The Business Model of Couchsurfing.org by Gerhard Pilz

Social Media & Consumer Driven Marketing Prof. Anandakuttan B. Unnithan

The Business Model of Couchsurfing.org Gerhard Pilz â&#x20AC;&#x201C; IE 14/06

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

Table of Contents

1 Introduction to Social Media ........................................................................................ 4 2 Couchsurfing.org .......................................................................................................... 4 2.1 The Concept of Couchsurfing .............................................................................................................................. 5 2.2 Couchsurfing Worldwide ..................................................................................................................................... 6 2.3 Couchsurfing is Free ............................................................................................................................................... 6

3 Business Model ............................................................................................................ 6 3.1 Income from Donations ........................................................................................................................................ 7 3.2 Income from Verification ..................................................................................................................................... 7 3.3 Other Income ............................................................................................................................................................. 8 3.4 Income from Surfing – the Impossibility ....................................................................................................... 8 3.5 B Corporation ............................................................................................................................................................ 8

4 Conclusion & Outlook ................................................................................................... 9 Resources ........................................................................................................................ 10

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

List of Figures Figure 1: Facebook Users by Age as of March 2011 .............................................................................................. 4 Figure 2: Couchsurfer Map ......................................................................................................................................... 5 Figure 3: Main Characteristics of a B Corporation ................................................................................................. 9

List of Tables Table 1: Facts & Figures about Couchsurfing.org .................................................................................................. 5 Table 2: Revenue Structure of Couchsurfing.org in 2009...................................................................................... 7

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

Introduction to Social Media

Social media platforms and social networking sites resound throughout the land. Since the foundation and upsurge of Myspace, Twitter & Facebook, there seems to be no possibility of getting around these sites. In the case of Facebook today it even seems odd not to have an account, and the user base extends far beyond the age groups that used to be in online social networks before, i.e. teenagers and people in their early twenties. In fact, when looked at the age structure of Facebook users, the majority now is age 26 or above, and one out of eight users is 45 or older, irrespective of gender (see Figure 1).

Figure 1: Facebook Users by Age as of March 2011 Source: http://www.kenburbary.com/2011/03/facebook-demographics-revisited-2011-statistics-2/

While the average user of Facebook has 130 friends (Facebook 2011), a very recent study by Matthew Brashears from Cornell University found, that between 1985 and 2010 the number of truly close friends has decreased from about 3 to an average 2 (Yahoo News 2011). While there has been extensive study on the issue of online friends and communities (Cole & Griffiths 2007, Nardi & Harris 2006, Wolak et al. 2003) the question remains if and how connections from online social networks are transferred to an offline, personal encounter with other persons. One such way is provided by the social platform Couchsurfing.org, which connects people worldwide who share a passion for travelling and meeting other people.

Couchsurfing.org

The concept of Couchsurfing.org originates with Casey Fenton back in 1999 (Couchsurfing.org 20111), while the website and portal itself went online in 2004. Since then the user base has grown to more than 3.4 million users (as of 10th November 2011) who come from literally all over the world (see Figure 2 on top of next page). The majority of Couchsurfers can be found in Europe (51.5 %), followed by North America (26.3 %). South America (6.4 %) and Central- and South-East Asia (together 8.3 %) are catching up in this respect.

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

Figure 2: Couchsurfer Map Source: http://www.couchsurfing.org/couchsurfer_map

To get a better idea about Couchsurfing the most important facts & figures are summed up in the following table (all data retrieved from www.couchsurfing.org/statistics.html on November 15, 2011): Criteria

Fact/Figure

Total number of Couchsurfers

3,450,924

Top 3 Couchsurfing Nations

United States (729,473), Germany (324,779), France (293,449)

Top 3 Couchsurfing Cities

New York (64,332), Paris (59,821), , London (50,331) with a total of 84,119 unique cities represented

Is Couchsurfing Male/Female?

Male (50.5 %), Female (42.7 %), Several People (6.4 %)

Average Age

Most Spoken Languages

English (72 %), French (18.7 %), Spanish (17.2 %) with a total of 361 unique languages represented Table 1: Facts & Figures about Couchsurfing.org

2.1 The Concept of Couchsurfing The vision behind Couchsurfing.org is “a world where everyone can explore and create meaningful connections with the people and places they encounter.” (Vision Statement Couchsurfing.org; Couchsurfing.org 20112). This statement is supported by the mission statement to “create inspiring experiences”, which means that the goal of Couchsurfing is to connect people and places worldwide to better understand cultural diversity and create a global community (Couchsurfing.org 20113).

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

The basic concept Fenton came up with in 1999 was an online platform where on the one hand people could offer their couch (couch basically refers to any kind of sleeping surface here) for overnight stays and on the other hand could search for a place to stay. The idea came to Fenton when he had booked a cheap flight to Iceland and sent e-mails to 1,500 students in Reykjavík asking if he could sleep on their couch. After getting many replies of students telling to show him “their” Reykjavík and spending the weekend in Iceland he decided to ask 3 of his friends (Daniel Hoffer, Sebastian LeTuan, and Leonardo Silveira) to cofound Couchsurfing (Sunderland 2009).

2.2 Couchsurfing Worldwide As can be seen from Figure 2 on the prior page, Couchsurfers now are spread all over the world, offering places to stay in metropolitan areas like New York, and areas as remote as the Antarctica. The internationality of Couchsurfing was important from the very beginning and can be interpreted as a main reason why many volunteers worked on the improvement of the site from the beginning. Two more facets that internationality brings along and are important concerning Couchsurfing are variety in terms of culture and legal systems. While cultural variety by Couchsurfing is seen as one of the main benefits (Couchsurfing.org 20112) of the platform it also accommodates the risk of cultural misunderstandings and the highly dependable variable of motivation for being a user of the platform. Variety in terms of legal systems plays an important role when it finally comes to people surfing at another Couchsurfers place – e.g. thinking of prosecution when a crime happens. This issue for example requires Couchsurfing.org to store all messages sent through the platform.

2.3 Couchsurfing is Free One of the prime characteristics of Couchsurfing is that the Couchsurfing host is not allowed to charge money from the person who is surfing. However, the person surfing another place may bring a small gift or show an act of kindness such as cleaning the dishes (Couchsurfing.org 20114). Without having discussed the business model, this fact is a crucial point that has large influence on it. The service of Couchsurfing.org as a platform is and will always be for free (Couchsurfing.org 20114). Thus, the fact that Couchsurfers do not charge each other for hosting makes it impossible to create revenue from the original idea.

Business Model

When founded, Couchsurfing.org was a non-profit organisation solely dependent on the contributed support from its users through donations. This model has not changed since then with the majority of

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

revenue still coming from direct contributions. Table 2 below gives information about the income structure as of 2009. Income

In US$

In %

4000 • Revenue from direct contributions 4010 • Contributed support Donations including verifications 5300 • Revenue from Investments 5310 • Interest-Banking Bank related interest and short term investments 5400 • Earned Revenue – Other Any revenue earned from sources other than donations and interest 5411 • Non Inventory Sales Commission Merchandise Sales 5460 • Other Revenue Miscellaneous Income Total Income

1,162,287.69

99.45 %

2,008.54

0.17 %

1,711.16

0.15 %

2,635.06

0.23 %

1,168,642.45

100.00 %

Table 2: Revenue Structure of Couchsurfing.org in 2009 Source: http://www.couchsurfing.org/organization_finances_2009.html

3.1 Income from Donations As can be seen in Table 2 virtually all income comes from direct contributions that are either donations or revenues from verification. Running costs for maintaining servers and further development of the website have to a large part been covered by donations, similar to Wikipedia. Thus, Couchsurfing.org relied on the goodwill of its users and supporters.

3.2 Income from Verification The other main source of income comes from the verification process that Couchsurfing.org offers. This process is a quite simple background check of the users and involves 3 steps. First, Couchsurfing requires the user to save name and address with the user information. The next step is to confirm identity with a secure form of payment (credit card, bank transfer) of $ 25 (Wright 2008). After this step is successfully completed, Couchsurfing.org will send a postcard to the home address of the user. The postcard holds a verification code that is to be entered in the third and last step of the verification process. When users get verified a logo will indicate this status on their profile. On the one hand this is one way in which Couchsurfing.org creates income, on the other hand it is done for safety reasons, as the verification makes sure that the user really is the person s/he indicates to be. As of November 15, 2011 the number of verified Couchsurfers is 279,536, which corresponds to 8.1 % of the user base.

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

3.3 Other Income Other income concerning Couchsurfing.org at the moment is virtually inexistent (see Table 2). Although the income from merchandise is believed to have risen in 2010 there is no disclosure by Couchsurfing.org supporting this assumption.

3.4 Income from Surfing – the Impossibility As mentioned earlier, Couchsurfing.org offers the services of its platform for free and urges its users not to ask for money when they are hosting another Couchsurfer. Else, a user doing so will be banned from the platform. This basic principle has an extensive impact on the business model of Couchsurfing.org. If kept in perspective travelling platforms like Expedia do nothing different from the service that Couchsurfing offers – they connect the host with the guest (i.e. the surfer). The only difference is that the host in this case charges money for his offer. Thus, by the core idea of forcing people not to charge for their offer, Couchsurfing.org foregoes the opportunity to create revenues from commission.

3.5 B Corporation In August 2011, Couchsurfing.org announced to change its business structure from that of a non-profit organization to that of a so-called B corporation. “Certified B Corporations are a new type of corporation which uses the power of business to solve social and environmental problems.” (B Corporation 2011). According to a letter of Fenton to the Couchsurfing community this step was taken mainly because Couchsurfing needed a new structure to cater to all the various needs arising around the platform. The B Corporation format was chosen to fulfill the structural needs of the growing network. An earlier attempt for certification of Couchsurfing as a 501c(3) non-profit organization had failed with the US government , because hosting and surfing were not accepted as charitable activities (Fenton 2011). B Corporations get certified by the non-profit company B Lab, which addresses the following 2 problems: 1.

Current corporate law makes it difficult for businesses to take employee, community, and environmental interests into consideration when making decisions

The lack of transparent standards makes it difficult to tell the difference between a 'good company' and just good marketing

The main issue of a B Corporation is not profit-related such as with a non-profit organization but stands on 3 pillars, which are social and environmental performance standards, higher legal accountability standards, and building business constituency for good business (B Corporation 2011; see Figure 3).

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

B Corporation Meet comprehensive and transparent social and

Meet higher legal

Build business constituency

environmental performance

accountability standards;

for good business.

standards; Figure 3: Main Characteristics of a B Corporation Own depiction according to http://www.bcorporation.net/about

The structural change from a non-profit to a B Corporation made it possible for Couchsurfing to raise $ 7.6 m of funds with 2 venture capitalists, both who are thought to be socially responsible. This funding round enables organizational changes within Couchsurfing.org and the hiring of personnel for the proposed expansion by Hoffer (Lacy 2011).

Conclusion & Outlook

The platform Couchsurfing.org has seen the transformation from a non-profit organization that relied on its donors and the verification process as a second source of income, to a for-profit B Corporation that enabled the organization to raise funds for its further development. Although the cash injection will do good to Couchsurfing in terms of securing maintenance and accelerating the development of new features one question remains: Can a non-profit organization that was carried and developed by its users be turned in to a for-profit corporation without losing its community character and the contribution of users to development? This question can not be answered by now as too little time has passed since the changes were made. However, there is already protest against the change among the user base as they have contributed money and code to the website over several years (Johnson 2011). It will therefore be interesting to see how Couchsurfing further develops as a B Corporation and/or there will be spin-offs that will continue to follow the original idea with a nonprofit model.

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

Resources B Corporation 2011, B Corporation – What is a B Corp?, available ONLINE: http://www.bcorporation.net/about [accessed November 16, 2011] Cole, H. & Griffiths, M.D. 2007, Social Interactions in Massively Multiplayer Online Role-Playing Gamers, in: CyberPsychology & Behavior, Vol. 10, Issue 4, pp. 575-583. Couchsurfing.org 20111, Couchsurfing – Our People, available ONLINE: http://www.couchsurfing.org/our_people/Founders [accessed November 10, 2011] Couchsurfing.org 20112, Couchsurfing – Vision, available ONLINE: http://www.couchsurfing.org/about.html/vision [accessed November 15, 2011] Couchsurfing.org 20113, Couchsurfing – Mission, available ONLINE: http://www.couchsurfing.org/about.html/mission [accessed November 15, 2011] Couchsurfing.org 20114, Couchsurfing – CS Basics, available ONLINE: http://www.couchsurfing.org/about.html/faq [accessed November 15, 2011] Facebook 2011, Statistics, available ONLINE: https://www.facebook.com/press/info.php?statistics [accessed November 10, 2011] Fenton, C. 2011, Couchsurfing – A letter from co-founder Casey Fenton, available ONLINE: http://www.couchsurfing.org/news/article/145 [accessed November 16, 2011] Johnson, B. 2011, After going for-profit, Couchsurfing faces user revolt – Tech News and Analysis, available ONLINE: http://gigaom.com/2011/09/01/after-going-for-profit-couchsurfing-facesuser-revolt/ [accessed November 16, 2011] Lacy, S. 2011, CouchSurfing Raises $ 7.6 m; Will Users Cry “Sell Out”? | TechCrunch, available ONLINE: http://techcrunch.com/2011/08/24/couchsurfing-raises-7-6-m-will-users-cry-sell-out/ [accessed November 16, 2011] Nardi, B. & Harris, J. 2006, Strangers & Friends: Collaborative Play in World of Warcraft, available ONLINE: http://dl.acm.org/citation.cfm?id=1180898 [accessed November 10, 2011]

IIMK | SMCDM| The Business Model of Couchsurfing.org | Gerhard Pilz

Sunderland, P. 2009, CouchSurfing: Making a Global Connection | Delta County Independent, available ONLINE: http://www.deltacountyindependent.com/back-page/8312-couchsurfing-making-a-globalconnection.html [accessed November 15, 2011] Wolak, J., Mitchell, K.J. & Finkelhor, D. 2003, Escaping or Connecting? Characteristics of Youth who Form Close Online Relationships, in: Journal of Adolescence, Vol. 26, Issue 1, pp. 105-119. Wright, T. 2008, 10 Ways to Improve Your Couchsurfing Odds | Matador Network, available ONLINE: http://matadornetwork.com/notebook/10-ways-to-improve-your-couchsurfing-odds/ [accessed November 15, 2011] Yahoo News, 2011, More Facebook Friends, Fewer Real Ones, Says Cornell Study, available ONLINE: http://news.yahoo.com/more-facebook-friends-fewer-real-ones-says-cornell-154709141.html [accessed November 10, 2011]