How to Lose Funds and Infuriate Users: Couchsurfing, a Cautionary Tale From the "Sharing Economy"
BY Sam Roudman | Thursday, November 7 2013
Couchsurfing is a global travel network founded in 2004. It claims six million adventurous travelers and hospitable hosts, together envisioning “a world made better by travel and travel made richer by connection.” But on October 10, the company cut that connection with 40 percent of its staff, and its CEO Tony Espinoza, who just took over the company 18 months ago, announced he was stepping down. Adding to its trouble, according to TechCrunch, is the fact that the company, which has raised over $22 million since becoming a for-profit more than two years ago, is burning through $800,000 a month.
For many of the site’s most fervent users, the cuts must come as no surprise. They’re just the latest confirmation of concerns they had as the first round of funding rolled in. In the last two years Couchsurfing booted its founders, released a series of dud products, and managed to alienate many of the users who brought it to prominence in the first place (a company founder doesn’t earn his own downfall meme video without seriously hurting someone’s feelings). But according to many of those knowledgeable about Couchsurfing, the site’s decline was anything but inevitable. So how is it that a platform that was so successful as a non-profit, a once freewheeling forerunner of today’s sharing economy, has fallen flat with $22 million?
From 2004 through most of 2011 Couchsurfing operated as a nonprofit, under the guidance of founder and guru Casey Fenton, who along with other Couchsurfing founders, investors, and both current and former staff, would not speak to me directly or did not return my requests for comment for this article. It was a volunteer-supported phenomenon, with users helping with everything from coding the site to acting as “ambassadors,” official (but uncompensated) representatives who set up events, fixed problems, and fostered the Couchsurfing community in different cities. Eventually the site built up its own ideology, what one user described to me as the “Couchsurfing spirit,” focused on hospitality, openness, and intercultural exchange. If you’re going to stay in a stranger’s house in a foreign country for free, or let strangers from a foreign country stay in your house for free, it’s good to know that there’s some common ground.
There is “a feeling amongst the user community,” says Joe Edelman, a global ambassador and former Couchsurfing tech lead, who I spoke with in the weeks leading up to the recent cuts, “that Couchsurfing is just this beautiful light in the world.”
Its slogan was "Change the world one couch at a time," after all.
“Back then the whole network, everyone heard about it through word of mouth,” says Nithin Coca, a freelance writer who started using the site in 2006 to travel through Asia, Europe, and the US. Coca describes his experience of Couchsuring as a sort of traveller’s Eden. “It seems too good to be true, but there was a community of people who were genuinely caring and genuinely wanted to help other people.” Over four years Coca used Couchsurfing to travel without hearing a single complaint from any of his fellow Couchsurfing travelers or hosts. Jim Stone, Couchsurfing’s director of operations from 2007 to 2012, surfed the world for over three and a half years along with his trusty red blow up couch, “Lucy.”
The early days of the Couchsurfing spirit are best captured in a video which documents the response to the site's crashing in 2006. It shows a gender balanced bunch of 20-somethings, a baby-faced Fenton among them, working through the tears and for days and nights on end in a Montreal apartment.
“Everything was gone, and Casey’s like ‘Ok, Couchsurfing is done,’’” says Lilia Villa, an engineer who started using the site in 2007 and was a Couchsurfing ambassador in San Diego, “and all these volunteers all over the world basically rebuilt the site for him.” According to Villa and other users, there was a clear understanding that the site would remain a nonprofit.
The long nights of sipping beers and coding as a happy band of idealists would not last forever. Couchsurfing filed as a nonprofit in New Hampshire in 2003, but in order to stay a nonprofit, the company had to apply to become a 501c(3) charity organization with the IRS. In March of 2011 the IRS denied Couchsurfing's application. “You state that your purpose of promoting cultural exchange is accomplished when your website users travel to meet other members,” says the ruling. “However members are never under any obligation to host or to travel to global destinations.” The IRS could not wrap its head around the idea of a network as a nonprofit since a network on its own couldn’t guarantee the charitable activity of its users.
As a result Fenton and the board decided that Couchsurfing needed to become a for-profit to keep operating. The decision was made to turn Couchsurfing into a B Corporation, which would ensure that the company balanced its social values with its newfound profit motive. Appropriately, Fenton went on a twelve city tour to explain the move. In a blog post Fenton sent me that no longer appears on the Couchsurfing site, he explained what the new Couchsurfing meant:
“It means that we will be as efficient as any other business while still meeting the needs of our community, and meeting our vision and mission. Becoming a B Corp doesn’t mean that we will be focused on profits. Instead, we will be accountable to all the people who have a stake in Couchsurfing: the staff, the investors and our members.”
It sounded like a win-win-win. The staff would get the funding they needed to make a better, more efficient website, which would in turn benefit the users. The investors--which included philanthropic investment arm of the Omidyar Network, and Benchmark Capital, where Couchsurfing co-founder Dan Hoffer had worked as an entrepreneur in residence--well, they would certainly be on board, and constrained by the B Corp certification to keep the company on a track benefiting the Couchsurfing community.
But to some it sounded like cashing in on an entity to which Fenton could not properly lay claim.
“It was something that was crowdsourced by engineers from all over the world,” says Villa to techPresident, “the code that was sold was not his to sell in a way.”
Villa is part of a cadre of users who question the legitimacy and the motives of Couchsurfing’s transition to becoming for-profit. Amongst other problems, they claim that Fenton made the transition without properly giving a chance to the community to weigh in. “All of that is really shady and disgusting,” says Villa. It is also worth noting that some gripes about mismanagement and centralized control of the organization by Fenton predate the transition.
One Couchsurfer (one of a number who spoke to me on the condition they not be identified) actually thought the investment might bring improvements. Her thinking was “at least this is going to get professional management in and these amateurs that founded it are going to be out.”
A post on the travel network guide Couchwiki concludes the following about Couchsurfing’s conversion to for-profit: “There are serious issues with the dishonest way in which CS, against repeated assurances that this could and would never happen, has been secretly privatized for the personal enrichment of a few when other alternatives existed.” A number of users have dug into tax and legal documents relating to Couchsurfing’s incorporation in order to sniff out malfeasance. No crimes have been uncovered, or charges filed, but the feelings are still raw.
“I worked for Couchsurfing because I liked it, but it still stings,” says Edelman with a laugh, “we worked for a nonprofit so we didn’t have shares.” Still, Edelman remains close with Fenton and other members of the leadership.
Edelman thinks some of the anger directed at management was an inevitable product of being a project dependent on user contributions. Edelman say Couchsurfing, like Wikipedia or Linux, has a minority of users “that are like zealots, and they’re not interested in the business reasons for anything.”
He adds that after seven years as a nonprofit built largely by volunteers, there was no easy way to go back and figure out who deserved what, not to mention doing so wouldn’t make much business sense. In any case, the new for-profit Couchsurfing had more immediate challenges to confront.
“Couchsurfing was kind of running out of money,” says Edelman, “and also wanted to compete with Airbnb,” the global apartment renting network founded in 2008. Airbnb was and is expanding rapidly, using a for-profit model which takes a percentage of each exchange between renter and host.
The chance to cash-in combined with dwindling funds led to a scenario in which
“the investment was rushed,” according to Edelman. When it came to raising funds, he adds “Casey and the other guys on the board…they didn’t really know what they were doing.” The first round of funding was $7.6 million, from Omidyar Network and Benchmark Capital.
Couchfunding vs Crowdsourcing
Venture funding is not charity, and the more a company takes, the more strings are attached.
“Whether you’re doing a sharing economy startup or an anything startup, once you have venture money in they are a controlling interest,” says Robin Chase, the founder and former CEO of Zipcar.
By spring, 2012, conflicts about the direction of the new for-profit, in part around the extent to which the Couchsurfing community would have to be altered in order for the site to make money, led Dan Hoffer, one of the site’s co-founders and its CEO, to step down from that role to be replaced by Tony Espinoza. Two months later, in June of 2012, on the Couchsurfing blog, Fenton announced that he and Hoffer were “stepping back from the day-to-day tasks involved in operating the company.” Within months the company would bring in another $15 million in funding. It wouldn’t matter.
“When Casey and Tim got kicked out,” says Edelman, “the site just started a decline.”
The New Yorker published a story about Couchsurfing right before Hoffer and Fenton ceased their day-to-day involvement. In the piece reporter Patricia Marx details stays in places as far flung as Iowa City and Bermuda. But when it comes to describing internal dissent, she’s dismissive of Couchsurfing’s anti-investment contingent, saying “Certain diehards simply do not like doing business with the Man, or even doing business.” But the problems that emerged with Couchsurfing, both with technical features and community management, amount to more than a vaguely anti-capitalist lament.
A number of the site’s problems are detailed in this online petition, from December of 2012, that surfaced when Couchsurfing decided to get rid of its old city groups. These had been longtime hubs for Couchsurfing communities, which the petition says were “something like a travel and activity wikipedia of each city.” They were replaced with what are called Place Pages. The city groups contained forums for a variety of interest and activity groups, things like cooking or photography. In effect, they were “old school message boards,” says Villa, but they worked. They were the locus of much of the activity that made Couchsurfing not just a site to find a place to crash, but a community, a portal into a network of diverse interests.
The petition accuses Couchsurfing of "completely butchering the community aspect of what was once the very core of this network." 3,918 people signed on.
The move apparently demolished perfectly functioning communities in order to establish new, better designed, and more monetizable communities. “People were completely lost,” says a user I spoke to. Communities that had developed over years evaporated. Groups built according to political sensitivities, like in Israel and Palestine, were awkwardly smashed together. Old threads on the group pages were rendered inaccessible, and the new "Place Pages" divulged user pictures and names regardless of their security setting.
The Couchsurfing mobile app, launched in June of 2012, and on which the company’s future in large part depends, has received decidedly mixed reviews. While their app for iPhone has four stars, the Android version has more one star reviews than five star reviews, with one of its top comments calling it “Useless.” The Airbnb app has higher ratings than Couchsurfing for both its Apple and Android versions.
Users also complain that the rush to bring in new couchsurfers has resulted in the site being flooded with spam. Worse yet, new actually-human, non-bot community members are being shepherded in without any understanding of the site’s ethos. According to Villa, a number of new members think the site is just for a “free room, a free place to stay.” She says the rush to add users “changed the dynamics of the community.” The drive to grow faster, which everyone I spoke with pins on outside investment, led the site to make changes that badly damaged community trust.
Another effect of the rush is the growth of an unhealthy gender disparity in the Couchsurfing user base. “A lot of women don’t feel as safe with it anymore,” says Coca. In a blog post last March, he described going to a Couchsurfing Meetup in New York populated by “a group of nearly two dozen guys, all American, and a single girl, surrounded by guys. No one came up to welcome us, and the atmosphere felt stifling.” He says when couchsurfing women come to a new city, they are often bombarded with messages from men, not all of which are particularly wholesome. Certainly, amongst a global community of free spirited young people a certain amount of bedsharing is a guarantee. But users claim the current situation is contrary to the site's ethos.
Problems at the new Couchsurfing were not lost on the broader tech community either. Robin Chase remembers seeing an August, 2012 post from lead engineer Andrew Geweke, in which he apologized for the sloppiness of the site and promised improvement. It had the effect of saying “What you did before totally sucked, and we’re telling everyone,” says Chase. A basic rule of management is don’t throw your team under the bus, but the email seemed to be doing just that. “When I saw that I sat up and I said 'what the heck is going on at Couchsurfing?'”
But did Couchsurfing have to go sour? Was it the outside investment? In a recent blog post, Tom Slee wrote, “Venture capital demands for scale will produce changes in the nature of the sharing economy sites, changes that erode any community focus they have, and which turn them into far more traditional models.”
This seems to describe the case of Couchsurfing to the letter. “I do think that the venture capital side of the sharing economy is really trying to have its cake and eat it too,” Slee said in a follow-up interview with techPresident. “It wants to say we’re a non-commercial sharing community, but we’re gonna be the next Mark Zuckerberg, the next Facebook on top of it, and you really can’t have those two things at the same time.”
Some idealistically-driven projects have demurred from raising venture funds or putting in ads. “Wikipedia is a tremendously valuable thing, but [Jimmy Wales] is not sure it would have worked as anything else besides a donation based nonprofit,” says Joe Edelman, Couchsurfing's former tech lead. He has spoken with Wales on the topic. “The contributions are such a key part of what makes Wikipedia work…and ads or a for-profit setup would hurt that.”
On the other hand, there are also examples of sharing economy for-profits that have succeeded with the help of venture funding, like Etsy, which maintains strong communities or artisans, or local community organizing network Meetup.
“Scale has nothing to do with how a community feels, and how you treat them, and give them power or include them,” says Robin Chase. “It’s not inherent in the for-profit model to not give the community voice.” She sees Couchsurfing’s decline as a product of cash needy founders without the leverage to ensure the funding didn’t alter their vision. “I don’t think what happened at Couchsurfing is particular to the sharing economy,” she says.
But what bothers Couchsurfing members is the fact that the site’s decline didn’t have to happen. “I do think there can be a happy prosperous Couchsurfing with millions of members,” says Coca, hopefully, “I don’t think that’s impossible.”