Editor's note: Sometimes, just one key idea can transform an entire industry. And according to our colleague Whitney Tilson, one key feature of Airbnb's business helped it bring the hospitality industry into the world of tech. In this piece, Whitney explains the secret of Airbnb's success and what it means for investors today...

In 2007, thousands of designers were gathering for the Industrial Designers Society of America's annual conference...

Joe Gebbia and Brian Chesky had recently moved to San Francisco after graduating from the Rhode Island School of Design. They knew how popular the conference was – so much so that they suspected attendees would have trouble finding hotel rooms.

Sure enough, when they checked, they couldn't find any available hotel rooms in the city.

Sensing demand – and needing to raise money to pay their rent – they had an epiphany: What if they charged conference attendees to stay in their apartment?

Gebbia and Chesky bought a few airbeds and quickly built a website that allowed designers to book a place to sleep, plus breakfast, for just $80 per night.

It was an immediate hit...

The duo ended up hosting three professional designers – which helped cover their rent. And the overwhelming interest in the idea indicated they were onto something much bigger. Their company was about to transform the hospitality industry thanks to one key feature of its business model...

Gebbia and Chesky brought their friend Nathan Blecharczyk, a software engineer and recent Harvard University grad, into the fold as the third co-founder to spruce up their website.

After six months of hard work developing the idea and website, they launched their apartment-sharing business with high hopes at the enormous South by Southwest film festival and conference in Austin, Texas in March 2008.

It was a disaster... They only had two bookings, one of which was from Chesky.

Undeterred, the trio decided to try again at the Democratic National Convention in Denver that August. Business was better, but it wasn't enough to pay the bills.

Gebbia and Chesky then put their design skills to work and came up with specially branded cereals to profit from the excitement surrounding the 2008 election: Obama O's and Cap'n McCain's.

The political cereals, which they sold for $40 per box, weren't just a way to pay the youngsters' bills... They were also a brilliant marketing tactic.

And it was a massive success...

Not only did it net Gebbia, Chesky, and Blecharczyk $30,000 – but it also generated national press coverage for their fledgling business, later known as Airbnb (ABNB).

The Key to Airbnb's Success

The trio soon realized that they had stumbled onto one of the rarest, most powerful business dynamics in the world...

Airbnb was soon benefiting from what's known as a "flywheel."

Flywheels occur when each interaction between a customer and the business reinforces the customer's desire to return to the business, allowing it to grow naturally with each interaction. E-commerce giant Amazon's (AMZN) Prime service and its two-day delivery is a great example of this dynamic.

In Airbnb's case, as users enjoyed each stay, they were more likely to book again. And the more they did so, the more money hosts would make.

When hosts made more money, they would tell their friends about the new way they were making money, which would lead to more listings. And with more listings, more users signed up...

The success meant that Gebbia, Chesky, and Blecharczyk had been right all along.

Just two years later, Airbnb had booked more than 1 million nights. By the mid-2010s, the company became a global giant – disrupting the entire lodging industry and sporting a private market valuation of more than $25 billion.

Today, you can book an Airbnb in more than 220 countries and more than 150,000 cities and towns around the world...

Airbnb is now worth more than $80 billion. What the company's founders and its 7,300 employees have accomplished in about 17 years is nothing short of remarkable.

The key to Airbnb's rapid success is simple: Its business model allowed it to achieve hyperscalability. Airbnb's growth looks like a hockey stick on virtually every metric.

As more people signed up to book stays on the site – from 3 million in 2012 to 150 million by 2018 – more people began listing their apartments and houses for rent. Over the same period, Airbnb's listings grew from around 300,000 to 6 million. That's a 1,900% increase in just six years. Take a look...

That, in turn, sent revenues soaring (save for a one-time blip during the pandemic lockdowns)...

Airbnb is a textbook example of how technology can disrupt age-old industries, crowning brand-new winners and threatening to put "old fashioned" companies out of business.

And as an investor, those are the types of companies you should always be looking for.

Good investing,

Whitney Tilson

Editor's note: In a year that has seen the worst sell-off since 2020, Whitney says the "old world" stocks of the past decade could crash even further this year. That's because of the company behind a new AI "super chip" that's set to go mainstream soon. Now could be your chance to buy in at a historically low price – if you get positioned before June 2. Find out more here.