EB: 1M: il w HARVARD BUSINESS SCHOOL 9-912-019 REV: MARCH 28, 2012 BENJAMIN EDELMAN MICHAEL LUCA Airbnb (A) In just four years, Airbnb had become a premier online marketplace where home owners and wouldibe bediandibreakfast owners could turn vacant rooms into nightly rentals. Potential guests could simply log on and search for available rooms, transforming any house into a possible hotel. By July 2011, Airbnb was valued at $1 billion and had rented over 2 million rooms since operations began in 2007. Airbnb created an online reservation system to facilitate transactions, which included a reputation system to build trust and reliability among market participants. In particular, a longstanding review system let renters read about hosts before submitting a reservation request. Similarly, hosts could read about renters before accepting. Most of the resulting reservations proceeded without incident, and in 2011, Airbnb was seeking roughly $100 million in a second round of venture capital.1 But in June 2011, a surge of criticism 11 1 I I A'1 11 I 1 11 .I a I I - 1 .I