With Airbnb becoming an increasingly popular housing option for people vacationing in big cities, companies built around finding the best price for a host are popping up fast. Chicago Inno wrote about a San Francisco-based company that launched in Chicago in August that gives Airbnb hosts access to data-driven pricing in order to maximize revenue for people renting out their homes.

Now, a Chicago-based startup that provides a similar service has launched in the Windy City. PriceLabs launched its private beta for Chicago hosts on August 18 and recently opened the beta to all Chicago hosts on September 24. But the popularity of Airbnb, and sites like PriceLabs, comes despite the fact that Airbnb, in some cases, isn’t exactly legal in Chicago. Hosts need a $250 vacation-rental license and must pay 4.5 percent taxes on rentals, which are requirements that aren’t yet strictly enforced.

PriceLabs Co-Founder Richie Khandelwal took some time for an email Q&A with Chicago Inno to talk about the popularity of Airbnb, why services like his are needed, and what happens if city government starts cracking down on illegal Airbnbers.

1. Give us the founder’s story of PriceLabs. Why is a service like this needed? 

RK: Earlier this year, while I was still at Northwestern University, I decided to rent out my second bedroom as my roommate was traveling for a few weeks. In the process of trying to do so, I was faced with the problem of deciding how much to charge for the spare room. For some high demand days I could charge high rates, while for other days I must charge lower to have occupancy. This is a classic optimization problem.

This got us wondering if this was a question that maybe other Airbnb hosts were trying to answer to as well. That was when the idea for PriceLabs was formed. After conversations with various other Airbnb hosts, PriceLabs team came together in early April of this year to build an algorithm to calculate optimal rent for any Airbnb listing for any given day.

2. Explain how PriceLabs works. 

RK: PriceLabs gives Airbnb hosts the ability to price their properties at the optimal amount, which directly translates to a decrease in vacancies and an increase in earnings. They can set up an account with PriceLabs on our website, add their Airbnb listing and automate pricing to their Airbnb calendar, which is then updated each night at 3 a.m. If they are not ready to take the big step yet, they can still go to our website and see how we’d price their property by trying demo (however, these are not final prices).

At our end, we employ an adaptive machine learning algorithm to calculate the ideal rent for each listing that is in our system. Our tool brings together data sets for supply and demand in the short-term rental market by pulling information from various sources. With an inbuilt adaptive learning system, the more data we feed to our algorithm, i.e. the longer the host is on our system, the smarter we get about pricing their listing.

The tool is currently free to for first 2 months of service.

PriceLabs Co-Founder Richie Khandelwal

3. How has the popularity of Airbnb impacted your business? 

RK: Popularity of Airbnb business is naturally great for us. The more hosts on the system, the more customer we can have. From guests perspective too, it serves us great. Given the increasing popularity of Airbnb, more tourists are comparing prices between hotels and short term rental housing. This keeps the supply demand equation in a constant flux, making it difficult to predict. This is where an adaptive algorithm is super useful instead.

4. Are you guys worried about government intervening in Airbnb? What’s your plan if the service becomes more regulated? 

RK: Not so much on the business fronts. There are multiple places we can take what we are building.

Personally, it does worry me a bit. With more regulation, we’d probably be only left with hosts who want to make money, and remove everyone who was looking to share while making some extra money. However, we have seen that legislation in Portland has been supportive of Airbnb, of course with proper taxation. San Francisco seems to be moving in the same direction. UK recently announced its plans to embrace sharing economy and has started a review into the sharing economy. The UK government’s review is designed to “assess the opportunity for the sharing economy to create a nation of micro-entrepreneurs and radically transform the way we use our assets and resources.”

This interview has been edited for length and clarity. Screengrab via PriceLabs. Image via Linkedin.