August 9, 2019

Business Model Innovation – Sonder

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Sonder is a hybrid between Airbnb and hotels. What started out as Flatbook in 2012, a service where they marked-up sublet apartments in Montreal on Airbnb, was rebranded to Sonder in 2016 and now worth more than a $1bn. We will find out why the combination of enhancing the experience and cutting operational costs has created a winning formula for the fastest-growing brand in the global hospitality industry.

What is Sonder?

When Francis Davidson and Lucas Pellan started Flatbook in 2012 in Montreal, the idea was that they would ‘pay your rent while you’re away.’ As a student, there is an immense value proposition there, so the service took off, they raised venture financing and expanded into other cities. They were doing over $1 million in revenue by 2014, but they weren’t differentiated from the other giant in the room (Airbnb) and had a bigger vision.

That spark came on a business trip in 2016, and later that year they had raised $10mn and rebranded to Sonder:

“The pivotal moment was during a business trip to San Francisco where the Francis and Lucas had a bad experience with an AirBnB and Wyndham Hotel. AirBnB lacked consistency and hotels lacked authenticity.” Startup Grind

Having already built the technology and a team of talented people with expertise in the hospitality market, the focus became on creating an experience that rivaled hotels rather than other short-term platforms. They began to focus heavily on design and instead of simply ‘connecting’ hosts and guests, they began signing long-term leases on apartment/condo blocks. This enabled them to start designing the spaces to hotel specs, creating the consistency of experience travelers want without sacrificing the ability to stay in some of the most vibrant and enchanting neighborhoods cities have to offer.

But Sonder isn’t a hotel; it’s a serviced apartment licensed to run as a hotel. Serviced apartments aren’t new, of course. But Sonder is using technology to give the concept a fresh spin.

Skift – A Closer Look at Sonder’s Tech-Focused Bet

Using technology, they offer all the benefits of hotel service – clean towels, 24/7 service, small touches – in an Airbnb-like fashion.

How Does it Work?

Sonder signs master leases with large property developers across Canada, the US, and most recently Europe. They invest in the design and furniture required to make it a ‘Sonder’ and then it goes live on their platform,

Guests can book on, but the majority book on Airbnb or It is estimated that <20% of Guests book directly on

In any respect, regardless of the platform the book on, they deal with Sonder and can make requests or resolve any problem via their 24/7 customer service line. They also have features like fully-stocked kitchens, bathroom supplies (ie. shampoo) and partnerships with on-demand service providers (ie. food delivery).

Wherever they can, Sonder is reducing operating costs using technology, but not to the point where they will sacrifice experience. This is evident by their excellent NPS (Net Promoter Score), which is much higher than industry standards.

Who Uses It?

Sonder has hosted more than 250,000 Guests to date. Their target market is Millennials, who will represent 50% of travelers by 2025. But many other segments use a Sonder because it suits their specific needs:

  • consistency of experience compared to an Airbnb
  • price per night of $150 – $200, not $300 – $400 per night
  • amenities that suit business travelers and families

That breaks down to:

  • 33% Business Travel
  • 24% Families
  • 23% Couples
  • 14% Friends
  • 6% Solo

As the company grows and adds greater supply, it will be interesting to see if these numbers change. Furthermore, they offer ‘serviced apartments’ on a monthly basis in a limited amount of cities, and have noted ‘Housing as a Service’ on their roadmap by 2022, indicating that they may develop products and services for certain segments such as Business Travel.

Customer Acquisition

On the supply side, they have developed a strong business model that enables them to attract large real-estate firms and sign long-term leases.

These partnerships have enabled Sonder to build a ‘growth machine’ and are signing-up 800 units per month. Because they are the best capitalized and most experienced operator running this model, they are usually the ‘only bidder’ on specific properties and are able to lock-in long-term deals; whereas most other companies wouldn’t be able to get such leases even if they wanted them.

On the guest side, it is estimated that ~20% of their guest acquisitions come through Sonder. This means that they lose the markup (~15%) to Airbnb and other platforms right away. Nonetheless, these platforms have enabled them to scale the brand and they are seeing enhanced contribution margins on their properties and a 77% occupancy rate.

Nonetheless, with their newest fundraise ($210mn USD) they are looking to start to ‘build a brand’ and invest in direct marketing, something they haven’t done to date. The enhanced brand awareness, combined with increased operational efficiencies, should enable them to continue to grow at a rapid rate without sacrificing their unit economics or customer experience.

This is business model innovation in action, as on the surface many compare them to Airbnb, but underneath the surface they are more comparable to a WeWork or Breather where they lease the assets. They rely on the creation of a strong brand to maintain pricing power, while simultaneously driving down operational costs through continuous technological development.


Sonder wants to become the Marriot or Hilton for the new generation of travelers.

They see the major hotel chains as their competition versus Airbnb. In fact, in a recent interview, CEO Francis Davidson called Sonder and Airbnb ‘friends.’ While there is some overlap between the two brands, one is a $30+ billion giant that doesn’t lease the vast majority of its properties, versus a $1 billion newly-minted unicorn that leases the vast majority of its properties in commercial zones (ie. they are effectively licensed as a hotel).

“Our business is akin to a modern hotel company. You get 2-3X the size of a hotel room at a 20% discount on the price.”

CEO Francis Davidson – Yahoo Finance

There are many other upstarts that are trying to copy the Sonder model such as StayAlfred. But Sonder is bigger than all of them combined and with a fresh round of financing, they will likely begin to cement their brand as the ‘most trusted’ among these next-gen hoteliers.

At a certain point, you would expect the major hotel chains and travel operators to enter the fray (similar to how they did with Airbnb) by acquisition, but at that point, Sonder may already be the king of the hill and have achieved enough market penetration to open new avenues for growth and differentiation.

Sonder is attempting to create a next-generation hotel chain. Their business model leverages technology to reduce operating costs and complexity, while their brand exemplifies sophistication and is driven by design. This unique combination of business model innovation and brand definition has created yet another travel unicorn led by a founding team in their 20s. New challenges will emerge, but for now it’s a winning model and a great alternative to everything else in the market.

See Sonder’s Series D Deck

What is Business Model Innovation? Innovation using the Business Model as the main mechanism, rather than product or technological innovation. Reinventing a business model – or creating a new one – is a matter of remixing the core components of a business model and developing new value propositions, revenue streams, and cost structures.

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