Airbnb is taking on China’s burgeoning sharing economy by making itself more Chinese as it expands in the market. According to the company, business is booming in China, but some analysts think it may face the same fate as Uber China, which sold its China operations to its domestic rival in 2016 after spending billions to gain market share. Airbnb, which offers similar services across the many markets it is operating in, may, however, have to change its formula to succeed in the Chinese home rental market.
Even though Airbnb started operating in China in 2012, it didn’t open a China office until in 2016—at which point a large number of domestic rivals had popped up, secured significant investment, and grown to become serious competitors to Airbnb in the Chinese market. Tujia ranks as the primary rival in the Chinese market, which sports a valuation of over US$1 billion, with competitors such as Xiaozhu and Mayi also making China a far more competitive market than what Airbnb faces elsewhere.
To comply with local laws, Airbnb set up Airbnb China, a separate business entity, that will host all data related to Chinese property listings and Chinese users’ booking information. While it has ambitious goals of growing its number of employees in China by ten times, by late 2016 it only had some 30 employees working at its China offices. According to a report by Fortune, Airbnb has also struggled to find a CEO that will lead its Chinese business. Sporting some 75,000 property listings in China, Airbnb is also dwarfed by local competitors—Tujia lists around 500,000 properties in China, and has also been expanding its pool of listed properties throughout East Asia. Xiaozhu, while small in comparison to Tujia, has said that it expects to report 500 percent organic growth for 2016, and reached over 100,000 listings last year.
Airbnb’s dominance of the overall home-rental market beyond China still makes it a far more valuable company than its Chinese competitors—which for now only focus on serving Chinese customers, whether in China or abroad—and recent funding rounds have given it a substantial war chest to expand in the Chinese market. However, going after Tujia puts it up against Chinese tourism giant Ctrip, which holds a stake in Tujia. In October last year, Tujia also acquired the homestay divisions of Ctrip and Qunar, merging them into Tujia. This follows an acquisition in August 2016, when Tujia acquired another major local competitor, Mayi. The Tujia story is in many ways comparable to how Ctrip came to dominate the online Chinese travel market with a series of acquisitions, mergers, and strategic partnerships.
For a foreign business that wants to compete against Chinese incumbents, connections to local companies and authorities can go a long way in opening doors. Fortunately for Airbnb, as of earlier this week, state-owned sovereign wealth fund China Investment Corporation now holds a US$100 million stake in the company, joining two other major Chinese investors in the company: Sequoia Capital and China Broadband Capital. It has also been in talks to acquire Xiaozhu since last year, but so far, neither company has commented on the potential acquisition.
While Airbnb may be becoming increasingly Chinese in terms of staff and investors, the larger challenge lies in addressing the different market conditions and expectations in China compared to in the many other markets it operates in. For payments, Airbnb has already started accepting Chinese mobile payment solutions such as Alipay. It also partnered with Chinese tech giant Tencent to have its services built into WeChat, which now serves an important distribution channel for Airbnb in China.
Changing the way it does business in China could also become important for Airbnb as it’s trying to catch up with its local competitors. Tujia, for instance, is partnering with property management companies that take care of houses and apartments listed on its website. Property owners, often buying properties as investments while living elsewhere, can simply choose to let Tujia take care of and rent out their properties without any direct involvement. It is also partnering with local governments that worry about the vast number of empty homes that have been springing up across China during its property boom. The cultural factor also plays a large role, with Chinese people generally less inclined to host complete strangers in their private homes.
Airbnb’s Chinese competitors tend to avoid describing themselves as “the Airbnb of China,” instead emphasizing their added services and different business practices as proof that they aren’t simply local copycats. For Airbnb to succeed in China, it may just have to be less of an official “Airbnb of China,” and instead learn from its local competitors to become a well-funded “Tujia from Silicon Valley.”