Continuing on his global tour of six cities, including Beijing and Shanghai, Airbnb co-founder and CEO Brian Chesky today announced a set of plans for conquering one of the world’s largest travel markets: China.
Airbnb’s game plan for growing its business in China involves rebranding from Airbnb China to a new Chinese name, “Aibiying” (爱彼迎), which translates to “welcome each other with love” and the debut of the company’s newest product, Airbnb Trips, in Shanghai, which features peer-to-peer led tours and activities.
Additionally, Airbnb is investing in its talent and infrastructure in China, saying it will triple the size of its local workforce and double its investment in the market. China will be the only destination outside of the U.S. with its own dedicated engineering center. A quick glance of Airbnb’s Careers page is proof the company is looking to hire plenty of engineers in Beijing.
All of this adds to plans already set in motion by the company in the last year to quietly build its business in China. The company spun off a separate company, Airbnb China, and also agreed to share data on its China operations with local officials to comply with a pending law that goes into effect this year.
Airbnb has also focused on building relationships with Chinese industry and government officials, integrating local payment methods like Alipay, offering sign-up options using WeChat, and providing 24/7 customer support in Mandarin. There were also rumors that Airbnb was planning to acquire another local homesharing platform, Xiaozhu.
Airbnb stated it will “rethink the core booking experience to go even further in meeting the needs of Chinese users” by “providing them with more information to help pick the right neighborhoods to stay in,” most likely similar to how it already does in the U.S.
In a press statement, Chesky said, “There’s a whole new generation of Chinese travelers who want to see the world in a different way. We hope that Aibiying and our Trips product strike a chord with them and inspire them to want to travel in a way that opens doors to new people, communities and neighborhoods across the world. I’m really excited about our future here.”
The Homesharing Landscape in China
According to IResearch, China’s online vacation rental market could reach an estimated $1.5 billion in transactions this year. But China’s homesharing market as it is now is dominated by one major player in particular: the powerful Ctrip- and Expedia-backed Tujia.
Currently, Airbnb has 80,000 listings in China and has seen a total of 1.6 million guest arrivals to those properties, but it did not specify whether those arrivals were from international travelers to China, or domestic guests. To date, Chinese travelers have accounted for more than 5.3 million guest arrivals at Airbnb listings worldwide, and Airbnb said outbound travel from China grew 142 percent in 2016.
The company also noted that although it hasn’t “taken steps to encourage people in China to share their space, organic growth has been powerful.”
Tujia, by contrast, may have a much smaller market cap than Airbnb ($1 billion compared to $31 billion) but it does have a home-field advantage, and a lot more listings in China than Airbnb currently does — it offers more than 430,000 listings.
“I think Airbnb is clearly coming into this market pretty late and they are coming in with a fairly big competitive disadvantage, which is Tujia,” said Travis Katz, founder and CEO of U.S.-headquartered Trip.com. “They have more than 400,000 properties and Airbnb has 80,000 there. Tujia has the backing of Ctrip, which is a near monopoly in China in the travel space. The big challenge that Airbnb is going to have is, one, if they have radically less supply than the biggest player and radically less brand recognition, how are they going to compete?”
Katz has plenty of experience working in China, having led the development of MySpace’s international business model in China, establishing a separate company for MySpace in China and raising funds from local venture capital players, something Airbnb and other U.S. tech companies have also done in recent years.
“They’ve [Airbnb] done a lot of smart moves like WeChat login, accepting Alipay and WePay — those are kind of basic musts in China. If you don’t do that you can’t play in China. Adding a Chinese name probably helps for it to also feel more Chinese,” said Katz. “But the history of Western companies in China is not filled with many successes,” he added, later mentioning Uber and Google as recent examples.
“I don’t want to be cynical. I hope they do well. Regardless of the strategy, though, China is tough market,” he said.
The Chinese Traveler
A big reason why China is a challenging market for Western companies, regardless of industry, to break into, can often be traced back to the fact that the Chinese government tends to favor Chinese companies. But another, perhaps even more difficult challenge for Airbnb in China relates to its grasp of understanding the Chinese traveler.
“There are a lot of trust issues in China,” Katz said. This was something also echoed by Tujia co-founder and chief technology officer Melissa Yang in an interview with Skift last year.
Yang said, “The trust issue is more serious in China than in the Western world.” Because of that, Tujia has gone to great lengths to offer special services for both guests and hosts, adopting a model more reminiscent of a traditional vacation rental management company than a truly peer-to-peer one like Airbnb has around the world.
Katz said those trust issues could extend into the Trips portion of Airbnb’s business in China, too. “That will require a lot of education of the market and a lot of oversight to make sure people are really getting great experiences,” he said. “If they can do that, I think there’s an opportunity to offer something that isn’t really being offered to younger travelers in China.”
Those younger, Millennial-aged travelers make up the bulk of Airbnb’s current business in China. An Airbnb commissioned report from Gfk in 2016 showed that 93 percent of Chinese Millennial respondents said travel was an important part of their self-identity and 94 percent desire unique travel experiences. More than 80 percent of Airbnb’s users in China are under the age of 35, more than in any other country where the company has listings.
“There isn’t anyone doing a great job serving this market right now,” said Katz. “The opportunity for Airbnb with Trips is they can really provide a product that appeals to Millennial Chinese travelers, but they have to keep in mind that these travelers also expect a really high level of service. They kind of want to be taken care of.”
Growing its business in China will also require Airbnb to think closely about how it approaches different types of travelers, whether they are domestic Chinese travelers staying in China, or those heading abroad, or non-Chinese international travelers coming to China.
“Obviously in domestic travel in China, it’s going to be really hard for them to compete with Tujia,” said Katz. “They are coming in so late. Tujia has really rolled up the market.”
And that’s a major point of difference between Tujia and Airbnb, Yang noted. “Tujia actually focuses on the China market, meaning we are focusing on Chinese travelers whether they travel domestically or overseas so Airbnb actually is a broader focus. Our focus is different and as you know, China is becoming the largest consumer market right now,” she said.
“We’ve built our business model to optimize it for both sides, so for Chinese travelers and home owners, one thing is trust. We provide not only the online platform but also provide some helpful services for them. So basically we curate our business model for Chinese consumers and home owners. I think that’s the fundamental difference between us and Airbnb.”
But if there’s a silver lining for Airbnb, Katz said, it’s in bringing more international travelers to China. “Where they have the advantage is with international travelers coming to China who are already familiar with Airbnb. That’s a pretty significant opportunity. Those travelers will trust Airbnb more than they trust a Chinese company.”
While Airbnb certainly has more listings outside of China than Tujia, it’s still got a formidable competitor in Tujia, thanks to its partial ownership by Expedia, which owns 10 percent of the company. “Airbnb has a lot of inventory outside of China, too,” Katz said. “But again, it’s a tough market to serve. Tujia has a partnership with HomeAway [owned by Expedia] so they have all these listings around the world already, and it’s all in Chinese already. The biggest challenge with outbound Chinese travelers is still the language barrier.”
So, Can Aibiying Succeed in China?
That really depends on how well Airbnb markets to Chinese travelers, who make up the world’s largest consumer travel market. And for this base of travelers, at least, there are still a lot of opportunities in the homesharing space.
As Yang told Skift last year, “Homesharing is a big market and it’s still in its early stage in China right now. I think if there are more players, it’s good. The more players that come to the place, then we can work together to educate the market. Tujia is not the only company to educate the market. I think that’s a positive thing for us.
“People still need a lot of help [understanding how it works]. The home owners need help. The consumer needs education so a lot of things need to not just be online, offline, they need to work together so, in that case, I think Tujia being a local company, it has clear advantage because we know the market very well. This is the market, these are consumers. We spend all our effort on China. Airbnb is focused on the general market. We know our consumers and our home owners better and we know the market better, so we have some clear advantages.”
Another certainty is that this will be much more a marathon than a sprint for Aibiying.
“I don’t see this as a quick win here,” said Katz. “It will take a lot of time and investment to really serve this market well. Even then, if you’re essentially going up against Ctrip and the Chinese market, I think it’s going to be a tough run.”