· 14 min read
It was supposed to be an all-inclusive moneymaker. A win-win. A tide to lift all hosts.
That was the idea behind Airbnb’s 2015 Smart Pricing algorithm, a way for hosts to increase bookings. By simply switching on the Smart Pricing tool, hosts could set a minimum nightly rate and let machine learning do the rest: analyze a listing's seasonality, booking history, reviews, lead time, market popularity, and viewership metrics to price it competitively. Though a host may get booked at a lower rate on a given night, Smart Pricing would increase their total bookings and make them more money overall.
Airbnb also created the Smart Pricing tool to address earnings disparities between white and Black hosts, according to Laura Rillos, a senior corporate and policy communications manager at Airbnb. But due to low adoption rates among Black hosts, Smart Pricing did the exact opposite. Between July 2015 and August 2017, Smart Pricing widened the earnings gap between Black and white Airbnb hosts in the US by 20%, according to a recent peer-reviewed study from Harvard, University of Toronto, and Carnegie Mellon researchers, forthcoming in the journal Marketing Science.
Although the Smart Pricing algorithm itself was not biased, its deployment still deepened the racial disparities that Airbnb says it was built, in part, to address. And despite its goal, Airbnb failed to even track whether the tool was helping or hurting Black hosts.
Airbnb told us that it now plans to look into the Smart Pricing issue. But for nearly a year, Airbnb has owned the tools to do the same kind of analysis the researchers did, if it had wanted to: Called Project Lighthouse, Airbnb’s anti-discrimination (AD) team developed it in partnership with civil rights organizations like Color of Change and Upturn, as well as with algorithmic auditing firm O’Neil Risk Consulting and Algorithmic Auditing (ORCAA).
Interviews with current Airbnb employees, academic researchers, and representatives at external organizations point to a company that prioritizes anti-discrimination in its talking points, but not in its spending. Airbnb has a well-respected anti-discrimination team, but sources say the company has failed to adequately fund it—even though Airbnb spends billions on marketing and product development and generated $3.4 billion in revenue last year. The anti-discrimination team has no Black members and just five full-time workers—compared to an average product team at Airbnb, which employees say has 10 to 15 members.
With its surprising lack of resources, an anti-discrimination team member who spoke on the condition of anonymity said the team can barely tackle the items on its to-do list, let alone proactively search for disparities like those presented by Smart Pricing.
“We’re very much in reactive mode right now—we have no bandwidth to think proactively,” the AD employee said. “To be clear, we absolutely could do the proactive work. We have an incredible team of pioneers in the space. ...If we had more people, we could do such amazing work, but we don’t. We’re barely above water. We’ve been treading water for years. We’re close to sinking. It’s exhausting.”
And each day that the anti-discrimination team must operate without adequate resources, marginalized communities pay the price. On an annual basis, the researchers estimate that the average Black host could have missed out on an additional $866 due to Smart Pricing. That translates to $5,196 over the six years since the tool was introduced—equivalent to over one-fifth of the median net worth for Black Americans, per the Brookings Institution.
“Airbnb is one of the few tech companies to have a team permanently dedicated to anti-discrimination work, and our commitment to supporting this team remains unwavering,” Rillos, the Airbnb spokesperson, told us in a statement.
Even with the right technical tools and know-how, it’s not currently feasible for Airbnb, or any company, to flag and root out every instance of discrimination on its platform. But when a feature’s goals include decreasing racial disparities—as Airbnb said was the case with Smart Pricing—it’s fair to expect a company to measure those disparities. And ultimately, an anti-discrimination team with more resources can identify more instances of discrimination.
So how did this issue slip through the cracks?
The Marketing Science paper’s original research question: Can an algorithm price a property better than the human who’s familiar with it?
While each host had local knowledge of their listing, Airbnb’s Smart Pricing tool had the data and processing power to pull together and analyze non-local information, like property demand and market popularity. “We did not start [the study] from the basic idea of, ‘Let’s see if there is a bias, what does it do?’” co-author Param Vir Singh said.
Once the researchers started analyzing third-party data on booking info, their original question expanded. They built a difference-in-difference model, common in economics, to track the revenue streams of the control group (those who didn’t adopt the Smart Pricing tool) compared to the treatment group (those who did). From there, they fed host profile photos into a deep learning model they had built to infer perceived race. Finally, they looked at a breakdown of how Smart Pricing revenue affected minority host groups.
For those who used Smart Pricing, the tool worked quite well. Average daily earnings increased, and the earnings gap between Black and white hosts decreased by 71%. But anyone who didn't opt into Smart Pricing was at a major disadvantage. And since Black hosts were 41% less likely than white hosts to adopt the tool, it wound up widening the earnings gap between the groups by 20%. Before Smart Pricing, white hosts earned $19.80 more per day than Black hosts. Afterward, they made $23.70 more.
Cathy O’Neil, founder and CEO of ORCAA, helped Airbnb develop the tech behind Project Lighthouse. When we told her about the Marketing Science study, she sounded surprised.
“So this was not something that Airbnb figured out, it's something that outsiders did?” O’Neil said. “All I can say is we gave them the tools to figure that out themselves. ...We developed a system so that they can infer race so that they could do research into questions like this, with privacy protections in place. It doesn't mean that they've done all those kinds of research projects. And so, evidently, they haven’t.”
Compared to other tech companies, civil rights experts said Airbnb has a strong track record on ethics, including hiding guest profile photos during the reservation process to combat discrimination.
"This company is doing more than any other company in Silicon Valley in terms of measuring disproportionate impact based on race," Laura Murphy, former director of the ACLU’s Washington Legislative Office and senior advisor to Airbnb since 2016, told us, adding that the company kept the AD team intact throughout executive leadership changes and broader company layoffs.
“Although there is still more work to be done, Airbnb has adequately worked to analyze the experiences of its Black users and has taken the necessary steps to address those findings,” Jade Magnus Ogunnaike, senior campaigns director at Color Of Change, told us. In general, she said many tech companies have put Black users at risk by failing to build “civil rights infrastructure” into the foundation of their businesses.
Those who worked on the first wave of Project Lighthouse said it was dedicated to addressing non-white guest acceptance rates. Proactive anti-discrimination work, including questions like the effect of Smart Pricing, likely didn’t make it into the priority list.
Even still, Aaron Rieke, managing director at Upturn, said that with Project Lighthouse, Airbnb ought to catch and address issues like what the researchers found.
Stay up to date on tech
Drones, automation, AI, and more. The technologies that will shape the future of business, all in one newsletter.
“This is emphatically the kind of situation this program is designed to detect and address, and so it sounds like Airbnb has some more work to do in making sure Project Lighthouse is really being focused on key areas of importance and actually being used,” Rieke said. “If academics without your internal resources and data are bringing these conclusions before you, rather than you detecting them independently, that’s not a good look for the program. I think that’s an indication that it’s probably time to reassess and ask what happened, and do better next time, whether that means reprioritizing, more funding, or both.”
Members of Airbnb’s own anti-discrimination team weren’t surprised that a study like the one from Marketing Science was announced.
“Every automated system probably has flaws if you actually look at it closely,” the AD employee said.
But searching out those flaws takes resources.
Airbnb says measuring discrimination on its platform is a priority, but the resources it has committed to the issue, and the lack of urgency with which it has been treated, suggest otherwise. If a fraction of Airbnb’s marketing or product development budgets were diverted to anti-discrimination efforts, sources say, it would allow its anti-discrimination team to proactively identify issues on the platform, like the earnings disparities caused by Smart Pricing.
Last year, Airbnb’s valuation more than doubled from its IPO to its Nasdaq debut, making it worth nearly $90 billion. Five of its top executives received an average compensation package of $38 million in 2020, mostly in stock and options.
Contrast that with the state of the anti-discrimination team. For the past 18 months, the members have been consistently asking for more resources but are put off at every turn, according to the AD employee.
“At a company worth tens of billions of dollars, this is artificial scarcity,” the AD employee said. “Clearly they could fund our team.”
Due to Covid-19, Airbnb did have a rocky 2020 in many ways—gross booking value was down 37% year over year, revenue fell about 30%, and the company laid off nearly one in four staff last May. But despite the difficult decisions, the company still spent $2 billion on product development during Q4 2020—compared to an average $238 million for the prior seven quarters—and $630 million on marketing in Q4 2020 alone.
“What’s reported on those S-1s and other earnings reports is ‘fiscal discipline.’ Fiscal discipline is code for people being laid off and also code for not funding things like Project Lighthouse,” says another current Airbnb employee, who spoke on condition of anonymity. “There’s a narrative of scarcity, essentially, here, but there’s no real why and how. ...That’s never fully explained.”
Compared to a typical product team, and given its purpose, employees both on and apart from the anti-discrimination team say it’s significantly understaffed. Instead of 10 to 15 people, the anti-discrimination team has just five full-time-dedicated members, including one product manager, one data scientist, and three engineers—as well as three part-time members, including an engineering manager, a user researcher, and a UX writer.
The team has lost five people since late 2019, including its civil rights lawyer, a full-time engineering manager, two engineers, and a design lead. Based on Glassdoor and Small Business Association data, scaling the anti-discrimination team up to 15 would cost around $3.8 million in total salary and employment costs—equivalent to just 0.32% of Airbnb’s 2020 marketing budget, and 0.14% of its product development budget.
For the most part, Airbnb hasn’t allocated hiring resources to offset the team’s losses. So far, only one of those five roles has been filled with a full-time team member.
“Although we paused hiring throughout the company during the pandemic, we resumed actively hiring for roles on the anti-discrimination team in January 2021, recently adding new members, and plan to continue to open new roles on the team this year," Rillos, the Airbnb spokesperson, said.
The AD employee recalls the team fighting hard to get the company to hire for a few roles in Q1 2021, rather than in Q2.
“Every single person on the team right now is burned out because we have so much responsibility on our shoulders and we don’t have the company support to actually do the work that we think is important,” the AD employee said. “There’s a real risk the work doesn’t live beyond the current team, just because I think people could leave, and that would result in an incredible amount of institutional knowledge leaving with them.”
Due to these staffing constraints, the anti-discrimination team has had to turn down other Airbnb product teams’ requests to audit platform features.
“[Project Lighthouse] was always designed to apply to all products and features in the company,” Murphy, a senior advisor to Airbnb, told us. “Now, the challenge is to make sure it has the resources for all parts of the company that enthusiastically want to research this.”
The disconnect between the company’s verbal and financial commitments hasn’t gone unnoticed by employees outside of the AD team. One spoke to us on the condition of anonymity.
“The team definitely got more attention during the Black Lives Matter uprisings of last year to launch Project Lighthouse,” the non-AD employee said. “I don’t know if they got the funding or attention to actually follow through with what Lighthouse wanted to do, which was measure and solve that experience gap on a racial basis. ...There 100% was an almost ‘kicking into high gear’ during that, in order to make a statement. ...People were overworked.”
The non-AD employee also recalls the internal, company-wide email CEO and cofounder Brian Chesky sent upon Project Lighthouse’s launch, which outlined Airbnb’s commitment to BLM and to sharing Project Lighthouse’s findings with the tech industry at large.
“There was a lot of fanfare,” the non-AD employee said. “I have not seen a significant shift in measuring racial disparities on the platform, and I do know that discrimination gets attention every time something big happens, [but] not in the day-to-day, as with most tech companies.”
“It is a hard team to be on—both from what you're asked to do and how much funding you don't receive for it,” the employee added.
The state of affairs at Airbnb—a platform that civil rights organizations said is at the forefront of ethics initiatives compared to other tech companies—is telling about the way the tech industry as a whole prioritizes ethical concerns and anti-bias work.
“I equate the work...the anti-discrimination team is doing, with the work of Google’s ethics team, with Timnit Gebru and various really highly respected folks in artificial intelligence that are putting out good work, but whether that work is absorbed, prioritized, and acted upon by the actual corporate office is a different story,” the non-AD employee said, referencing months of controversy surrounding Google’s treatment of AI ethics researchers.
That’s why experts like Ogunnaike say ethics work can’t be left up to corporations and line-item budgets alone—there must be external accountability, too, in the form of independent audits, regulation, and an empowered Federal Trade Commission.
Until then, Airbnb employees say, it’s up to them to make sure the company keeps its anti-discrimination promises.
“There really isn’t any way for someone to hold a company like Airbnb accountable,” the non-AD employee said. “Ultimately, what I've seen is most important—and what is...most powerful—is when people inside the company, from their own personal experience, are advocating for the product, the platform, and the business that they have built together being used...in an ethical way.”
Stay up to date on tech
Drones, automation, AI, and more. The technologies that will shape the future of business, all in one newsletter.