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Airbnb Focuses On Smaller Chinese Towns

US-based online hospitality service provider Airbnb has claimed that the company controls half of the travel and tourism service market in China.

Oct 5, 2018 by A. Alfaro
Airbnb Focuses On Smaller Chinese Towns

US-based online hospitality service provider Airbnb has claimed that the company controls half of the travel and tourism service market in China.

The disclosure was made by Airbnb co-founder Nathan Blecharczyk and the company’s China operations head Peng Tao during an event in Shanghai on September 21.

Speaking to local media, the duo said that the company had experienced 170% growth in the last one year and hoped to see 200 % growth during the (now concluded) September 24 Mid-Autumn festival and the upcoming October 1 to 7 National Week festivities in the country. Both these events spike tourism in the country and the Airbnb top guns said they are confident of cashing in on the festivities.

Alluding to a change in strategy, the duo said that they expect the twin Tier II cities of Chengdu and Chongqing to perform the best. So far Airbnb has concentrated on the high-end tourism market in Tier I cities in China. However owing to market saturation and fierce competition in Tier I cities, non-first tier cities are becoming a vital part of the company's strategy and growth. Both Blecharczyk and Tao stressed this point during their intervention, making it clear that Airbnb (called Aibiying or 爱彼迎 in China) will focus on those cities for its future growth.

The move seems to make sense. Over the last one year, many retail, e-commerce and investment companies in China have thrived on users from rural China where the 4G network, infrastructure and logistics have improved during the last years.

However, for a foreign company like Airbnb, this would also be a test of its localization ability. Unfortunately, Airbnb has been facing hurdles on that front in China. In 2015 Airbnb’s CEO Brian Chesky admitted that communication between foreign tourists and Chinese landlords was very difficult because the locals speak very little English.

Since its debut in China in 2015, Airbnb has been non-aggressive in its expansion. This has made it easier for local competitors like Tujia and Xiaozhu, both valued at over USD 1 billion now, to walk away with the mid-range customers.

However, in 2017, Airbnb tried to do some course correction. Speaking to finance portal Yicai then, Brian Chesky had said “:Airbnb learned from other companies' experience in China, such as that of Uber.”

Shortly after that, the company established a local team, hired more people and reformed Airbnb's product and operation focusing on the characteristics of local users.

One year and a half later, Airbnb has 200 employees in Beijing focused on product, catering to Chinese users. Unlike Uber, which was absorbed by local tech giant Didi, Airbnb has been able to fend of competitors so far.

During the September 21 event, Blecharczyk also introduced Peng Tao who became chairman of Airbnb China two months ago. Previously, Peng worked in Breadtrip (面包旅行), a travel social network founded by himself in 2012. After graduating from Huazhong University of Science & Technology and Melbourne University, Peng became one of the most popular entrepreneurs in the travel sector. Breadtrip received a USD 50 million investment from Tencent in 2014.

He succeeded Ge Hong who had unexpectedly quit Airbnb China last year. Although the company was growing under Hong, industry insiders reportedly did not have faith in him. In Blecharczyk’s words, Airbnb “We were looking for someone who knew the whole Chinese market, which is very important for us.”

Speaking at the event Peng emphasised that Airbnb would have to gradually enter Tier II and IIl cities and even in rural areas.

Before officially entering the Chinese market in 2015, Airbnb received investment from local investment firm CBC Capital. Interestingly enough, CBC is one of Breadtrip's main investors and a shareholder of Tujia, Airbnb's Chinese competitor. This could be a symptom of a future concentration of companies through mergers and acquisitions in the holiday rental industry, as it happened in the car-hailing, travel, and group-buying fields.

In the last months, the new sharing economy has received criticism in China. After a female passenger was killed by a Didi driver last August, Didi admitted that until the incident, the company had focused too much on growth. In its public announcement following the crisis, Didi promised a safety-first approach to its business. In this spirit, Peng explained that Airbnb is working on prevention and safety. For example, Airbnb China established a bilingual customer service in case of emergency, ensuring the safety of both tenant and landlord.

Peng Tao will have to find a feasible business model for Airbnb in a very competitive market and at the same time, ensure everyone's safety.

A. Alfaro

A. Alfaro is a Beijing-based freelance reporter. He focuses on China's politics, culture and society. He can be reached at varofaro@gmail.com. 

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