I liked Airbnb from the very beginning, and I can tell you exactly why.

First of all, Airbnb is a marketplace that connects guests with landlords. This is a very difficult type of marketplace to make successful, but once you achieve a critical mass of users, it’s incredibly hard to replicate. This is because people looking for places to stay will always gravitate towards the largest selection of spaces, and landlords with space to rent will always post their properties where there are the largest number of potential buyers. The first company to achieve this combination creates an enormous barrier to entry for their competitors. This allows them to monetize the site deeply without fear of losing their customers. Airbnb was a first-mover in opening up a new source of real estate that was untapped by competitors. This gave them a big first-mover advantage.

Airbnb is at a much later stage now, but they enjoy the benefits of the largest marketplace of its type in the world. No one can compete head-on with them. The sheer number of renters and landlords on their platform makes them more attractive than anyone else. Even if competitors offer more features at a lower price, it doesn’t matter. The marketplace itself is the most valuable feature, and Airbnb owns it.

That said, Airbnb does face some difficulties, especially in markets like China. China is a separate market from the US, and Airbnb still faces stiff competition. They started later in China and don’t have the dominant position they have in Western countries. Airbnb also faces leakage. Users can find a property on Airbnb and then negotiate directly with the landlords, cutting Airbnb out of the process.

Lastly, Airbnb faces a host of regulatory issues surrounding renting out property in cities. Local governments are especially concerned that Airbnb rentals disrupt neighborhoods and many cities are passing strict regulations on Airbnb, making it more difficult for them to do business.

Despite the difficulties, Airbnb is in a strong position. Airbnb is using its dominant position to offer additional services and more deeply monetize its customers, such as offering tours, travel packages, and various activities. Because they have such a large user-base, they have the opportunity to layer on all sorts of travel-related services in the future, from travel insurance to airline tickets and cruises. It will be interesting to see how they leverage their platform to become a dominant player across multiple sectors of the travel industry.