Tansler: A Reverse Auction Airbnb
Over the past few years, Airbnb has risen in prominence as the go-to short-term rental service of this decade. It operates on a standard buyer-seller business model, where rentals have fixed prices and buyers simply book them online with no negotiation. However, the home-sharing marketplace could have looked very different had a company named Tansler gained traction and success.
Tansler was a former competitor to Airbnb and tried to enter the profitable short-term rental industry back in 2013. As the article discusses, it operated on a reverse auction business model where travellers can “bid” a set price to several homeowners, who in turn offer their own asking bids and compete with each other to win the traveller’s business. The first homeowner to accept the traveller’s bid wins the auction. If there’s no agreement between a lister and a homeowner, then the homeowner can let the listing expire and no deal will go through. The founder insisted that this model developed a sense of competition as homeowners wouldn’t want to lose a booking to other homeowners who accepted first. As the article mentions, “the multiple-bid structure injects some urgency as owners will want to commit before getting pipped by a neighbor for the same prospective guest”. We can model Tansler’s business model as a first-price reverse auction, in which homeowners compete against each other for a prospective guest and the homeowner with the lowest price will win.
In order to maximize profit, the homeowners should consider their dominant strategies when determining their asking prices. At its core, homeowners have an inherent cost to their property that may arise from rent and maintenance. Intuitively, they’ll prefer prices that offset this maintenance cost and maximize their payoff. If the homeowners bid this maintenance cost, then they will receive a payoff of 0 if they win or lose the bid. If they bid below the maintenance cost, then they will lose money because the traveller’s payment wouldn’t be enough to cover the inherent costs. Therefore, the dominant strategy is to set the asking price slightly higher than the homeowner’s true value. This will allow the homeowner to obtain a positive payoff if they win the bid. This strategy is draws similarities to the dominant strategy in a first-price forward auction, which closely resembles a reverse auction.
If Tansler had built its business model as a second-price reverse auction, then the dominant strategy for homeowners would be different. In this case, homeowners would want to bid their true value, since they would be paid the second-lowest bid and thus gain a positive payoff. Therefore, their bid doesn’t determine their payoff, but only if they win or lose, so the homeowners shouldn’t deviate from their true value.
The emergence of Tansler also sheds light to the network of short-term rental companies in the home-sharing marketplace. Tansler had a business model that relied on an active network of homeowners who would diligently engage in an auction with travellers, and this may have proved too burdensome for users. In addition to that, Tansler competed alongside giants, such as Airbnb and HomeAway–both of which have valuations at around $2.5 billion when the article was written. Airbnb was more prominent and likely attracted both more homeowners and travellers. This gives homeowners on Airbnb more traffic, thus overshadowing those on Tansler.
At the time, investors weren’t sure how Tansler would influence the home-sharing marketplace, however, we’ve since seen that it has since failed to maintain a strong foothold in the industry and has faded away from the spotlight. Although Tansler didn’t become successful, the notion to integrate an auction system with the rental process introduced an interesting perspective to the industry.