$1 billion / 1 br – AMAZING STARTUP, SLIGHT HISTORY OF SPAM PROBLEM by Chadwick Matlin @FortuneMagazine June 7, 2011, 5:06 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons FORTUNE — Dave Gooden says he didn’t intend to be a whistle blower. But last week that’s what he became, forcing Airbnb — the next Groupon, Zynga, and/or Twitter, if you believe the hype — to investigate its own advertising practices and compelling the media to hound him until he decided to stop talking. Two days after stirring the pot, Gooden was already saying “I am not interested in getting any more attention over this matter,” and returning to his less noticeable life as the founder of a small real estate website in Minnesota. The fuss started when Gooden read the news that Airbnb, a website that helps tens of thousands of people make money by welcoming strangers into their homes, was rumored to be worth a billion dollars. Gooden, a humble guy in Minnesota who tried to build a competitor to Airbnb in 2009, was not the founder of a company worth a billion dollars. He was the founder of a facsimile that for all intents and purposes no longer exists. And so Gooden went digging through his inbox. In 2009, while he was building that Airbnb competitor, Mimbeo.com, he couldn’t understand how Airbnb was seeding its site with so many listings. Building an initial community is the hardest task for a listings site in its youth — indeed, for any site that purports to be “social” in any way. Airbnb now claims it found its first customers through PR, partnerships, and word of mouth. In 2009, Gooden had a different hypothesis: that Airbnb was trolling Craigslist for potential renters, convincing them to also put their listings on Airbnb. To test it out, he put up some dummy room-for-rent listings on Craigslist, testing to see whether he’d be solicited. He was, but not by Airbnb. By an affiliate on its behalf: I am emailing you because you have one of the nicest listings on Craigslist in Toronto, and I want to recommend you feature it on one of the largest Toronto housing sites on the web, Airbnb. The site already has 3,000,000 page views a month. Check it out here: http://www.airbnb.com. On its face, this kind of thing is annoying, but hardly unethical. But Gooden had specifically said that he did not want to be contacted by commercial properties. Which means that even through a veiled ad like this, Airbnb, or whoever was acting on its behalf, was defying Gooden’s wishes, acting unethically in an attempt to grab as many users as possible. This was not the behavior expected from a startup boy wonder, which is what Airbnb is, even before you factor in the rumored $100 million investment round. There were other, similar emails in response to Gooden’s other, similar dummy ads. Gooden outlined all this on his blog this week, nearly 20 months after he originally received the emails. Airbnb’s spokesman, Christopher Lukezic last week told Fortune that, “Airbnb has employed many marketing strategies since it launched in August of 2008, including contracting a small team of remote sales people in 2009.” The company was most disturbed by the allegation that one or many of these salespeople were sending messages to users who, like Gooden, didn’t want to be contacted by commercial entities. “We have since learned that some of these remote contract sales people were apparently aggressive with their outreach and may have used Craigslist to attract customers to our service who were not open to solicitation. This is not a tactic we condone or endorse, and it is our policy to forbid such actions.” The company also disputes Gooden’s assertion that the sales team was “harvesting” email addresses on Craigslist, saying the form emails Gooden received were sent individually. As of the time this article went to press, Airbnb would not disclose the names of the salespeople involved, and Fortune’s attempts to contact them at the email addresses they used to contact Gooden were unsuccessful. Airbnb claims that only 2.9% of its listings come from sales efforts. The percentage is even smaller for those coming from Craigslist, which Lukezic said was no longer being used as a recruitment ground. Nevertheless, a very specific corner of the Internet promptly freaked out. “This is the same thing spammers do to steal money from people, and it’s the same thing that dating sites do to pretend to have women interested in meeting dudes. Either way, it’s fraudulent.” That’s from nhangen, a commenter on Hacker News, the popular tech-news aggregator. Other commenters came to Airbnb’s defense, erecting an elaborate conspiracy that had Gooden faking the emails to help drive publicity to Mimbeo. The gababouts of Hacker News feel a certain ownership for Airbnb because they, like it, sprung from Y Combinator, the pinnacle of all tech incubators. (Hacker News’ URL is news.ycombinator.com.) For a few years now Y Combinator has established itself as the premiere startup incubator in all of tech. It accepts dozens of applicants each year, usually takes a 6% -7% cut, and then hosts a Demo Day for the startups to sell themselves to venture capitalists. In 2009, Airbnb was one of those startups. When the rumors of Airbnb’s valuation started circulating this week, it said as much about Airbnb’s success as it did about Y Combinator’s. But did Gooden’s post taint Airbnb’s rise, as the Hacker News comment suggested? Gooden himself isn’t sure: “Please remember, I am not judging anyone here, I am just reporting my findings because I believe it will help other entrepreneurs,” he wrote. And in an email he said, “This has gotten a lot bigger than I expected or wanted. My intention was to pull back the curtain on a successful startup and give some other entrepreneurs a sneak peek at the play book they were using. That’s it.” Even though it’s less satisfying, let’s all agree to step back from the normative judgments that people who are jealous of $1 billion companies tend to make. Whether Airbnb’s tactics are right and wrong is less interesting than the act itself, and what it says about how startups, well, start up. Airbnb is a company that could not start working until a critical mass of users got on the site and started staying in and listing rooms for rent. It’s only then that the feedback loop kicks in: People hear about the site, people come to the site, people see a lot of listings on the site, people like the site, people talk about the site, people hear about the site, to infinity and beyond. That they somehow tried using Craigslist to get that routine in place—no matter how misguided, ineffectual, or short-lived that tactic may have been—speaks to the desperation that sleepless nights and work-life imbalance breeds. On Thursday morning Steven Johnson, the smart and successful tech and innovation writer of Where Good Ideas Come From and Everything Bad is Good for You, tweeted, “It’s remarkable how the defining brands of the decade (Twitter/FB/GOOG) reached that prominence with basically zero traditional advertising.” The operative word here is ‘traditional.’ All three spread through word of mouth, certainly, but also through obsessive coverage on a (relatively) new network of tech blogs that speak directly to a class of influencers, who then speak to a class of friends who want to be influenced. Most of you have read Malcolm Gladwell’s The Tipping Point. You know what happens from there. Airbnb reached its (still-limited) prominence the same way. I spent last week at a tech conference in New York, accosted by entrepreneurs and venture capitalists for days. Everyone wanted to give me their card because everyone wanted me to give them my time. That’s one way the feedback loop starts for a lot of these startups, through a vicious lobbying of the press. Recruiting users is just an alternative. Sketchy behavior lurks in both scenarios. So the question about Airbnb’s Craigslist antics isn’t, “Are we outraged?” It’s, “Are we surprised?” Dave Gooden wasn’t. Why should we be? –This was another installment of Fortune’s regular column on startups and the tech bubble that may or may not exist. Blow your whistle at my inbox, or just listen to me be shrill on Twitter.