In this issue
Issue #24 August 29, 2013 Aug 29, 2013 Aug 29
Issue #9 January 31, 2013 Jan 31, 2013 Jan 31
Issue #1 October 11, 2012 Oct 11, 2012 Oct 11
From Issue #14 April 11, 2013

Loose Stuffing

How Couchsurfing lost its kumbaya.

By Stefan Kamph Twitter icon

I rode alone on the tunnelbana to the end of the line, heading out of Stockholm to meet a stranger on a wooded isle, and then transferred to a smaller train that rattled over a bridge. Following emailed instructions, I exited at the first stop, which was nothing more than a strip of pavement by the water’s edge. Sunlight sparkled on the water and wind ruffled the trees. I was alone in Sweden, testing my faith in miracles.

The stranger’s name was Hans. He appeared like a sprite on the hillside: a tall man with fine features and flowing blond hair. He led me to the apartment he shared with his girlfriend, Bella. Hans showed me to a neatly made bed in the guest room and gave me a key to the front door. Rather speechless by this point, I handed over a bottle of wine I’d brought from Paris. “Do you want to go to a party later?” he asked. “Okay,” I said.

I had contacted Hans for that May 2008 trip through Couchsurfing, a Web site that allows travelers to connect with people who host them for free pretty much anywhere in the world. Users set up profiles, add pictures, and write references (usually glowing) for the people they meet. In return for his hospitality, all Hans needed from me was some conversation and cheap French wine.

For tourists accustomed to stumbling from one transaction to another, the Couchsurfing experience was delightfully free of money changing hands. Volunteer ambassadors helped welcome new members and organize gatherings, and programmers, paid in food and accommodations, regularly contributed code. This cash-free ecosystem also led us to ignore a growing reality: the site brought in and consumed large amounts of money. Revenues, largely through voluntary donations from members, reached nearly $2 million in 2010. But the situation that founder Casey Fenton and a handful of others managed was precarious. Expenses had begun to outstrip revenue, and reserves were slim.

In August 2011, the unthinkable happened. Fenton — a shy, red-haired explorer who had famously invented the site after blasting email to thousands of Icelandic university students for a place to stay — announced that Couchsurfing was turning into a for-profit company. It had already raised almost $8 million in venture capital, and would be setting up shop in a fancy new San Francisco office. The site had literally “sold out” — but to what end?

Over the past 18 months, the new company has grown to nearly 50 employees, and adopted the trappings of any well-funded San Francisco tech startup: healthy lunches, paid vacations, and great benefits. It’s also implemented dubious changes, alienated longtime users, and sparked accusations of mismanagement and censorship. All the while, the company has given few details on how it plans to make money from something so essentially and beautifully free.

After the announcement, a few thousand couchsurfers (out of a user base of millions) joined online discussions condemning the change. Many others I spoke with adopted a wait-and-see attitude. As it turns out, there was a lot that we’d already failed to notice.

Twice to the edge of ruin and back

Fenton coded much of the original site singlehandedly in the early 2000s to fulfill his own travel desires. He collaborated with friends and volunteers until nearly 100,000 people had signed up. The site took the idea of free hospitality networks — the oldest, SERVAS, has been operating by mail and telephone since 1949 — and retooled it for the dawning era of social networking.

Then one Tuesday in June 2006, an errant command erased the database, and backups hadn’t been made properly. Couchsurfing was gone.

“I have literally poured every cent I have into the site,” Fenton wrote then in an email to members. “In many ways I’ve put my life and wanderlust on hold to build this network. I’m not complaining; it’s been a fantastic ride. As devastating as it is to consider, it looks like the ride is over.”

Significant feature development for the nascent Couchsurfing had fallen to regularly organized conclaves called “Couchsurfing Collectives,” where programmers and others gathered with their laptops in spots around the globe. The organization paid the costs of meals and accommodations for those attending.1

As Fenton made his announcement, one such collective was underway in Montreal, and the programmers refused to abandon ship. So they started again. Users volunteered their time, and the site was rebuilt. But, as before, the software, data, and trademarks all remained in the organization’s hands, with Fenton at the helm.

Couchsurfing received donations — to fund server operations, pay Fenton and other staff, and underwrite its collectives — in the form of an optional contribution made when a member verified an address through a credit-card charge. This was billed as both a safety feature and a way to support the site. Donations jumped significantly year over year, growing from $3,500 in 2004 to nearly $2 million in 2010, according to its published records. Expenses grew proportionately faster than revenue. Net income was substantial in 2008, dipped the following year, and went negative in 2010.

Donations weren’t tax-deductible in the United States, because although Couchsurfing had been incorporated as a nonprofit in New Hampshire, it lacked federal tax-exempt status. In 2007, Fenton told members that the group had applied to the IRS to be recognized as a 501(c)(3) charitable organization.2

Based on publicly available tax filings and posts by Fenton and others, it seems that as early as 2004, Couchsurfing stopped paying federal taxes and began filing a Form 990 with the IRS, which is supposed to be used only by tax-exempt groups that have already been awarded that status. Corporations waiting on approval file a standard Form 1120 tax form and pay taxes.3

Various documents Couchsurfing posted about its finances confirm that only payroll taxes and a small amount of other taxes were paid; federal tax isn’t shown as an expense in its spreadsheets or audited reports for the 2007 to 2010 period. (The audited 2010 report notes millions in earlier losses that the group could use to offset 2010 and future state and federal taxes, but the numbers don’t correspond to any other financial data.)

In 2010, New Hampshire’s director of charitable trusts questioned whether Couchsurfing met the conditions for its status in the state. Then, in February 2011, the IRS denied tax-exempt recognition.4 The IRS’s response noted, among many other points, “…you operate a networking website that appears to be a form of social media; allowing individuals to create personal profiles, meet other individuals, join forums/discussion groups and to post messages about personal experiences online.” In the eyes of the IRS, the site was organized for the economic benefit of members, who could avoid paying for hotels while traveling. Additionally, any cultural exchange was created by those users independent of the company.

Couchsurfing had the option to appeal within a month of the denial, but chose not to. Instead, during that period it filed a petition with the New Hampshire attorney general’s office to dissolve itself. But in order for a nonprofit’s assets to be transferred — in this case, its databases, software, and trademarks — Couchsurfing had to pay for an independent valuation.5

Fenton didn’t alert the community until April 16, and then only emailed a core group, one of whom shared the message on the public forums. A notice of the dissolution had been published in a local paper the day before, mandated by the judge in order to give interested parties a chance to respond. It was published twice again on subsequent weeks. The state didn’t receive any complaints, and the judge approved the move on July 6. By then, Grant Thornton, a tax and auditing firm, had valued the company’s assets at just under $640,000. That price was set based on the potential future operating margin of Couchsurfing if it were a for-profit company. (The valuation didn’t raise the issue of back taxes, cash on hand, or outstanding liabilities.)

Once again, Fenton had to announce the end of an era for the community he helped to create. But this time, there was no chance for members to step in and object. None of the site’s users would have realized, without access to legal filings, that all of the wheels for Couchsurfing’s next stage were already in motion.

Corporations with benefits

Fenton may have been the inventor, but his longtime management partner, Daniel Hoffer, is a Columbia Business School grad with experience raising venture-capital money. Hoffer had joined notable Silicon Valley fund Benchmark Capital as an entrepreneur-in-residence in September 2010 in what he described as a “temporary, part-time role.” Due to circumstance and choice, Couchsurfing was primed to become a for-profit company. Hoffer was in the right place to pull the pieces together.

In May 2011, Hoffer incorporated a new company as a standard C corporation in Delaware, the state that places the fewest demands on corporations. In June, the company filed for the right to do business in California. In August 2011, Fenton and Hoffer appeared in online videos that were the first notice many users had of the corporate changeover. Couchsurfing announced that it had raised $7.6 million from Benchmark Capital and a fund run by eBay founder Pierre Omidyar to convert the New Hampshire nonprofit into its current form. (The company took in another $15 million in Series B funding in 2012.)

The videos by Fenton and Hoffer were almost comically awkward. The founders I had imagined as hemp-wearing visionaries talked in vague terms about a new direction for the site, and seemed possessed by corporate newspeak.

A press release announcing the funding went out under the old nonprofit’s name, not a temporary one used by the new corporation in its Delaware filing, Better World Through Travel. Fenton’s name didn’t appear in the release, which noted that Hoffer was now chief executive and president. Fenton had been moved out of operations and into the role of chairman of the board. In an interview with the Spanish newspaper El Pais, Hoffer suggested the new company might one day go public.

(I was unable to reach Fenton for this story, and Hoffer declined an interview. A spokesperson for Couchsurfing said it cannot comment on or verify information on anything previous to the 2011 changeover.)

Following New Hampshire’s rules, the new for-profit company received state approval to pay $640,000 for the old nonprofit’s assets, which were placed into an educational fund at the New Hampshire Charitable Foundation. Hoffer told the Associated Press at the time that other costs brought the total to $1 million.6 Given that the nonprofit had no record of paying federal tax starting in 2004 — and by filing Form 990 with the IRS, wasn’t hiding that — it seems likely that it owed the IRS a significant sum. The new company and its deep-pocketed backers may have been responsible for settling that tab, although there is no documentation of how that was resolved, or if it was.

A few thousand members, out of a user base of millions, signed on to a forum on the site to complain about the “conversion” to for-profit. But by the time they responded to the news, it was far too late to effect any change. Perhaps as a salve to those objecting to the shift, Hoffer explained that Couchsurfing had become a “socially responsible B Corp,” which the company described in a press release as “a new type of corporation that uses the power of business to create public benefit.” This called to mind a benefit corporation, a new form of legal structure for philanthropy-minded corporations that is available in a handful of states.7

That’s not what Couchsurfing became. Delaware has no such provision, and the company is a standard C corporation. Couchsurfing did receive the legally weightless “B Corp” certification from B Labs, a firm that helped create the benefit-corporation rules. The certification relies on self-assessment by the applicant, and only 10 percent of certified B Corps are audited each year. The B Corp status is actually more demanding than what’s required by many states, but companies are free to give it up at any time.

In early 2012, a new CEO took the helm, and stepped right into a growing volley of criticism from longtime users.

The professional

Tony Espinoza had experience being a mistrusted corporate reformer in a field of hippies. During the dot-com boom, the then-20-something tech entrepreneur and music lover led a startup that was acquired by AOL, landing him a spot as a vice president in the AOL/Time Warner juggernaut. In 2003, when the tech economy had chilled, he poured his money into a state-of-the-art digital recording studio near downtown San Francisco. The city’s crusty, cash-strapped producers were skeptical of his intentions and of what SF Weekly called his “too-slick rhetoric.” But he succeeded, attracting major talent to the studio years ahead of its neighbors.

“Couchsurfing isn’t any different for me, because I’m unknown, but also not afraid,” Espinoza says today. “I’ve spent the last year entirely focused on two things: building the financial support…to make Couchsurfing accessible to tens of millions of members, and [building] the company that’s able to do that.”

Espinoza’s first goal was to revamp the site’s technology. He wanted to switch everything over to a new coding language and database (a process that’s still ongoing) and change some basic functions of the site.8

In December 2012, Espinoza’s new team launched city-based “place pages” with feeds of comments. Ambassadors, the volunteer greeters who help familiarize those new to Couchsurfing with how the site works, weren’t warned. Place pages suddenly replaced the heavily trafficked local group pages, which ran on the model of old-school threaded discussion boards.

Longtime Chicago ambassador Justin Holt says place pages “cater more to the individual than the community. They’re like a Facebook news feed: why would you bother even reading the whole feed if you can just post your own request at the top?” He worries that this fast-and-loose search for hospitality will also be a target for predators. A quarter-million people a month are signing up for Couchsurfing now, according to Espinoza, and it’s easy to join with just a Facebook account.

Don Shine, an IT professional from Ireland, became an ambassador after moving to Berlin in May 2008. He found the new site — dominated by a cascade of demands from strangers, with toolbars and links removed — so hard to use that he eventually authored a browser plugin called “CS Navigation Links.” This tried to tack some of the old functionality back onto the new, scrubbed-down site.

But Shine’s real concerns ran deeper than appearances. Instructions guiding new members on etiquette were harder to find after the transformation.9 An ambassador recently posted a plea to the new Miami page, urging surfers to write individual couch requests rather than just broadcast thoughtlessly. “Unfortunately, this site has been infiltrated by creepy men looking for sex,” he claimed. “This is the worst part, finding an inbox full of trash and sex requests,” commented a 22-year-old female host.

Couchsurfing’s discussion data was also open, for a time, to public search indexing. In his Facebook PR campaign against the company, Shine has posted screenshots of a simple Google search that returned cell phone numbers for young women traveling alone. Espinoza counters that this was an error with the old group pages, and that the new pages have never been publicly indexed.

Holt launched a campaign to “boycott the place pages” just days after they launched in December, and entered an online feud with Couchsurfing employees on the ambassadors’ discussion board. When he received an email on February 26 saying his account had been terminated, his fellow ambassadors and surfers saw a chance to cry foul on the company. “We were kind of afraid to ask questions, for fear of repercussions,” says Shine. He started a thread on the site for “difficult questions” about alleged censorship by management.

Soon, Shine received a copyright violation notice for reposting discussions from Couchsurfing’s support forums on his own Web site. His account, too, was terminated, with no explanation. Couchsurfing says it deletes accounts for violations of its terms of service or safety rules, and that terminations cannot be appealed or reversed. A harassment complaint against Holt may have been a catalyst for the termination of his account, though critics find the timing suspect. “We cannot discuss individual cases or communications with members related to account status,” a company spokesperson told me.

Change in the cushions

“We learned a big lesson with place pages,” says Espinoza. “We learned that we have to communicate really clearly what the purpose is, and what it takes to participate in it.” He says safety is a serious concern, and with more money than ever behind the site’s reputation, he likely means it.

He says the site created the sense of “I’m safe because it’s small and I know everybody,” but argues that sense was illusory. “That concerns me a lot. We are responsible for building systems to make you actually be safe.” Espinoza says that in June “we’ll launch a service that allows every single surfer and host to provide confidential feedback” on other users.

“That’s not good enough,” argues Shine. “That’s like when somebody’s walking a tightrope and you tell them, ‘Oh, we’re working on a newer, better net.’”

Espinoza plans to stop using credit-card fees for identity verification. “We’re going to create multiple layers of verification. There are lots of ways to do it now that didn’t exist when the site started,” including two-step authentication through mobile phones.

In our conversation, the CEO revealed some of his thoughts on how the site might make money long-term. He stresses that the investors aren’t expecting a return for at least the next year or two. (The company in its current incarnation doesn’t release financial information.)

“The premium membership model makes a ton of sense to me,” he says. “We’ve had car-rental agencies come to us and say, ‘Our cars need to be moved around, we’ll do a 50-50 revenue split with you.’ We can package that with a long list of benefits, for a member to pay a small amount per year and use those benefits wherever they go. You can support Couchsurfing as a sustainable business, and we can use your involvement and our collective bargaining position with the travel industry to give you a better experience. Perhaps in 2014 we’ll start looking at how we put together this premium stuff.”

Espinoza says the core functions of the site will always remain free. The dream, as he tells it, is bringing the feel-good wonder of Couchsurfing to the mainstream. “It’s going to take a long time to make a dent in the billion people a year that travel,” he says.

Some of the backlash stems from the whipsaw effect we experienced during the rapid and confusing transition from an ostensible nonprofit with extensive participation by volunteers to a moneymaking corporation. Some comes from those of us who imagine we’re in a special club, and who aren’t quite ready to see the tourists of the world start crashing the party. At best, we worry that the experience will be dumbed down. At worst, we see it derailed by perverts. For such a supposedly open-minded community, we sure do like our garden walls.

The question is whether a real sense of friendship and discovery can persist once the gates are opened, and how much of the old crowd will stick around to see. In recent months, hundreds of people have left Couchsurfing because of their concerns about profits or alleged censorship.

Many (including Holt) have joined BeWelcome, a site based in France that operates on volunteer labor and spends just $2,000 a year. BeWelcome looks a lot like Couchsurfing did in its early days: clunky, organic, and without a hope of turning a profit. In fact, its bylaws legally prevent it from seeking one.

“We don’t believe that we will grow to be the big corporation that is Couchsurfing at the moment. I really don’t think that we are a threat to them,” says BeWelcome co-founder Frank Van Den Block. “We will get, maybe, the one percent that are not happy.”

Still, the site has climbed from around 10,000 members to over 38,000 since Couchsurfing announced it had given up on obtaining nonprofit status, a visibly huge spike upward from the trickle of signups it had attracted since its founding in 2007. Couchsurfing currently has 5.9 million members.

Traveling on

On that evening back in 2008, Hans brought me and the bottle of wine to a gathering of his friends at a park. We clambered on a big circular bench and watched the sun go down over the water.

In the following days, I stayed with a graduate student and her boyfriend in Malmö, a guy who “worked with canoes” in Copenhagen (his other couchsurfer was a cat from Paris), and a commune of hippies and dogs on the remote island of Gotland. When I graduated from college and moved to Oregon, I hosted foreigners for a week at a time and met lasting friends through local get-togethers. Some of those people have let their profiles go fallow; Hans has deleted his. But they’re still out there. It was never about the Web site. Right?

“What we’ve built together is not dead, it lives on in each of us,” wrote Fenton in his email after the 2006 database mistake that threatened to shut down the site for good. “We all own a piece of the Couchsurfing flame, it’s up to us to keep the fire going and light the world.

“Goodnight, Couchsurfing. May our flames burn bright.”

Correction: This article originally stated that a hard drive crash was the culprit in the loss of data in 2006. In fact, the main database was erased through operator error and backups were inadequate to restore it. Sorry for the mistake.

  1. The Couchsurfing Collectives page remains up as of this writing, but many links are broken or have been removed from the site. 

  2. Several Web sites critical of Fenton’s leadership say that the site had text on it in 2003 and 2004 that stated Couchsurfing was a 501(c)(3). Many link to the Wayback Machine’s archives of older pages. This cannot be confirmed, however, because at some point Couchsurfing requested its exclusion from the archive, and all its current and historical pages were deleted. 

  3. Form 990 is released publicly by the IRS after it is filed. Copies of the group’s forms from 2004 through 2008 are available from Foundation Center. However, other charity-tracking sites’ Form 990 search engines exclude Couchsurfing, possibly because it never achieved tax-exempt status. 

  4. The linked file, dated March 30, 2011, contains both the original denial explanation and a cover letter explaining that the 30-day appeals process is over. That places the date of the original denial at some point in February 2011. 

  5. Fenton wrote a few weeks later in a blog entry that is no longer online, “CouchSurfing had the option to appeal the IRS denial. However, this is an expensive and time-consuming process, and the result is not certain.” 

  6. The AP article contains several errors and conflations that match with what the new company was saying at the time, such as the notion that the nonprofit had been “converted” into a for-profit, instead of being dissolved and having its assets sold. 

  7. A company founded under or converted to this form must state a social mission in its articles of incorporation, and is protected from shareholder lawsuits for failing to maximize profit. The understanding is that the company will opt instead to benefit its employees, its customers, and the public. 

  8. The old site was written in PHP, a very popular language since the early 2000s that still powers many large sites, including Facebook, Wikipedia, Tumblr, and Flickr. Espinoza decided to switch to Ruby on Rails, a newer language and framework that became popular in 2007. Rails famously powered the first version of Twitter and currently powers many small- and medium-sized sites, including Airbnb.

    Because this has been implemented gradually, new parts of the site are in a different language than the older parts. “The current site is actually two sites, and for technical reasons, they don’t know about one another,” Espinoza says. 

  9. This month, Couchsurfing published new welcome pages that stress the importance of filling out a profile and sending personalized requests. 

Stefan Kamph is a freelance writer based in Philadelphia. He previously worked as a staff writer for New Times, an alternative weekly in Fort Lauderdale. He has 17 positive references on Couchsurfing.

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