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Airbnb poised for head-on battle with its Chinese rival

Luo Jun

Luo Jun: founded China’s Airbnb equivalent TuJia

If you fancy staying in an idyllic villa close to Hangzhou’s historic West Lake, Airbnb may have an option for you, particularly if you are planning a large party or a family reunion. The lodgings rental service features an eight-bedroom, recently built home, surrounded by mountains, with a water view. The West Lake is just 15 minutes drive away, and the home is available for $904 per night.

The US website is looking to broaden its portfolio of rentable homes and apartments in China, having made a formal announcement late last month that it is entering the world’s most populous market.

Significantly, Airbnb announced that one of its key partners in its China expansion is Sequoia Capital China, a fund run by Neil Shen. As a co-founder of China’s top online booking site Ctrip, Shen knows a thing or two about the Chinese travel market and its e-commerce potential. But as Shen recently commented in a ‘Lunch with the FT’ column: “Western companies don’t have the right mindset for China in many ways.”

With that advice in mind, Shen will no doubt help to educate the San Francisco-based company on how to succeed in China, and explain how local conditions differ from those in the US and Europe.

Founded in 2008, Airbnb is a pioneer of the ‘sharing economy’ – with a business model that lists people’s homes and takes a booking fee from both the traveller and the property owner (according to the Financial Times this typically sees the host pay 3% and the guest pay between 6-12%). The model has been a success story worldwide: the company’s website has a catalogue of over 40 million homes in 34,000 cities in 191 countries. Based on its most recent fundraising round, it is worth about $25 billion (Ctrip is worth $9 billion).

In China, however, it will face competition from local players, particularly TuJia which has been positioning itself as the Chinese Airbnb since it was founded in 2011 – and includes Ctrip among its early investors (see WiC186). News website says TuJia now carries a valuation of $1 billion after a recent $300 million equity fundraising.

Jiemian recently met TuJia’s founder Luo Jun and pondered how his firm would fare now that it faces direct competition from Airbnb, and not just from smaller local players like Xiaozhu and Muniao.

Up till now Airbnb has preferred to target outbound Chinese tourists. Last year around 109 million Chinese travelled abroad. According to Airbnb’s own statistics, in 2014 outbound bookings by Chinese on its service grew by 700%, making it the site’s fastest-growing outbound travel market.

But as WiC has pointed out before, the residential ‘sharing economy’ has proven a tougher proposition in China. Partly this is because of a lack of trust – with many Chinese consumers dubious that advertised properties will actually look like the photographs, or even be there at all. This has prevented TuJia from reaching a critical mass akin to that which Airbnb has achieved in places like America. As of the second quarter of this year TuJia claimed that its app had been downloaded 40 million times, but also admitted its online listings numbered only 310,000. When we wrote about TuJia in 2013 it was claiming to have over 400,000 rental homes on offer, suggesting that getting listings has been a problem.

Little wonder, Jiemian refers to the Chinese site’s development as being “bumpier” than its US rival’s. Luo recognised from an early stage that a carbon copy of Airbnb’s approach would not work in China’s “differing local conditions”. Instead he began to work with a wide array of real estate developers that had built residential complexes near tourist sites and scenic spots.

Major developers such as Wanda have been investing heavily into these so-called “tourism property projects”. A glut of such residential units made them difficult to sell. TuJia stepped in by offering to use its site to rent them to tourists. “We are working with 80% of the top developers,” claims Luo.

He gives an example of an agreement he recently signed with Guangzhou real estate firm Country Garden. Its Country Garden Spring Town complex is located in the Yangjiao Mountain National Forest to the north of the city. In this case 87 apartments will be advertised through its site. TuJia has guaranteed the buyers of the apartments that they will each receive leaseback earnings of more than Rmb100,000 ($15,600) within five years.

Luo says that around half of his listings are located in tourist sites, but he hopes to grow more in cities too – the area where Airbnb has traditionally been strongest.

But when it comes to building the city portfolio Jiemian believes that TuJia could be at a disadvantage to the new entrant, because the American giant has “obvious advantages in terms of reputation”. Nevertheless it predicts a head-on battle between Tujia and “its grandmaster Airbnb” seems inevitable.

Meanwhile in the online hotel booking industry, there is another fierce battle going on, though this time between two major Chinese internet firms. Last month Tencent-backed Qunar submitted a complaint to the Antitrust Bureau of the Ministry of Commerce. According to 21CN Business Herald this asserted that industry leader Ctrip’s acquisition of stock in rival eLong violated the law.

“In the opinion of Qunar, currently Ctrip and eLong’s share of online hotel reservations exceeds 50%, forming a monopoly advantage,” reports 21CN. Qunar thinks that by joining a consortium to buy Expedia’s 62% stake in eLong in May, Ctrip has achieved control of eLong.

Ctrip has already rebutted the claim, stating it is one of many shareholders in eLong and it doesn’t exercise control. Likewise it argues that even if you combined Ctrip and eLong’s businesses their market share of China’s total travel business is still less than 5%.

Industry observers told 21CN that a large proportion of customers still book hotels through traditional travel agents, meaning that even if one player dominates online booking “the boundaries of what constitutes a monopoly are blurry”. So far the Ministry of Commerce has not made a reply to Qunar’s complaint.

Reverting to the ‘sharing economy’, the car-booking app Uber faced a setback this week when Xinhua reported that a robbery and sexual assault took place in an Uber-booked vehicle in Chengdu last month. A 42 year-old woman was robbed (at knife-point) of her cash by the driver (she was carrying Rmb5,000), and then taken to a quiet spot where the driver took indecent photos of her.

A man surnamed Wu has been charged by the police with robbery and rape.

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