an act of reinvention possible only in New York, Chan dropped his given name, Robert, in favor of Toshi (the name of the most popular boy in his high-school class) and launched a career as an actor. “With my ‘Masters of the Universe’ ego at twenty-five years old, I thought, If I can trade billions, I don’t see how hard it can be for me to win an Academy Award,” he told me.
The charismatic, relentlessly self-promoting Chan won bit parts in Law and Order, Late Night with Conan O’Brien, and the Martin Scorsese film The Departed, where he played a jittery mafioso. But mostly he made his name by holding famously over-the-top parties a few times a year, with $1,500 ticket prices and topless Toshettes covered in body paint.3 (AM New York: “He’s King of the City That Never Sleeps.”)4 He used his Wall Street winnings to buy a four-story former yeshiva on a quiet street in south Williamsburg and renovated the entire structure, adding a lavishly appointed two-floor penthouse with eighteen-foot-high ceilings.
The sequence of events that would affect New York State housing law and the future of Airbnb started to unfold in 2007. With acting jobs sporadic and finding it increasingly difficult to obtain liquor licenses and venues for his parties, Chan was basically unemployed. His then fiancée, Cha Chang, recalls that around this time Chan rented out one of the guest rooms in his penthouse suite for a few weeks to a friend from Sweden. When the friend left, Chan posted the room on Craigslist for one hundred and fifty dollars a night.
To someone as clever and opportunistic as Toshi Chan, the favorable economics of short-term rentals must have been quickly evident. He could rent apartments in his building for fifteen hundred a month; on the internet, he could charge tourists one hundred fifty a night, and if he rented a room out twenty days a month, he’d earn three thousand from one room alone. Soon after, Chan began listing apartments in the six-floor building next door, which he had leased on favorable terms from the landlord. Tourists, fresh from the airport, started pouring into their home to pick up their keys. Cha Chang devised a breakfast menu, charging guests five dollars for eggs or pointing them to nearby diners.
The woes of the New York City real estate market started to deepen in 2008. Landlords had open apartments and plenty of tenants who couldn’t pay their bills. This was Chan’s big break. He signed annual leases on a dozen cheap two-bedroom apartments around the corner and posted those to Craigslist too. When the online bulletin board proved too cumbersome to use for multiple listings, Chan expanded, creating his own website, HotelToshi.com, and turned to tourism services like FeelNYC.com, popular in Europe, and Roomorama, a New York–focused apartment-rental site that had opened that year. When Cha Chang read an article about AirBed & Breakfast, she added that to their staple of listing sites too.
In early 2009, while Airbnb was still in Y Combinator, Chan and his assistants started corresponding with Chesky. The young CEO advised Chan that he could pay twenty-nine dollars a year and upgrade to a premium membership, a short-lived offering that allowed hosts to list properties that were priced at over three hundred dollars a night. “Many of our premium listers are our best hosts,” Chesky wrote in an e-mail that February that Chan later shared with me. “I would be happy to talk to you about this, and arrange something that works for you. How many listings are you looking to post?” Despite Airbnb’s later attempts to distance itself from hosts who posted multiple listings, back then Chesky and his co-founders welcomed them.
Chan remembers Chesky and Joe Gebbia staying overnight at one of his apartments in Brooklyn and on another occasion having dinner at a sushi restaurant in Tribeca with Chesky, Gebbia, and investor Greg McAdoo, where they discussed topics like how to streamline the check-in process. In June 2009, young Airbnb had only eight hundred listings in New York City, and Toshi Chan was providing at least fifty of them.5
As the financial crisis worsened, Chan accelerated his plans. He found a co-investor and signed leases for some two hundred other apartments across Brooklyn and on Manhattan’s Upper West Side. He even set up a tent and a queen bed on the roof of his penthouse and rented it out on Airbnb for a hundred dollars a night. “He lets guests use the bathroom in his apartment,” wrote a Daily News reporter who stayed there and wrote about it that month.6
As the business grew, Chan moved his office out of his home and into the basement of a nearby building in Williamsburg, where he rented about half of the thirty-five units. Instead of having tourists coming there to pick up their keys, the Hotel Toshi sent bike messengers and eventually a van adorned with the cartoon logo of him, his head resting on a pillow, to meet guests at the apartments. Coordinating it all was utter chaos, recalls Cha Chang, who had become a Hotel Toshi employee. Orchestrating check-ins and obtaining enough clean sheets every day was a particularly nightmarish task. Perhaps the worst part was the incessant, shrieking phone calls from the permanent residents of the buildings, who were understandably livid about the nonstop tourist traffic and late-night partying by guests.
At its peak, the Hotel Toshi had more than a hundred employees. They all suspected the operation was of dubious legality and lived in a constant state of panic that the company would get shut down and they would be arrested. According to Cha Chang, Toshi paid off two separate individuals who blackmailed him, threatening to report the Hotel Toshi to city authorities. “It was a business cost,” says Chan when asked about the blackmail attempts. “The consequences of not paying would have been much worse.”
But it turns out the city was already watching the Hotel Toshi and similar operators. For the previous five years, well before the founding of Airbnb, the administration of Mayor Michael Bloomberg had been looking for a way to address the scourge of avaricious landlords harassing and evicting low-income residents in order to convert apartments into illegal hotels or condos and meet the demand for cheap rooms with kitchens close to major tourist areas.
Around 2006, housing advocates and elected officials across a range of city and state agencies had begun meeting to discuss the issue. The task force eventually proposed rules, amendments to a 1968 ordinance called the Multiple Dwelling Law, that stipulated that permanent residents of an apartment building could not rent their homes to guests for any amount of time less than thirty days. The law, which would effectively make very short-term home-sharing and subletting illegal in New York City, came up for a vote in the state legislature in the summer of 2010—just as complaints against the Hotel Toshi and Airbnb were reaching a fever pitch.
Chesky says he heard about the law only days before the vote. In response, he hired Airbnb’s first lobbyist, a well-known Albany lawyer named Emily Giske, who started visiting state lawmakers. Meanwhile, Toshi Chan met some of New York’s biggest landlords in the downtown offices of the law firm Fried Frank to discuss the options. They would eventually help create an advocacy group called Save Sublets to try to marshal opposition to the city’s plan.
On July 21, the landlords and a group of apartment-listing websites organized a protest at city hall. Airbnb co-founder Joe Gebbia flew to New York to attend the event and Tweeted to his followers to join him and “save sublets.”7 Chan remembers going to the protest with Gebbia, waving signs and asking people to put their names on petitions. “Toshi, maybe it’s better if you’re not out in front,” Gebbia told him, according to Chan. “They kind of hate you.”
Chan recalls all of this from the penthouse of the Flatiron Hotel on the corner of Twenty-Sixth and Broadway in Manhattan. He invested in the boutique hotel in 2011 and became principal owner in 2014. Off the lobby, there’s a nightclub called Toshi’s Living Room, where guests can catch a jazz quartet on most nights. In the penthouse, there’s a party venue and an outside deck adorned with Toshi’s cartoon visage. As he reminisces, Chan reclines on a couch and strokes Ponzu, his white Maltese Yorkie. “I went from making five thousand a month to twelve million a month in just a couple of years,” he says. “It was crazy.”
But it wasn’t sustainable. “Hotel Toshi was so toxic. Every neighbor hated me. I was like the anti-Christ, I was worse than Hitler in their eyes,” he says, a tad mischievously. “Landlords were kicking people out to rent out their apartments to me. That was not good. In retrospect, there’s a certain social responsibility you learn as you get older.”
Chan didn’t get enlightenment all at once. The Multiple Dwelling Law passed and was signed by Governor David A. Paterson but it wasn’t officially implemented until May 2011.8 Instead of shutting down, Chan paid his fines and changed his company’s name to Smart Apartments, in part because the Hotel Toshi brand had attracted too many scathing reviews. He tried to keep posting on Airbnb but says that after the law passed, the company canceled his listings. “They dropped me like a hot potato,” Chan says. “I understood. It was smart.”
But for Chesky and Gebbia, the realization that they had associated with an unsavory character may have come too late. In the eyes of law enforcement and the media, the brands of Toshi and Airbnb were closely intertwined. In October 2011, Chan was sued by the Office of Special Enforcement, a division of the mayor’s office tasked with solving quality-of-life problems like illegal hotels.9 The city charged him for a litany of fire-code violations as well as for operating unsafe and illegal accommodations. The lawsuit, Chan says, “had the might of Thor’s hammer.” With the hammer coming down on him, he eventually settled the case for a million dollars and shuttered Smart Apartments. “Infamous Airbnb Hotelier Toshi to Pay $1 Million to NYC,” wrote the New York Observer.10
Brian Chesky and Joe Gebbia had been friendly with Toshi Chan, had stayed in one of his apartments, dined with him, and facilitated his business. So they couldn’t move on from the association quite so easily. Airbnb would now have to live with the consequences of a stifling law in New York City that Toshi Chan and others like him had helped to produce.
By 2012, Belinda Johnson and her colleagues knew they faced a daunting obstacle—many of Airbnb’s best customers in New York City were essentially behaving illegally. Even worse, Airbnb could do little to change what it felt was an exceedingly restrictive law. When the ordinance passed, Gebbia had tried to summon supporters to join him at the city hall protest, but Airbnb was so small it didn’t have a real community to advocate on its behalf. Travis’s Law didn’t yet apply.
There was an obvious solution, even though it meant putting its own hosts in legal jeopardy; Airbnb didn’t tell hosts they were breaking the law. Then the company tried to grow in New York and ingratiate itself to its users, with an aim of getting them to influence city officials on its behalf. “We needed to get big enough to win,” says a lawyer who worked with the company at the time.
Airbnb believed it had assurances from city and state officials that, despite its broad wording, the Multiple Dwelling Law applied only to residents who left the premises and rented their homes to tourists for under thirty days. This type of rental, an unhosted stay, amounted to an illegal short-term sublet. According to New York State officials, these hosts were acting like they were hotel owners, not the hosts of a bed-and-breakfast. People who stayed on the premises and rented out a spare room or couch—like the much-touted Airbnb user who was using the site to meet people and make ends meet—were behaving perfectly within the bounds of the law, the company believed. Still, there were ominous signs that the city wanted to curtail the activity altogether. In 2012, with a steady stream of angry complaints from neighbors about Airbnb and other short-term rental sites pouring into government offices, the city council increased fines to twenty-five thousand dollars for repeat violations of the Multiple Dwelling Law, up from the original penalties of less than three thousand dollars.11
Airbnb was facing a wave of hostility from lawmakers and couldn’t seem to find a way to stand up for itself or its host community. And then Nigel Warren, a thirty-year-old resident of the East Village, came home one afternoon in September 2012 and received an irate phone call from his normally placid landlord, Abe Carrey, an elderly man from Queens. Abe yelled, “Who are you renting my apartment to? What the hell is going on there?” Warren’s stomach dropped.
Warren is a hip, soft-spoken web designer—your typical East Village denizen, in other words. He had used Airbnb just three times to rent out his room while traveling over the previous year. His roommate, Julia, had rented out her room once. Their experiences were positive and profitable, earning them a little over a hundred dollars a night, a modest contribution to their three-thousand-dollar-a-month rent for a two-bedroom, one-bath sixth-floor walk-up. A week before the call from Abe, Warren had gone away to Colorado with friends for five days and had used Airbnb to rent out his room to a tourist from Russia who spoke little English. Julia was there and things had gone smoothly, apart from the guest’s vague account of running into some police officers in the hallway. “There were no horror stories,” Warren says. “Everything was perfectly fine.”
Except it wasn’t. The Office of Special Enforcement had been tipped off, perhaps by annoyed neighbors, that Warren and his roommate were subletting space in their apartment. (A former member of the department later told me they had reason to believe—inaccurately, it turned out—that Nigel Warren was essentially another Toshi Chan.) Building inspectors showed up while Julia was gone, questioned the guest from Russia in the hallway, noted a few safety violations in the building, and left. Then they mailed a notice to Abe’s home in Queens alleging that the tenants in apartment 5G were running an illegal transient hotel and violating safety codes. The potential fines exceeded forty thousand dollars. Warren assured the irate Abe that he would accept responsibility and deal with it, but at the time he was freelancing and without a steady income. “That began many months of stress,” he says.
Much of his fury was directed at Airbnb. When Nigel Warren sat down to research the rules he had allegedly broken, he found articles on the 2010 law, which the website hadn’t warned its customers about. There was some fine print in its twelve-thousand-plus-word terms and conditions that advised hosts they were responsible for understanding local regulations, but Warren of course hadn’t read that lengthy document.
Warren’s sister recommended he get a lawyer. The attorney concluded that Warren was probably safe because Julia had been present during the guest’s stay. Nevertheless, at $415 an hour, the lawyer’s fees only added to his financial misery. To save money, Warren decided to argue his own case. The first hearing was canceled due to Hurricane Sandy, which resulted in a long delay that led him to mistakenly believe he was in the clear. Then he was called back to appear in housing court. The city was throwing the book at Nigel Warren, hoping to set an example to curb usage of Airbnb.
At the time, Airbnb was enjoying a wave of positive press for new features and another $200 million in funding led by venture capitalist Peter Thiel, a PayPal co-founder and early Facebook investor. Warren seethed that the company was enjoying all this adulation while embroiling hosts like himself in legal trouble. Finally, he decided to take action. He did two things. First, he e-mailed Airbnb, complaining in part, “This entire situation came as a complete surprise. I had no idea that being an Airbnb host is illegal in most locations in New York City.”
The company responded five days later. “I am sorry to hear that you are gong [sic] through a stressful situation,” e-mailed a customer-service agent, Maria C. “We encourage you to familiarize yourself and comply with any and all lease, rental, or co-op agreements, as well as applicable local, state, national and international regulations. When renting, special local and state taxes may also be required. It is the responsibility of hosts to comply with all such regulations and taxes.” Maria C. unhelpfully concluded, “We’re happy to see you are staying informed and aware!”
The second thing Warren did produced better results. A friend introduced him to Ron Lieber, the “Your Money” columnist for the New York Times. Warren told Lieber his story, and “A Warning for Hosts of Airbnb Travelers” was published on November 30, 2012. “Many people believe that living on the web grants them membership in an exalted class to which old laws cannot possibly apply,” Lieber wrote. “This sort of arrogance takes your breath away, until you realize just how brilliant a corporate strategy it is. If you stopped to reckon with every 80-year-old zoning law or tried to change the ones that you knew your customers would violate, you’d never even open for business.”12
A few hours after Lieber’s story was published, Warren received a more contrite call from an Airbnb customer-service representative. And when he showed up for his next hearing, once again without his pricey lawyer but accompanied by a National Public Radio reporter who was chronicling his saga, Warren was surprised to run into David Hantman and two lawyers. They told Warren that, like any internet company, Airbnb couldn’t provide legal advice or financial support, because that might set a precedent that would make the company responsible to assist everyone who used the service. But they had filed an independent brief on Warren’s behalf and wanted to observe the proceedings.
The case was a critical one for Airbnb, which believed its users in New York City were at least authorized to share their homes if they were present. A bad decision “could have set a terrible precedent. It was a big problem if the law changed because of some ruling,” a lawyer involved in the proceedings told me.
After more preliminary hearings and delays, Warren’s case was scheduled for May 2013. Still trying to save money, he represented himself in the hearing room of the Environmental Control Board, a drab DMV-like office on the tenth floor of a city building in lower Manhattan. With Airbnb’s fate in New York City hanging in the balance, Warren botched legal procedures, mishandled cross-examinations of witnesses (including the building inspector who had confronted the Russian guest), and was constantly asked to rephrase questions—all while Airbnb’s high-priced attorneys sat quietly in the audience. “I was in so far over my head, it was just ridiculous,” Warren says.
Five days after the hearing, Warren got a phone call from the court: the judge had dismissed the safety-code violations and struck down the charge that Warren was running a transient hotel. But in a curious bit of legal reasoning, he ruled that Warren had indeed broken the law because the Russian tourist and Julia were “strangers,” and the tourist did not have access to every single space in the apartment—in this case, Julia’s bedroom. Thus the tourist was not technically “living within the household of the permanent occupant.”13 The resulting fine on the infraction was $2,400. Still, Warren considered the ordeal over and happily paid the penalty. “That was a victory in my book,” he says.
But it wasn’t a victory for Airbnb. If Nigel Warren was breaking the law, then so was every Airbnb host in New York City. If that was the case, the company had a big problem; it had no legal business there and it would never get big enough to change the rules.
Inside the company, an intense debate erupted. Belinda Johnson and David Hantman believed that Airbnb couldn’t let the precedent stand and that it would be a terrible signal to other cities that were considering slapping limits on the fast-growing sharing economy. Other attorneys advising the company worried that if Airbnb appealed, it might be compelled to get involved in other cases involving its hosts.
Chesky made the final call: of course Airbnb should stand up for its hosts. “We needed to advocate for our community,” says Belinda Johnson. “It was clear to us that this was the wrong interpretation of the law.” Airbnb then hired New York City law firm Gibson Dunn to appeal Nigel Warren’s case. As it had with EJ, Airbnb was taking another critical step away from being an aloof, neutral platform and toward a service that advocated for its hosts and was willing to walk in their shoes.
The appeals process took another three months. With serious legal muscle now on Airbnb’s side, the Environmental Control Board found that the Multiple Dwelling Law did not, in fact, require a personal relationship between a short-term guest and a permanent resident. The case was dropped and Warren was finally exonerated. “This decision was a victory for the sharing economy and the countless New Yorkers who make the Airbnb community vibrant and strong,” wrote Hantman afterward on Airbnb’s public-policy blog.14 Tech-news sites like TechCrunch and the Verge celebrated the victory.
Perhaps the only person who wasn’t celebrating was Nigel Warren himself. “I was happy but not grateful,” he says, recalling the whole strange saga in a quiet conference room in the Brooklyn offices of Kickstarter, the crowd-funding website where he has worked as a product manager since 2014. I asked him if he thought Airbnb behaved honorably in his case. “I don’t think honor really came into it,” he says. “There are certain companies that at certain times act with honor outside the bounds of what the marketplace demands. In this case, I think their actions were purely pragmatic.”
Airbnb “went up to the line of what they needed to do. I don’t resent them for it. It was clear what the equation was. They had to protect their business in New York.”
A few days after the verdict, in a triumphant essay on the Airbnb website entitled “Who We Are, What We Stand For,” Chesky used the Warren victory to issue a battle cry, presenting the company’s righteous view of itself. “We all agree that illegal hotels are bad for New York, but that is not our community,” he wrote underneath a photograph of a group of young people staring over the East River and into a setting sun.15 “Our community is made up of thousands of amazing people with kind hearts.
“We imagine a more accessible New York that even more people can afford to visit, where extra space in people’s homes will not go to waste, and where millions of visitors patronize neighborhood small businesses across all five boroughs,” Chesky wrote. “This will be a city where tens of thousands of jobs for people like photographers, tour guides, and chefs will be created to support this thriving new ecosystem.”
Among city and state officials, the screed went over poorly. Liz Krueger, the New York senator who slammed Airbnb as disingenuous, says her office at the time was deluged with complaints from constituents. With New York real estate starting to recover from the recession, landlords were leaping at excuses to free up rent-controlled apartments and lease them again at the higher market rates.
Krueger met with Airbnb representatives and urged them to warn hosts on the site, with clearly visible language, that they might be violating both state law and their leases. Airbnb, she says, responded with a rotating series of explanations of why that was too complex or how it exposed the company to legal liability. (The site was still not adequately warning New York customers a year later, according to a review by Gawker.)16 Krueger, a lifelong New York Democrat with a dry wit and a dim view of Silicon Valley startups seeking to play by their own rules, figured there was a simpler explanation: Airbnb didn’t want to curtail its fast-growing business in the city. And she laughed at the ridiculousness of the neighborhood hotline and the idea that the California company might be able to respond meaningfully when complaints came in during the middle of the night or weekends.
Meanwhile, lawyers for the state attorney general, Eric Schneiderman, the top law enforcement officer in the state, were inclined to agree. They felt that despite its proclaimed intentions to aid the city, Airbnb was actually resisting requests to combat illegal hoteliers and hadn’t earnestly pursued efforts to collect the required 14.75 percent hospitality taxes.17
Though it hadn’t been made public yet, the attorney general was calling Chesky’s hand. In August 2013, Schneiderman subpoenaed Airbnb to provide the names, addresses, and contact information for all Airbnb hosts in New York State, as well as the dates and duration of guest stays and the fees they earned since early 2010. In private meetings, Airbnb refused, and then, after the Nigel Warren verdict, Schneiderman reissued the subpoena with slightly modified language.18 He was not backing down; the attorney general wanted to know exactly how many of the fifteen thousand New Yorkers hosting on the site fit Airbnb’s self-styled picture of benevolent sharing-economy pioneers and how many were simply breaking the 2010 Multiple Dwelling Law to make an illicit buck, taking apartments off the market in the process. In other words, he wanted to know: Did Airbnb hosts in New York City look more like Toshi Chan or Nigel Warren? Were they hoteliers or bed-and-breakfast hosts?
Now Chesky was facing his most difficult decision since the battles with the Samwer brothers and the crisis over EJ. How should Airbnb respond to the subpoena? And what would the cold, hard data reveal to the world about the true nature of its business?
Back in San Francisco, the company was flourishing. That year it had rolled out new mobile apps, refined in the wake of the Snow White exercise, and continued to expand a feature called instant book that allowed guests to book a selection of Airbnb properties like they would hotel rooms, without time-consuming e-mail exchanges with the hosts.19
Those new products contributed to the booming growth. The Airbnb marketplace had the most incredible structural momentum that many of the company’s investors and executives had ever seen, driven by a nearly infinite pool of available rooms, apartments, and homes around the world and growing interest among people in a new kind of authentic internet-facilitated travel experience. The company at that point was like a flywheel spinning ever faster, with hosts attracting guests and guests in turn attracting more hosts and an unending stream of headlines about the novelty of the idea accelerating the entire cycle. The problems in New York, meanwhile, were generating a wealth of free, irony-soaked publicity.
Chesky was embracing the moment. His smiling visage appeared on the cover of Forbes in January 2013 next to the headline “Who Wants to Be a Billionaire.” The young CEO, who only five years before had been full of wrenching self-doubt, was now an adept collector of high-profile mentors, Warren Buffet, Jeff Bezos, and Disney CEO Bob Iger among them. He was determined to think bigger and bolder than any of his colleagues and rivals, according to half a dozen former employees who spoke about this chaotic time in the company’s history. Airbnb was on track to earn $250 million in annual revenues in 2013, but Chesky was already thinking ahead to a $2 billion annual run rate. The site had cumulatively booked ten million nights but Chesky was pushing his staff to get to twenty million by the following year. He had around five hundred employees but was projecting a time, only a few years away, when the company would almost certainly have two thousand. Said one senior employee who did not want to be named: “If Airbnb was a body, Nate was the brains, Joe was the heart, and Brian was the balls.”
Though Chesky still lived predominantly in Airbnbs around San Francisco, he embraced the glamour that came with this success. In late 2012, he traveled to Asia and Australia with investor Ashton Kutcher and his future wife, actress Mila Kunis. On the trip to Japan to launch Airbnb.com in Japanese, the company ended up spending $15,000 to acquire two matching samurai swords. One former employee says Chesky and Kutcher bought them and later tried unsuccessfully to return them, though the company says that Chesky did not know about the purchase at the time.
In January 2013, Chesky hired a new head of community who shared his devotion to the cause—Douglas Atkin, a former advertising agency executive who had written a 2005 book, The Culting of Brands: Turn Your Customers into True Believers, that drew business lessons from devotional sects like the Hare Krishnas. “The opportunity for creating cult brands has never been better,” Atkins wrote in the book’s epilogue. “Too many marketers have adopted a defensive attitude when actually they are on the brink of creating some of the most tenacious bonds between their brands and customers.” Atkins fervently believed that Airbnb wasn’t only a company but an ideology and a global movement that existed in a realm beyond provincial laws forged in a dramatically different age.
One of Atkins’s first acts at Airbnb was to help start an independent group, called Peers, with the financial backing of Airbnb itself and a mission to support members of the sharing economy. Peers would hold meet-ups in cities where Airbnb and its fellow upstarts faced political hurdles and organize political actions to influence lawmakers. So Atkins’s advice to Chesky about the New York battle was clear—he wanted the company to stand up to Eric Schneiderman and fight. Not everyone agreed that it was smart to cross the top law enforcement agent in the state but in the end, Belinda Johnson and Airbnb’s other lawyers agreed that the request for data on all of its users was uncomfortably intrusive. “Companies get subpoenaed all the time for information and some companies give it over and some will negotiate it behind the scenes,” Johnson later told me. “We made the decision that this was just too broad and we needed to stand up for the privacy of hosts and our community. As public as that was going to be, it was the right thing to do.”
And so in October 2013, buoyed by his advisers, the company’s relentless growth, a sense of righteousness, and perhaps a feeling of invincibility, Chesky decided to fight the attorney general’s subpoena. Instead of handing over the data, Airbnb filed a motion in a New York State court to quash it, arguing that it was unreasonably broad and would violate its customers’ privacy. He was essentially telling the attorney general of New York to go pound sand. Observing closely now were lawmakers from cities around the world, including Los Angeles, San Francisco, Barcelona, Amsterdam, Berlin, Paris, and countless others, who were watching Airbnb spread in their cities too. They all had the same worries about home-sharing websites and technologies that appeared to radically disrupt their local economies, with undetermined consequences.
The subpoena and accompanying blizzard of media coverage sent shudders through the ranks of Airbnb users in New York City. Journalist Seth Porges had been renting out a spare bedroom in his two-story duplex in Williamsburg, Brooklyn, since 2010, before Williamsburg was fashionable. At the time his apartment was so geographically inconvenient he had to pitch its proximity to the L Train just so he could fulfill a “bizarre fantasy of being an innkeeper in the countryside and meeting all these amazing characters as they saunter into town.”
Two years later, when he was laid off from the men’s magazine Maxim, his Airbnb earnings let him pursue passion projects instead of taking another full-time job, and he found himself becoming a fervent defender and evangelist for the site. “Airbnb allowed me to be deliberate about my life choices and to think through them and take the risks,” he told me. Charging guests around a hundred dollars a night covered his monthly mortgage and more, eventually allowing him to put in another bathroom next to the guest bedroom. Thanks to Airbnb, he was now living in New York City for free.
After the subpoena, Porges, like many other hosts, was suddenly dealing with a torrent of anxiety and misinformation. “I had people book reservations and message me, ‘Am I still able to come? What happens now?’” Porges recalls. He offered gentle reassurances. “This is not North Korea.” Only using it in a certain way was illegal, and “the police are not knocking down doors. Their beef was with the big illegal hoteliers.”
Rich Chalmers, a packaging engineer for a women’s apparel company, started using the site after signing a lease with two roommates on a three-bedroom third-floor walk-up apartment on Avenue C, over the Alphabet Lounge, a popular bar. Chalmers found the apartment “so damn loud I couldn’t stay in it,” so he often went to his girlfriend’s place across town. Renting his room on Airbnb to hipster tourists who wanted to stay in Alphabet City started out as a nice source of extra cash.
A year later, while keeping that room, Chalmers also rented a one-bedroom apartment on Ninth Street between First and Second Avenues in the East Village. He then shuttled between the two places and friends’ houses, renting both apartments on Airbnb. The rent on the new place was $1,850 a month, which Chalmers easily covered by charging $165 a night and $250 over holidays on Airbnb. “By 2011, I was getting into the swing of things,” he told me. He then added a rotating series of friends’ and girlfriends’ apartments that he would resourcefully list on Airbnb when they were out of town. Suspecting that all this was of dubious legality, Chalmers used an old photograph of himself on the site to reduce the chance that someone might identify him.
As the complexity of his side business mounted, Chalmers asked deli and bodega owners near his apartments to hold spare keys to give to arriving guests. Each place also had a maid who could turn it over in a few hours between guests.
Chalmers estimates that his efforts generated about two hundred thousand dollars in profits over three years, as well as some excellent stories. One day he arrived at his friend Jeff’s apartment, which he had rented out on Airbnb, to clean it for a new guest. To his surprise he found the previous guests still there. “They were from Virginia and had come to the city to sell cigarettes and marijuana. I walk in and am like, ‘What’s going on,’ and of course they were so high,” he recalls. This would have counted as an Airbnb horror story for some, but not for Chalmers. “I ended up taking them to a different apartment. It was pretty crazy,” he says. “The girls were attractive and everyone was up for a party.”
After Schneiderman’s subpoena, Rich Chalmers, unlike Seth Porges, thought that it was time to get out. A real estate agent friend told him it was too dangerous and that some landlords were wising up and starting to strictly enforce prohibitions against sublets in their leases. If rent-control laws restricted them from charging market rates for their own properties, they were going to make damn sure that their own tenants weren’t going to turn around and reap the full market rate via Airbnb. Chalmers stopped listing in 2012 and paid all the hospitality taxes on his Airbnb income, even erring on the side of caution by refiling for one year.
It was this eclectic mix of earnest hosts and naked opportunists that Chesky was trying to protect when he sent the attorney general back to court to defend his subpoena. “The vast majority of these hosts are everyday New Yorkers who occasionally share the home in which they live,” Chesky wrote in an e-mail to hosts on October 7, 2013. “The subpoena is unreasonably broad and we will fight it with everything we’ve got.”20
Airbnb commissioned and then released its own survey of its economic impact in New York City, saying it helped to generate $632 million in economic activity for the city in one year, with around 15 percent of that outside of Manhattan.21 Airbnb visitors stayed an average of six and a half nights and spent nearly $880 at local businesses; by contrast, the average hotel guest stayed four nights and spent $690.
City officials were unimpressed. They were the adjudicators of one of the most difficult choices New York and many other cities had to make, the choice between guaranteeing affordable housing for residents and offering new hotel rooms for out-of-town guests. Airbnb, its critics believed, was removing residential properties from the market as well as deliberately blurring the lines between shared rooms and absentee hosts.
Schneiderman and Airbnb returned to court in April 2014. Airbnb won a temporary victory. A judge ruled the subpoena was too broad because it covered all hosts in the state and not just those in New York City who were breaking the Multiple Dwelling Law.22 Schneiderman refiled an amended version a day later, and, its back now pressed against the wall, Airbnb agreed to turn over anonymized data on 16,000 hosts in New York City, including specific information on 124 hosts with multiple listings.23 The attorney general’s office studied the data and five months later issued a critical report that concluded that more than two-thirds of Airbnb rentals in the city violated the law and that a small percentage of hosts with multiple listings were responsible for 37 percent of Airbnb’s revenue in the city. Then it created a joint task force with several city departments, including the badly overstretched Office of Special Enforcement, to investigate and shut down illegal hotels in the five boroughs.24
In the years following their first meeting in New York, Brian Chesky and Travis Kalanick struck up a sporadic friendship. A few times a year, they would go out to dinner in San Francisco, first by themselves, then with other entrepreneurs or with their girlfriends to discuss their companies’ twin successes and their common experiences battling regulators and lawmakers. “I think we learned a lot by watching each other,” Chesky says. “There are only so many people in the world that you can relate to [who share] your position.”
Employees at both Airbnb and Uber remember these dinners well. Says one Airbnb exec who was also close to Uber employees: “Brian would come back saying, ‘We have to be tougher!’ and Travis would come back saying, ‘We have to be nicer!’”
Executives at Airbnb had watched Uber’s travails, following its controversial embrace of ridesharing, and insisted somewhat dubiously that its approach was different and softer than Uber’s. “They have their own way of seeking growth,” said Jonathan Mildenhall, who joined Airbnb as chief marketing officer in 2014. “I think for us, our community, and the humanity of our community, actually drives a lot of the things we do. So we approach any kind of awkward situation or any challenge with a lot of empathy and a lot of open collaboration… We don’t want to kind of bulldoze our way into success. We actually want to partner our way in.”25
This was consistent with what Belinda Johnson had called the “regulatory brand.” But as Airbnb grappled with unfriendly governments in New York and other cities, it turned out that the upstarts were perhaps far more alike than Chesky and his colleagues cared to admit.
Both CEOs talked about their companies with revolutionary fervor. Their handlers now kept each far away from the actual regulatory scrums, worrying that Kalanick might be too combative and Chesky too treacly and earnest. Both were unleashing changes in communities’ behavior whose full impact on society they couldn’t possibly hope to understand. And each believed that the best tactic was simply to grow, harnessing the political influence of their user base to become too big to regulate.
Chesky’s reputation survived this feverish period of empire building far better than Kalanick’s. Uber’s CEO had discarded political niceties in favor of spirited debate and intellectual sparring, which earned him the image of a pugnacious capitalist. Airbnb’s CEO was more circumspect and politically astute, attributes that the freewheeling Kalanick would have to learn in time. But like Kalanick, when confronted by laws that he found unjust, or perhaps just inconvenient, Chesky didn’t slow down. His business was every bit as disruptive as Uber’s, creating a set of new economic winners and losers.
Reflecting on the years 2011 through 2013, a person might find it difficult to conclude that one company was the more ethical operator. Uber started rampaging over local transportation laws when it appeared competitors might capture strategic ground. Chesky knew that Airbnb violated the strict housing regulations of New York City and elsewhere but pushed ahead anyway, and the site neglected to stop its own users from breaking the law. Both CEOs seized the tremendous opportunities before them with steely determination, pausing just long enough to turn around and repair some of the carnage they left in their wake.