Business

Airbnb Fights House by House With Local Rivals in China

The home-sharing app faces brutal competition where Uber bled $2 billion.

The rehabbed BBK35 courtyard home signed with an Airbnb rival, too.

Photographer: Bob Lou

During 14 months of painstaking renovation, a traditional siheyuan, or courtyard house, in Beijing was infused with hotel comforts and modern styling. Renamed the BBK35, it opened its red lacquered doors for bookings last July on Airbnb, luring hundreds of guests from around the world. Two months ago, the property also signed up with Chinese rival Tujia.com, and that service already accounts for 5 percent of bookings. “We used to think the local platforms couldn’t offer the same level of service,” says Brad Yang, a partner in the converted home. “But now there’s actually not much difference, and we may think of joining a third platform.”

Competition from local rivals is a key problem for Airbnb Inc. as it tries to pull off what Uber Technologies Inc. spent more than $2 billion failing to do: cracking the China market. Although Airbnb has 3 million listings globally, it had only 80,000 on the mainland in 2016. Tujia, which combined its listings with those of Chinese online travel giant Ctrip.com International Ltd., boasts 400,000 properties with an additional 300,000 on its low-priced Mayi.com unit. Xiaozhu.com has 200,000 properties in more than 300 cities. And with local companies drawing venture capital—Tujia has raised 2.8 billion yuan ($412 million), Xiaozhu has raised $150 million, and both are in talks to secure substantially more—competition is set to get even tougher.

Airbnb says it plans to double its spending in China in the next year. “Unlike local companies that serve local markets, Airbnb is global,” it said in a statement. “All other home-sharing platforms in China offer serviced apartments or spaces in vacant buildings and struggle to build a network outside of China.” While Airbnb doesn’t disclose its revenue, it became profitable in 2016 when annual revenue grew more than 80 percent, says a person close to the company.

China’s online short-term rental market brings in 8.8 billion yuan annually, says IResearch Consulting Group, and could reach 17 billion yuan by 2018. Rivals say Airbnb’s global experience will go only so far in helping it tap that market. Airbnb “only brings foreign travelers, so the booking density is much lower than domestic players like ourselves,” says Zhuang Hai, president of Beijing-based Tujia.com International Ltd. “Most of the [short-term rental] travel is going to come from domestic customers looking for domestic properties.”

Tujia’s site, crammed with prices and pictures, can seem chaotic to Western users familiar with Airbnb’s layout, but it contains information many Chinese find vital. Beijing, for instance, is a hodgepodge of business districts—many with a specialty such as commerce, tech, or the arts—so Tujia lets users sort listings by such needs. Patients coming to Beijing’s hospitals can pick from a list of neighborhoods near medical facilities. And travelers wanting to avoid the capital’s notorious traffic can sort listings by proximity to subway lines serving specific attractions, such as Line 4 for the Summer Palace.

Sandy Shen, a research director at Gartner Inc. in Shanghai, says Airbnb needs to increase its number of listings and offer a variety of prices to attract more domestic travelers. “It seems to be a curse that many foreign companies fail in China,” Shen says. “The challenge is to make the listings more appealing in terms of design, services, and pricing for locals.”

But listings totals in China may not provide the whole picture. Internal documents reviewed by Bloomberg in December showed that about 1 percent of Tujia’s listings were occupied at any given time, and it made less than $2 million in revenue in the three months ended June 2016. Zhuang said in December that revenue numbers are misleading and that volume of transactions is most important.

Short-term shared housing occupies a gray area in China, neither legal nor illegal. Boosting government relations there involves attending banquets and conferences backed by provincial politicians and facilitating numerous office visits by dignitaries, something locals have been doing to help gain official standing. And starting last year, Airbnb has signed tourism partnerships with some major Chinese cities, including Shanghai and Shenzhen.

Shen says the difficulty of grasping the peculiarities of the mainland leads many companies entering China to team up with a local business. Airbnb held meetings in August about acquiring Xiaozhu, but the talks didn’t result in a deal. The U.S. company also has shown a willingness to adjust to Chinese rules. In July, for example, it started storing data relevant to its China operations on locally based servers in line with new cybersecurity laws that other tech companies have protested.

Xiaozhu has worked closely with landlords in China to make its properties more appealing. “We’d help with renovations, decorations, installing smart locks—sometimes even our staff would get into it,” says Chief Executive Officer Kelvin Chen. “They used to joke that they thought they’d be joining an internet platform and instead wound up working in a renovations company.” He says Airbnb “can’t beat us” when it comes to such offline services that local rivals provide.With Olivia Zaleski

    BOTTOM LINE - China’s short-term home rental market is projected to reach 17 billion yuan ($2.5 billion) a year by 2018, nearly double the current level.
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