September 03, 2015

The secret of Airbnb’s pricing algorithm


This June Airbnb introduced dynamic pricing to its pricing tools, offering daily price tips based on changing market conditions to its hosts. The company also added what it thinks is a unique approach to machine learning that lets its system not only learn from its own experience but also take advantage of a little human intuition when necessary.

In focus groups, Airbnb watched people go through the process of listing their properties on its site - and get stumped when they came to the price field. Many would take a look at what their neighbors were charging and pick a comparable price; this involved opening a lot of tabs in their browsers and figuring out which listings were similar to theirs. Some people had a goal in mind before they signed up, maybe to make a little extra money to help pay the mortgage or defray the costs of a vacation. So they set a price that would help them meet that goal without considering the real market value of their listing. And some people, unfortunately, just gave up.

Clearly, Airbnb needed to offer people a better way - an automated source of pricing information to help hosts come to a decision. That’s why the company started building pricing tools in 2012 and have been working to make them better ever since. This June, it released its latest improvements. Airbnb started doing dynamic pricing - that is, offering new price tips daily based on changing market conditions. The company tweaked its general pricing algorithms to consider some unusual, even surprising characteristics of listings.

Get the full story at IEEE Spectrum