What will it take to win in China? Part 3.2

Ramesha Perera
Tue 21 May

In our final analysis of China’s unique startup ecosystem, we investigate Airbnb’s strategy to make it big in the East. Has Airbnb discovered overcome homegrown competitors and navigate through China's political landscape?

Airbnb faces a slew of homegrown competitors, all of whom are competing by offering discounts and cheap services to budget-conscious travelers. In general, the Chinese market is dominated by three companies. “If you are not part of the Alibaba-Tencent-Baidu market system, it’s really hard to compete,” says Kyle Lui, a principal with DCM, which invests in China.  

Meituan Dianping has a sizable investment from the parent company of Booking.com, an Airbnb competitor that is also pushing aggressively into China and has recently invested $500 million in the ride-hailing company Didi Chuxing.  

Furthermore, Tujia, which is aligned with the largest Chinese online travel agency, Ctrip, strikes deals with landlords to rent out blocks of apartments. The company had also expressed interest in partnering with Airbnb stating:   

“We would love to issue shares in Tujia in exchange for Airbnb’s China operations,” says Tujia Chief Financial Officer Warren Wang. Until Airbnb is ready, “we will prove ourselves and show our muscle,” he said. “If Airbnb needs more time to understand that they or any other foreign tech companies just can’t do that well in China without a local partner, once we show them they’ll sit down and talk about a deal.” 

In addition to trouncing its competitors, Airbnb will need to stay in the good graces of the Chinese government. It has come to agreements with several Chinese cities to insure it can operate, and it has been upfront about its plans to share guest data with the Chinese authorities. But if Airbnb starts to pose a threat to homegrown companies, the government could step in to regulate it more harshly. 

 

 

Despite all of this, Airbnb’s listings in China have surged this year. The number of active listings is up 133 percent year over year, according to AirDNA, a service that analyzes Airbnb data. As the company looks for new growth opportunities in the run-up to an initial public offering, which could come as early as mid-2019, the data suggests that Airbnb’s China business is worth the fight—for now. 

Airbnb tapped LinkedIn Corp. co-founder and board member Reid Hoffman to help navigate a government that has been hostile to the likes of Facebook Inc., Twitter Inc. and Google. LinkedIn and Airbnb are among a handful of American tech companies still operating in China. Like Linkedin, Airbnb acceded to official demands: incorporating as a separate Chinese entity, sharing information such as passport numbers and guest whereabouts with authorities, storing that data in Chinese rather than U.S. servers. Those decisions have been criticized, but Airbnb remains happy with its choices.

“From the beginning, we decided what we were comfortable committing to and made that clear to Chinese authorities,” Blecharczyk said. 

Critics say Airbnb remains out of touch with the local ground game. Without a Chinese partner, they say the company will struggle to operate in the gray zone of an unregulated home-sharing industry. It has to be careful to avoid getting kicked out of China like other American tech companies. As a Chinese company, Tujia says it’s more adept at knowing when to push and when to hold back. It says it has closer connections with government officials and people working with police departments, local and federal governments. 

So it seems for now we'll just have to watch this space...