Monthly Archive for August, 2011

This is where I say: told you so. I envy the person that will eventually write the history of how Couchsurfing came crashing down, for the story is filled with betrayal, success, horror, sex, drugs and money. No, seriously, “Social Network” is a Disney movie compared to the R-rated chronicles of Couchsurfing.

For those just tuning in, where are we in the scenario? We’ve seen a community founded on lofty ideals, grow, nay burst with activity and numbers, we’ve seen hubris take the form of work-as-permanent-vacation, we’ve seen scandals of every sort imaginable, we’ve seen the falling out of all the idealistic volunteers and – not so long ago – the original founder has gone into hiding. As predicted, the money-flow eventually became insufficient to full-fill the beast that was created. Worse yet, the beast had not been paying taxes because “the IRS didn’t understand the innovative commercial nature of our non-profit” and now must be fed even more:

“I think the best possible structure is the one we have. One of the challenges with nonprofits is it’s difficult to adapt quickly and easily from a business model perspective because you need clearance from the IRS. Now we get that flexibility and we’re still making a statement.” – Dan Hoffer (in Techcrunch)

What is amazing is that they have found VC money (a mere 7,6 million $, which is actually pretty abismal and probably indicative of the low expectancy of success) and have thus kept afloat even now. The CS inner crowd are survivors, you have to respect that at least. And they know how to lie to, judging by this bit:

“Indeed, one of the big reasons they decided to take funding and switch the company’s classification was to make it easier to recruit stock-option seeking engineers.” (same Techcrunch article)

Anyone who knows anything knows the switch in classification was forced unto CS, after years of fruitfully trying to obtain 501(c)3, but I guess it’s important to start rewriting history as soon as possible.

Here’s the problem though. How are they going to earn those VC’s their big bucks? You have to keep in mind that the expectation here is about 5-7 times (!) the investment in about 4-5 years and the clock has started ticking. It is easy to see that the current revenue stream just doesn’t work: verification fees are eventually going to dry up (most likely have hit their peak already). And donating to a for-profit? I just don’t see it happening. This means CS is going to have to find a steady income stream and – I would expect – even have already made indications to the VC’s of where they might get it. Now, I only see two options:

1. They start making money off the “daily activity”, which would be hosting itself. Dan hints at “premier services”, but I don’t think that is going to fly for a two reasons. a) You can only run a verification scam once. b) It is insanely hard to convert non-paying volunteers into paying customers. c) There are still free alternatives out there, BeWelcoming everyone with open arms. (OK, that’s three reasons.) I honestly doubt they will go this route, but with Todor Tashev on board it might just happen. Todor Tashev is also on the board of Meetup, a company that successfully makes money from their volunteer-run activities.
2. They go the Facebook route of leveraging the personal data that is embedded in the social network that Couchsurfing is to a large extent. The fact that Matt Cohler (heavy duty ex-Facebook guy) has joined the board as well makes this a very frightening possibility. On a practical level, this would mean letting companies access the enormous amount of personal information, so they can give you those personalized ads you’ve always wanted. The advantage is that this can be introduced in a nice and sneaky way, the disadvantage is that a large majority of couchsurfers are on there precisely because they don’t have cash to burn. I guess you can always try to schlepp airplane tickets or discount backpacks, but that is a rough business (travel is an industries with razor-thin margins, keeping afloat mainly on quantity).