Does paying for customers actually work?

Ok, so the past week I have been thinking about this a lot. The business I am running involves short term rentals and if you are clever, you know that the first time you book through a site like AirBnB, you can often get a discount as being a new user. This tends to be around $25 off the first booking. It can be quite a substantial discount if you are only booking for one night.

At Roomfilla, we are seeing more and more groups of friends booking single night bookings for a property that we have on our books. They then tell us that they booked this way to get the discount. For us, we do not care so much as we still get paid, it is just that AirBnB are paying us $75 of the amount compared to the actual guest. Is this worth it for the company offering the free money for the user? When you are as big as AirBnB, it probably doesn’t make such a dent in the bottom line but is it a good strategy to get new users? It would be great to see the data of how many of these users go on to make repeat bookings or just open up new accounts and repeat the process.

There were stories from the start of Paypal where they were offering new customers $10 for making an account. This nearly broke the company and came long before they were making significant money or were profitable. Reid Hoffman talks about it in this excellent piece with Jason Calacanis, (worth a watch either way!). Uber are also offering new users free or heavily discounted rides, when you have raised billions it becomes less of a burden but I can’t help but feel that it leaves a slightly unfair playing field for other startups who are just starting out. How can you compete if you are in a similar space to one of the big boys?

I guess part of it comes to the massaging of numbers. There are so many ways to count KPIs and choose different metrics to show the success of a business. If that is app downloads or new accounts etc then paying users works but again I am skeptical about how many of these paid users convert into recurring revenue, i.e. will use the service when they have no incentive to, everybody likes something for nothing but when you have to pay full price it is a different ball game. It’s like being in the supermarket and seeing something as mundane as toilet tissue or washing powder, most people have no loyalty and if something is buy one get one free or discounted you will take it right?

I am guilty of using a service here in Thailand which offered to pay for part of the booking as I was a new user, this was back in May. Have I used the app since? No. Have I opened it since? No. Will I go on their statistics as a new user and another app download? Sure I will. Is it sustainable and is the data they have from me worth the cost they paid? That is to be determined but as there are so many different services offering this type of paid customer acquisition maybe I am just being too pessimistic and it is a great way to get new customers/users.