8 ms·

AirBnB's Pricing Algorithm

106 points by taigeair 11y ago

JacobAldridge 11y ago
Talk about burying the lede: "That’s why we’ve released the machine-learning platform on which it’s based, Aerosolve, as an open-source tool." And worth noting the link in the article doesn't work - it's meant (I believe) to send you here: http://airbnb.io/aerosolve/ http://airbnb.io/aerosolve/
bkohlmann 11y ago
We've been an airbnb host with multiple properties for a few years now in Austin. We've done our own version of dynamic pricing (manually), and the graph highlighting Austin in the article is spot on. The "Pricing Tips" tool has a long way to go, but its relatively close (within 20-30 percent). It still hasn't caught some of the big events, mostly because it only looks forward 3 months, and for popular events like SXSW, we usually book 4-5 months out at very high prices. That said, big props to ABNB for trying this and putting it out there. Hopefully their algorithm takes into account what humans are actually doing with their own pricing, and using that in it's calculations.
EC1 11y ago
I can't stand AirBNB. Prices are ludicrously high. I feel like prices are higher just because it's a nicer cuter interface than Craigslist. Obviously I can't prove this. Also wish I could filter by monthly for everything not map a certain daily range to a monthly range in my head.
- tdfw 11y ago
  I feel Airbnb offers a value-added service and, in my personal experience, that has justified the extra price. Also keep in mind that the spirit of Airbnb was short-term vacation rentals; not long-term tenancies. With Airbnb I can evaluate the host's social "credit" to some degree (have they connected with LinkedIn? What references have they provided?) and transparent straight-up reviews from past guests. Having Airbnb act as an arbitrator when things go wrong is priceless.
Lucadg 11y ago
I found that the Airbnb Price Tips feature works pretty well in mature markets but not in new locations. In some apartments we manage in Kenya for instance, there are two apartments which are exactly the same. One has no reviews and the suggested price is around 48 €. The other one has 3 reviews with 4.5/5 ratings and the suggestion is 30 €. So, it's good to look at but you always need to see if it makes sense to you. Anyway, amazing job, they left the competition 10 years behind.
throw42 11y ago
This is the difference between airbnb and google. Google would have Hal Varian look at this. Airbnb has a music major re-invent the wheel (not sure if the managed to re-invent the whole thing). There is a whole field of study called pricing mechanisms. For example, second price auctions work well because of a reason.
- lqdc13 11y ago
  Why attack Airbnb for trying out a new approach? Also, Google is not that great at some things they do. For example, Google is somehow much worse at navigation than Waze even though they were at it for much longer and had tons of data. Now they even have Waze data and are still worse at it than Waze.
  - dajohnson89 11y ago
    Is it just me, or is google maps even worse than Apple maps at this point?
    - nnd 11y ago
      I think Google maps has some top-notch turn-by-turn navigations. One thing I particularly like is how detailed the voiceover is, i.e. recommends you a lane to stay in, etc This is one thing i wish Waze would be better at, because overall it seems like it's able to find faster routes than Google, although sometimes I wonder if it's only perceived, due to the way they gasify it. Apple maps are absolutely horrible in turn-by-turn. Either I'm driving too fast, or the turn announcement is way too close.
- Dowwie 11y ago
  so what you are saying is that someone with a creative background also managed to do non-trivial data science work that affects more than a million decisions made? I admire that, a lot, actually.
chvid 11y ago
Would this not get AirBNB into trouble? Price fixing in a cartel is illegal anywhere in the western world for good reason.
- adevine 11y ago
  The practice described in the article has nothing to do with price fixing.
- pki 11y ago
  This is not price fixing or anywhere even slightly related
  - jsprogrammer 11y ago
    AirBNB is colluding with its contractors to influence and set similar prices across competing room vendors. How is that not exactly price fixing?
    - breischl 11y ago
      For one, because AirBnB has multiple competitors. HomeAway is the closest thing, but traditional BnBs and hotels are playing in largely the same space. For two, they're not actually setting the prices, the property owners are doing that. They're recommending prices, which is very different. Feels kinda weird to be defending AirBnB, since I work for Homeaway. ETA: Probably the closest analogy would be the infamous Manufacturer Suggested Retail Price, which is quite legal as long as they don't actually force the retailers to stick to it.
    - jlarocco 11y ago
      Price fixing is when competitors agree to set prices. If AirBnb and Hilton and Marriott started agreeing on prices, then it would be price fixing. This isn't price fixing because companies aren't considered their own competitors. It might be a little fuzzy if the people posting rooms on AirBnb are considered competitors, but even then it's not price fixing because there's no requirement to use the algorithm's suggested price, and no single owner can influence the general price of rooms, because there's still hotels, motels, non-AirBnb rooms, etc.
lighthawk 11y ago
Completely solving the problem of pricing in term of getting it right the first time is more difficult than predicting the weather. At least with the weather you can go outside and learn if it is raining. You can't just go outside look at an item and give it an optimal price that maximizes the amount and/or the amount of time you need to sell it within. I work at a company that has pricing algorithms more complex than what retail stores use. I don't think they are useless. But, we all know they aren't "right", and they only got to be what they are through testing them out with actual customers. And some customers work to determine your algorithm and then use it to their advantage in a big way so you have to change it again, which affects other customers negatively, and the cycle continues. You can't just A/B test pricing and assume that will work in a hands-off fashion either, because customers will take advantage of that. The complexity of pricing is that the best pricing only partly has to do with the thing being sold. You could argue it has nothing to do with the thing being sold. It has everything to do with the buyer: their needs, their resources, and their perception of the product, service, seller, the entire sales experience, market, economy, weather, etc. You name it and it probably has some affect on what the best price would be.
- visarga 11y ago
  It would be a shame if AirBnb would price gauge based on profiling customers. I don't like, when I enter a shop, to be asked my nationality before they quote me a price.
  - deleted 11y ago
    [deleted]
  - antoinec 11y ago
    This is already happening (depending of the country, your skin color might also make the price go higher), tourists typically pay more for a lot of stuff than what a local would pay. Though, sellers are usually a bit more subtle than "Hey, give me your passport, so I can tell you how much it costs". This is how a lot of people make a living in a lot of places. In the tourism industry, I think it's completely understandable and reasonable to base a price based on what the buyer is willing to pay, more than what it really costs.
visarga 11y ago
> We selected a machine-learning model called a classifier. Almost all machine learning tools are classifiers of some sort. It's like saying: we selected a car technology called "wheel".
- joshu 11y ago
  I think you have an overly narrow view of machine learning or a very broad view of what classifications are.
nnd 11y ago
I still don't understand how's staying at an airbnb rental is more compelling than staying at a hotel. From my experience, Airbnb has only a single upside: you get to stay at someone else's place, which has a quite different vibe from a hotel. One the flip-side, compared to a hotel, the prices are considerably higher, you have to negotiate with a host on checkin time (most of the times), and overall you don't have any guarantees on the quality of your rental the same way you have with a hotel chain. Correct me if I'm wrong, but Airbnb has not loyalty/rewards program available either, which could be quite beneficial for frequent travelers. The whole "local experience" seems to be a mere marketing fluff. The Airbnb experience doesn't seem to imply much interaction with the host, the same way which it's predecessor Couchsurfing did. Once you checked into you Airbnb rental, you are on your own, the same way as if you stayed at a hotel, but with even less hand-holding. Hotels at least provide a (poor) local recommendation service. I'm wondering what a typical customer of Airbnb looks like.
- virusduck 11y ago
  It's kind of fun to stay in somebody else's place. I do think there's something to be said for that. And, it IS frequently cheaper than a hotel. Many times, depending on where you're staying, it could also be more convenient. It's a B(nB) for the masses, and I don't really mind that. There of course is still room for the hotel industry, and I don't really think this is making a dent in their business. It's just different, and that's ok.
  - nnd 11y ago
    Outside of US it seems that the main customers of Airbnb rentals are Americans, and therefore often you see a price tag a few times higher than a price of a hotel in the area. I've never seen an Airbnb cheaper than a hotel. If you want a local price, you got to use local websites, or simply ask around or walk in a hotel/bnb. Nothing beats an offline price negotiation with a hotel manager, especially for long-term stays. Out of curiosity, where did you find those cheap and convenient airbnbs?
    - cirenehc 11y ago

106 points by taigeair 11y ago

Talk about burying the lede: "That’s why we’ve released the machine-learning platform on which it’s based, Aerosolve, as an open-source tool." And worth noting the link in the article doesn't work - it's meant (I believe) to send you here: http://airbnb.io/aerosolve/ http://airbnb.io/aerosolve/

bkohlmann 11y ago

We've been an airbnb host with multiple properties for a few years now in Austin. We've done our own version of dynamic pricing (manually), and the graph highlighting Austin in the article is spot on. The "Pricing Tips" tool has a long way to go, but its relatively close (within 20-30 percent). It still hasn't caught some of the big events, mostly because it only looks forward 3 months, and for popular events like SXSW, we usually book 4-5 months out at very high prices. That said, big props to ABNB for trying this and putting it out there. Hopefully their algorithm takes into account what humans are actually doing with their own pricing, and using that in it's calculations.

EC1 11y ago

I can't stand AirBNB. Prices are ludicrously high. I feel like prices are higher just because it's a nicer cuter interface than Craigslist. Obviously I can't prove this. Also wish I could filter by monthly for everything not map a certain daily range to a monthly range in my head.

tdfw 11y ago
I feel Airbnb offers a value-added service and, in my personal experience, that has justified the extra price. Also keep in mind that the spirit of Airbnb was short-term vacation rentals; not long-term tenancies. With Airbnb I can evaluate the host's social "credit" to some degree (have they connected with LinkedIn? What references have they provided?) and transparent straight-up reviews from past guests. Having Airbnb act as an arbitrator when things go wrong is priceless.

Lucadg 11y ago

I found that the Airbnb Price Tips feature works pretty well in mature markets but not in new locations. In some apartments we manage in Kenya for instance, there are two apartments which are exactly the same. One has no reviews and the suggested price is around 48 €. The other one has 3 reviews with 4.5/5 ratings and the suggestion is 30 €. So, it's good to look at but you always need to see if it makes sense to you. Anyway, amazing job, they left the competition 10 years behind.

throw42 11y ago

This is the difference between airbnb and google. Google would have Hal Varian look at this. Airbnb has a music major re-invent the wheel (not sure if the managed to re-invent the whole thing). There is a whole field of study called pricing mechanisms. For example, second price auctions work well because of a reason.

lqdc13 11y ago
Why attack Airbnb for trying out a new approach? Also, Google is not that great at some things they do. For example, Google is somehow much worse at navigation than Waze even though they were at it for much longer and had tons of data. Now they even have Waze data and are still worse at it than Waze.
- dajohnson89 11y ago
  Is it just me, or is google maps even worse than Apple maps at this point?
  - nnd 11y ago
    I think Google maps has some top-notch turn-by-turn navigations. One thing I particularly like is how detailed the voiceover is, i.e. recommends you a lane to stay in, etc This is one thing i wish Waze would be better at, because overall it seems like it's able to find faster routes than Google, although sometimes I wonder if it's only perceived, due to the way they gasify it. Apple maps are absolutely horrible in turn-by-turn. Either I'm driving too fast, or the turn announcement is way too close.
Dowwie 11y ago
so what you are saying is that someone with a creative background also managed to do non-trivial data science work that affects more than a million decisions made? I admire that, a lot, actually.

chvid 11y ago

Would this not get AirBNB into trouble? Price fixing in a cartel is illegal anywhere in the western world for good reason.

adevine 11y ago
The practice described in the article has nothing to do with price fixing.
pki 11y ago
This is not price fixing or anywhere even slightly related
- jsprogrammer 11y ago
  AirBNB is colluding with its contractors to influence and set similar prices across competing room vendors. How is that not exactly price fixing?
  - breischl 11y ago
    For one, because AirBnB has multiple competitors. HomeAway is the closest thing, but traditional BnBs and hotels are playing in largely the same space. For two, they're not actually setting the prices, the property owners are doing that. They're recommending prices, which is very different. Feels kinda weird to be defending AirBnB, since I work for Homeaway. ETA: Probably the closest analogy would be the infamous Manufacturer Suggested Retail Price, which is quite legal as long as they don't actually force the retailers to stick to it.
  - jlarocco 11y ago
    Price fixing is when competitors agree to set prices. If AirBnb and Hilton and Marriott started agreeing on prices, then it would be price fixing. This isn't price fixing because companies aren't considered their own competitors. It might be a little fuzzy if the people posting rooms on AirBnb are considered competitors, but even then it's not price fixing because there's no requirement to use the algorithm's suggested price, and no single owner can influence the general price of rooms, because there's still hotels, motels, non-AirBnb rooms, etc.

lighthawk 11y ago

Completely solving the problem of pricing in term of getting it right the first time is more difficult than predicting the weather. At least with the weather you can go outside and learn if it is raining. You can't just go outside look at an item and give it an optimal price that maximizes the amount and/or the amount of time you need to sell it within. I work at a company that has pricing algorithms more complex than what retail stores use. I don't think they are useless. But, we all know they aren't "right", and they only got to be what they are through testing them out with actual customers. And some customers work to determine your algorithm and then use it to their advantage in a big way so you have to change it again, which affects other customers negatively, and the cycle continues. You can't just A/B test pricing and assume that will work in a hands-off fashion either, because customers will take advantage of that. The complexity of pricing is that the best pricing only partly has to do with the thing being sold. You could argue it has nothing to do with the thing being sold. It has everything to do with the buyer: their needs, their resources, and their perception of the product, service, seller, the entire sales experience, market, economy, weather, etc. You name it and it probably has some affect on what the best price would be.

visarga 11y ago
It would be a shame if AirBnb would price gauge based on profiling customers. I don't like, when I enter a shop, to be asked my nationality before they quote me a price.
- deleted 11y ago
  [deleted]
- antoinec 11y ago
  This is already happening (depending of the country, your skin color might also make the price go higher), tourists typically pay more for a lot of stuff than what a local would pay. Though, sellers are usually a bit more subtle than "Hey, give me your passport, so I can tell you how much it costs". This is how a lot of people make a living in a lot of places. In the tourism industry, I think it's completely understandable and reasonable to base a price based on what the buyer is willing to pay, more than what it really costs.

visarga 11y ago

> We selected a machine-learning model called a classifier. Almost all machine learning tools are classifiers of some sort. It's like saying: we selected a car technology called "wheel".

joshu 11y ago
I think you have an overly narrow view of machine learning or a very broad view of what classifications are.

nnd 11y ago

I still don't understand how's staying at an airbnb rental is more compelling than staying at a hotel. From my experience, Airbnb has only a single upside: you get to stay at someone else's place, which has a quite different vibe from a hotel. One the flip-side, compared to a hotel, the prices are considerably higher, you have to negotiate with a host on checkin time (most of the times), and overall you don't have any guarantees on the quality of your rental the same way you have with a hotel chain. Correct me if I'm wrong, but Airbnb has not loyalty/rewards program available either, which could be quite beneficial for frequent travelers. The whole "local experience" seems to be a mere marketing fluff. The Airbnb experience doesn't seem to imply much interaction with the host, the same way which it's predecessor Couchsurfing did. Once you checked into you Airbnb rental, you are on your own, the same way as if you stayed at a hotel, but with even less hand-holding. Hotels at least provide a (poor) local recommendation service. I'm wondering what a typical customer of Airbnb looks like.

virusduck 11y ago
It's kind of fun to stay in somebody else's place. I do think there's something to be said for that. And, it IS frequently cheaper than a hotel. Many times, depending on where you're staying, it could also be more convenient. It's a B(nB) for the masses, and I don't really mind that. There of course is still room for the hotel industry, and I don't really think this is making a dent in their business. It's just different, and that's ok.
- nnd 11y ago
  Outside of US it seems that the main customers of Airbnb rentals are Americans, and therefore often you see a price tag a few times higher than a price of a hotel in the area. I've never seen an Airbnb cheaper than a hotel. If you want a local price, you got to use local websites, or simply ask around or walk in a hotel/bnb. Nothing beats an offline price negotiation with a hotel manager, especially for long-term stays. Out of curiosity, where did you find those cheap and convenient airbnbs?
  - cirenehc 11y ago