Li Ziwei / China Tech Insights2017-04-21
(Yicai Global) April 24 -- “This is how you kill a successful foreign brand fast: start with a stupid Chinese name. The red hot Airbnb has made a controversial decision naming itself Aibiying which sounds like a filthy love hotel,” a user comment reads on LinkedIn regarding Airbnb’s latest rebranding in China. This is just one of many examples of how the Chinese have responded to the new local name for Airbnb.
Airbnb attempted to woo the Chinese market with its new Chinese name “Aibiying” unveiled at a press event last month. The company said the intended meaning of the name was to “welcome each other with love”. However, Chinese users aren’t buying it, claiming it awkward to pronounce and a weird character combination.
Although the company has stumbled a bit with this year’s first localization move, its latest plans show great ambition for the market. Besides the new name, it also introduced its Trips and Experiences products for Shanghai residents during the event, and announced it would double down on investment and scaling of the team in China. Compared with the sluggishness of the past three years, it seems Airbnb is this year gearing up to play hardball with the Chinese market.
In this piece we recap past efforts made by Airbnb for this hard-to-crack market and explain why it’s still not yet time for the market to flourish in China.
1. A Look at Airbnb Over the Past Three Years
Though Airbnb officially announced its debut in the Chinese market in 2015, it has behaved rather slow and discreet with regards to its strategic planning. This stands in stark contrast to its more aggressive style expanding in markets outside of China, with its usual approach of investments, acquisitions and new product releases.
Judging from the steps Airbnb has been taken in China, it has put some effort into providing customized services, adapting products, wooing Chinese regulators and seeking support from leading VCs.
How does the scorecard look at present? This question can be answered in two parts, first a look at outbound Chinese travelers and then a closer look at Chinese inbound tourism. As an established brand, Airbnb appeals to Chinese outbound tourists. Airbnb saw over 700% growth in Chinese outbound travelers for 2014 with more than 5.3 million reservations made by Chinese for Airbnb’s worldwide listings as of last October.
As for the inbound tourism market, “In the past, Airbnb mainly wanted to attract outbound Chinese travelers to use its app when travelling overseas, but from this year on, it has begun to eye landlords within China,” wrote tech blog 36Kr, citing a marketing consultant affiliated with Airbnb. Despite it being the second strategic focus for Airbnb China, the company currently only has around 80,000 listings in China, compared with its over 3 million global listings.
For a company who has been on the ground for two years in China, these achievements aren’t exactly impressive.
2. Airbnb moves slowly in the Chinese market
Airbnb Chooses a Slow Pace in China
“Based on the work we’ve been doing with them, Airbnb stands alone among Silicon Valley companies as really, really understanding that China is different,” said Glenn Solomon, Managing Partner at GGV Capital, one of Airbnb’s investors.
“I’m not here to teach about China. I’m here to learn how to do business in China,” Airbnb CEO Brian Chesky said in a speech made at Fudan University, Shanghai last month.
A deep understanding of the differences and difficulties faced operating in China - a market where many of its predecessors have failed - Airbnb execs have at different occasions shown discretion and a modest attitude towards cracking the market.
This explains Airbnb’s slow pace, which to some extent, is of their own choice.
According to China Sharing Economy Report 2017 released in February by the government-backed State Information Center, the home sharing market overall is in its early stages. Preliminary estimates put year-over-year growth and trading volume for 2016 at 131% and around RMB 24.3 billion, compared with the RMB 203.8 billion transaction volume found in the ride-sharing market in China. There are over 1.9 million listings which serve a total of 35 million users. In all, the home-sharing market potential for China is huge, but at the moment, under-explored.
Due to the industry being in its early stages, local rivals are still fledgling outfits that don’t pose as much of a threat to global leaders as Didi Chuxing once did to Uber China. From the scale of listings and registered users, major home-sharing platforms all have a long way to go.
Having said that, the underlying reason for Airbnb’s slow pace in China is the immature home-sharing market. In the midst of both the Chinese tech industry and the government hugely encouraging and attaching great importance to the sharing economy, why have we yet to see a boom? This can be answered from both the supply side and from the consumer perspective.
A Yet to Mature Market
First in terms of the overall industry, home-sharing is a choice for accommodation usually when consumers plan to travel. Compared with the ride-sharing sector, home-sharing is a much lower-frequency consumption activity with a longer wait for a return on investment. Thus it is understandable why the ride-sharing business was able to take wing in China in such a short period of time, while home-sharing has not shared the same success.
The Supplier’s Perspective
From a supplier's perspective, China is short of quality listings. In China, the homeowner vacancy rate was at 22% to 26% for 1st-tier to 4th-tier cities, according to a report by Tencent News in June 2015. This is pretty high and that’s why the government has made efforts to curb over speculation in the real estate sector. However, according to a November report by real estate firm CRBE China in 2016, among millennials who own property, two thirds rely upon family sponsorship and in most cases, housing is owner-occupied. Established property owners (those who own more than one property) are at middle-age or above, without taking property developers into consideration.
For this group of people, when considering renting out a property, the preference lies with long-term leases or choosing to entrust properties to managers to avoid the troubles of being a short-stay host. A report released by Penguin Intelligence last May shows that 45% of respondents prefer to rent their homes to long-term tenants compared with 36% that prefer short-term renters.
This not only leads to a shortage of inbound listings, but attraction to shared homes, in its truest sense, is diminished when users find they are dealing with property managers or brokers rather than owner occupiers and potential friends.
There is no culture of sharing homes with strangers in China.
In the same report, the online survey revealed that for those who choose not to rent out their homes, the top two reasons given were “I don’t like strangers to use my things” and “it’s risky in terms of security and privacy”; for those willing to rent out their homes, their biggest concern was security. What motivates those willing to share homes? The survey shows 72% were primarily motivated by financial returns, with 19% wanting to make new friends. This means home-sharing is considered more of a business rather than a cultural experience with extra income.
The Consumer’s Perspective
For now, the biggest obstacle that home-sharing platforms are confronted with is the cultural issue. As mentioned before, there is no culture for sharing homes in China, both for homeowners and travelers. In a report released by Penguin Intelligence last September, respondents were asked what type of accommodation they choose when travelling, around half choose chain hotels and regular starred hotels, while 27% said they would consider a short-stay apartment. It will require time for home-sharing platforms to nurture a consumer market ready to accept the concept of home-sharing.
In the travel accommodation market, home-sharing company’s top rivals are Online Travel Agencies. Last September's Penguin Intelligence report reiterated this fact by showing which apps dominated both inbound and outbound Chinese travel markets. OTA giants Ctrip, Qunar and eLong take the lion's share, while home-sharing apps including Tujia, Ant, Airbnb and Xiaozhu are still a non-mainstream choice that no more than 5% of users choose to use.
Besides an underdeveloped market for homestays, there are also many differences between the Chinese market and the US market that have lead to a huge contrast in user acceptance of rental homes.
Privacy and safety concerns are still the biggest reason that stop users from choosing a home rental service. Chinese society lacks mutual trust among strangers. Renowned Chinese sociologist and anthropologist Fei Hsiao-Tung said Chinese social networks are reinforced by blood relationships and geographic proximity. A 2016 report released by the Chinese Academy of Social Sciences, a government-backed research institute, shows that according to the Chinese General Social Survey completed in the latter half of 2015(CSS 2015), only 6.5% of people trust strangers, way lower than the trust rate for families (around 100% )and neighbors(80.1%). Comparing that data with the CSS of 2016, the number fell to around 1%.
Though it’s not necessarily easy for people from other countries to trust strangers, what’s worse in China is that the country is in dire need of a sound credit rating system. Compared with the established credit rating system for much of the US and Western Europe, based on credit cards, bank activity and mortgage balances, China has never seen a unified credit system, and at the same time, there is a general lack of real-name verification on social networks. Current alternatives used by some home rental platforms include ID card information verification and Alipay’s Sesame Credit system.
According to data from AlphaWise, as many as 55% of US & European users choose Airbnb because it’s a cheaper alternative to hotels. The same appeal however falls flat when it comes to inbound Chinese tourists. It is not that Chinese travelers are not price-sensitive, but rather, Airbnb does not have much of an advantage over hotels in China in terms of price. According to the chart, the average cost of a standard hotel room is around USD 70, less than one third the cost of a hotel in New York, and this doesn’t even factor in the large number of cheaper chain hotels in China.
Here is a price comparison for Airbnb and hotels in top worldwide cities. In the chart one can see hotels in China are far less pricey than those of Europe and the US.
Last but not least, another reason that Chinese tourists stick with hotels is that hotels can guarantee a certain minimum standard of quality and service including, receptions, meals, tours and other things, while the quality of rental homes in China varies a lot.
3. Obstacles In the Way Of Airbnb Establishing a Foothold In China
Airbnb saw rapid growth with the outbound Chinese tourism market, because Airbnb’s established brand is attractive to outbound Chinese travelers. However, attracted by the huge size of the Chinese inbound tourism market, the government’s embrace of the sharing economy, and the fact that Chinese home-rental platforms are venturing out to snap up market share in overseas markets in direct competition with Airbnb, Airbnb has made the inbound market another strategic focus.
So what hindrances has Airbnb experienced trying to enter the domestic market? In two words, regulations and localization.
Regulations are a problem that all home-sharing platforms are faced with. In China, regulation is always one step behind the thriving of new businesses. The ride-sharing and, now trending bike-sharing industry, serve as the best examples of this phenomenon. Regulators typically don’t issue regulations until the market is basically settled to a point where public opinion can be collected. Although on the whole, the country encourages the sharing economy, it has not issued any further regulatory clarity for short-term home rentals. Home-sharing by the day as a business, has yet to be comprehensively addressed by the authorities and questions of legal legitimacy still remain.
Airbnb operating in China as a foreign company is also going to face more trouble than a local company, because of the issue of sensitive user data and information, capital, tax collection, and the location of its servers. Uber did a rather thorough job in abiding by Chinese laws by setting up a completely independent Chinese company that had a separate shareholding structure and management team, even becoming the recipient of Chinese venture funds. This might be something Airbnb will consider in the future.
For foreign O2O businesses operating in China, localization work can be divided into offline(operations) and online(product) adaptation. A simple check of the Airbnb official Weibo reveals much about its attempts at localization. Under the top two posts Airbnb wrote to celebrate its new local name, are to be found an awkward flood of complaints from Chinese netizens concerning their bad experiences with Airbnb, with the official account seeming to function something like an interim customer service panel.
Due to a lack of a sense of home-sharing and having been accustomed to standard hotel services, Chinese customers have complained on Weibo that they aren’t able to get timely responses from hosts, or they feel underserved because they can’t always access Airbnb’s Chinese service hotline. Customers are having trouble claiming refunds and compensation, with some getting locked out of accounts after inputting wrong username and password combinations, while finding nowhere for solutions.
Another failure at localization is the response system setup to handle complaints. Due to a lack of local presence, complaints from landlords are also left unsolved for unbearably long time periods. Last December, a landlord in Shanghai complained that a student tenant that rented her apartment through Airbnb nearly ruined her apartment afterwards. Airbnb gave no response to this incident until March when CEO Brian Chesky was asked about this incident during his visit to Fudan University.
Brian Chesky has disclosed that China is the only market that has a dedicated technology team besides its US headquarters, with the company looking to expand its local team in the coming year. Airbnb has been recruiting Chinese R&D staff since last September to enable it to better adapt its products to the market, according to positions posted on its website. Airbnb also partnered with local internet moguls Tencent and Alibaba as a part of its localization efforts. Airbnb users in China can make payments through Alipay on Airbnb and also by logging in through China’s biggest SNS service WeChat owned by Tencent.
Airbnb has hesitated to make changes where localizations go against the community culture that Airbnb upholds, or would challenge the company’s positioning as a pure C2C platform.
The Dilemma Between Localizing and Being “Airbnb”
Airbnb has significantly emphasized its light-asset model and its community culture, which differs from traditional hotels. It tries as far as possible to avoid partnering up with property developers, investing huge amounts in offline operations or intervening in communication between landlords and tenants.
In a report by Caijing, the magazine cited an Airbnb employee that works to expand listings in China who, instead of speedily expanding listings, cares more about building a healthy community among landlords and travelers. The practice of partnering up with real estate developers or property brokers - as commonly seen with Airbnb’s local rivals - goes against Airbnb’s values.
According to Tao Zhang, a netizen on Zhihu, China’s Quora-like Q&A platform, at a party held by Airbnb for its Chinese fans at the end of 2015 in Beijing, he asked Brian Chesky whether the company was considering simplifying or standardizing its process of ordering rooms and handing over keys, given the difficulties faced communicating with overseas landlords. The answer by Brian was, “this isn’t truly an existing problem, and we don’t plan to solve this with standardized processes. The communication between landlords and tenants is a huge part of the Airbnb experience and a vital step for creating a sense of community.”
While Airbnb is still reluctant to adapt thoroughly to the Chinese market, its local rivals have advanced much ahead in localizations, something Airbnb could perhaps learn from. Here are some examples of what local rival Xiaozhu has done for the local market.
• build its BD team to explore and expand listings:
• verify host IDs and take photos of listings on site to examine the quality of listings
• hold training sessions for hosts to provide better service and advice on decorating rooms ;
• place bluetooth smart locks on doors for free;
• Provide access to home-cleaning services in-app platform commission free
• Cooperate with Alipay’s Sesame credit system so users with high credit scores do not have to pay deposits;
• Provide 24x7 customer service hotlines for requests and complaints throughout the whole process of an order;
• Provide an invoicing service for business travelers.
4. The Wait Ahead For Airbnb Will Be Long and Arduous
Airbnb has undeniably been very successful building its brand globally, with a visually refreshing and user-friendly app which has won itself a good number of loyal fans in China. However, problems confronting the company are not few: a yet-to-mature market for home-sharing, a still dominant hotel industry, the dilemma between localizing and adhering to core principles and a bunch of aggressive home rental local rivals.
A more worrying and urgent headache for the company is it still has not been able to find a suitable candidate for its China CEO. Since its debut in China, it has replaced management a number of times. The China market has so far experienced three short-lived executives namely: ex-general manager of Greater China Region, Henek Lo, Head of China Operations, Sean Pan, and former head of Global Operations, Varsha Rao. Now the China region business is overseen by co-founder and chief technology officer Nathan Blecharczyk. According to Caijing, its tardiness in finding a CEO might be because of the high requirements it has for the position, which the magazine citing an early employee at Airbnb, include deep understanding of both America and China, working experience in multiple Chinese enterprises, established contacts in the real estate and travel sectors, and being adept at English and the internet industry.
No matter how outsiders may judge Airbnb, it’s good to see that the company has its own pace and plan and is fully committed to the market. As Brian Chesky said at his speech at Fudan University, in the end, Airbnb wants the Chinese team to make decisions independent of HQ, they want Airbnb China to be a pure Chinese company, not the China branch of Airbnb. He also announced the company would this year double investment and triple the size of its staffers in China.
[This article first appeared on China Tech Insights, an English research unit affiliated to Tencent’s Online Media Group.]