Baidu is the Google of China, Alibaba is the Amazon of China, WeChat is China’s Facebook and WhatsApp rolled into one – at least to the West. So, does that make Tujia the Airbnb of China?
In a broad sense, yes. Because Tujia – which roughly translates to ‘mid-voyage home’ – serves a similar need for Chinese travelers as Airbnb does across the world.
But there’s a big difference in how Tujia serves that need and dominates the Chinese market. It has developed its own model, adapted for China in a way that Airbnb has found hard to do.
At the outset, we thought it was going to be similar to Airbnb. But at the end of the day, we do a lot more which Airbnb doesn’t bother with.
Airbnb entered the Chinese market in 2015 – the same year in which Tujia became a unicorn. The global giant has been slow to expand in China, with 80,000 listings compared to Tujia’s 400,000.
It has announced a doubling down of investment in its China unit, rebranded this year with a Chinese name Aibiying, which quickly boomeranged on Airbnb. Its literal translation is “welcome each other with love” but it sounded sleazy to many because of sexual innuendoes in the Chinese word.
Still, Airbnb’s efforts at localization do reflect the potential it sees in the still immature Chinese home-sharing market. Going by Tujia’s experience, however, Airbnb will have to do a lot more than branding and investment.
The American way
Tujia’s president Hai Zhuang takes me back to its roots to help me understand why the Airbnb of China can’t be the classic Airbnb. We’re sitting across a coffee table in a Delhi hotel, where Hai is attending a Phocuswright travel conference.
The former software development lead for Microsoft is clad in a T-shirt and jeans. He worked for Microsoft in Seattle and Beijing for over a decade before he “got bored” and took the plunge into entrepreneurship in China with Tujia.
He had taken a well-trodden path for techies from India and China, before the entrepreneurial bug bit him. After graduating from Tsinghua University, he went to the US for a master’s degree and then joined Microsoft. Life was good. “It’s a nice place, the tech is great,” recalls Hai. “But I didn’t see a future for myself. At 35, I could foresee how I was going to retire, what kind of homes I would live in, what kind of cars I would drive, and what I was going to do every weekend – go to a shop to buy Chinese vegetables.”
Back home in China, everything was happening so fast, great opportunities were opening up, and he wanted to be a part of it. Finally, he transferred to Microsoft China. But after three years, he still felt disconnected from the excitement he saw around him.
“Microsoft is a great company to work for, with lots of smart people, but it’s a Western company with a ‘one world, one product’ vision,” explains Hai. “I was heading the Windows diagnostic and troubleshooting team in Beijing. What we were doing was geeky stuff. It didn’t utilize my knowledge of China.” He contrasts that with the example of Chinese security software adapting to the needs of everyday life, instead of adopting a one-size-fits-all model.
The Chinese way
Around that time in 2011, Melissa Yang – who was a close friend from their days in the US – started Tujia along with Justin Jun Luo, who had earlier tasted success with real estate portal Sina Leju that got listed on the NASDAQ. Yang wanted Hai’s help to find a tech lead for the new startup.
The more he talked to friends to sell the idea, the more convinced he became himself. But he struggled to find somebody willing to build an engineering team for the fledgling Tujia. “Everyone had reasons why they couldn’t join. The last guy asked me, ‘Why don’t you join if this company is so good?’ It was a valid question,” Hai recounts. “I thought about it for five minutes. Then I called Melissa and told her I wanted to join. She wanted somebody younger and more energetic, but I proved to be OK,” he adds with a laugh, the crinkles around his eyes suggesting a quick humor to go with his philosophical retrospection.
Nearly six years have flown by for the Tujia president, mostly spent in building the online business.
In the beginning, it seemed like a simple proposition of building an Airbnb for China. They started in the tourist destination of Sanya. Five of the founding members went there to look at alternative accommodation for travelers.
They realized soon enough just how different the market is in China. Neither homestays nor apartments rented out to travelers had basic standards in place – starting from clean bedsheets. Hai also points out that China doesn’t have a bed-and-breakfast culture like in the West, where a home-owner feels comfortable letting a stranger use an airbag in the living room or a spare bedroom. (The name Airbnb is derived from airbag and bed-and-breakfast.)
For that matter, most Chinese homes don’t have a spare bedroom. Real estate is expensive in relation to income level. “Most people buy or rent properties according to their needs; they don’t buy a three-bedroom apartment and just live by themselves,” explains Hai. “If they have kids, then it’s a two-bedroom apartment; if they have kids and parents living with them, then they may go for three bedrooms. Every bedroom is filled, so there’s no additional space for other people to stay in – we don’t have that kind of supply.”
So, early on, Tujia decided to focus on whole units – that is, furnished apartments rented out for short stays by travellers. What China does have is an abundance of vacant properties – over 50 million of them, according to Hai.
To touch customers beyond the top rung to use your product, you need to work with channel partners locally.
Real estate is an attractive channel for the Chinese to invest their savings, because of a sustained boom despite periodic predictions of a bust. So a lot of people have invested in second homes, especially in tourist destinations like Sanya where real estate is hot. But they tend to leave them vacant because their main interest is in seeing the property escalate in value. The rental income is peanuts in comparison, and not worth the bother for many of them. And they rarely go and stay there themselves.
People don’t like to go to the same place for a vacation, even if they have a second home there. Besides, it’s a hassle to clean up a place lying vacant for long periods of time.
“I have a small property in northern China, which I don’t really use. I just go there once a year to pay the maintenance fees and come back. And when I’m there, it’s better for me to stay at some other place where people manage their property. So this is a big waste from a utilization perspective,” says Hai.
That’s where Tujia comes in. It works with real estate developers, agents, and owners to manage their properties. For the owners, it’s an extra source of income minus the headache of managing the rentals and maintenance. Apart from promoting the properties online, Tujia contracts local service providers for utilities, cleaning, laundry, and so on.
This is a far more hands-on approach than the Airbnb model. “At the outset, we thought it was going to be similar to what Airbnb does. But at the end of the day, we do have a marketplace, but we go a lot beyond a marketplace which Airbnb doesn’t bother with,” says Hai.
Feet on the ground
One of the first things Tujia did was to tie up with Sweet Home, an American real estate service. It collaborated with real estate developers in touristy places like Sanya to rent out their properties, and used the Sweet Home brand to set a benchmark for amenities and services.
Now Tujia has evolved with a variety of models on the ground. Apart from profit-sharing deals with individual owners, it works with local communities to manage properties, or even a local host to manage properties of neighbors who put them up on Tujia. In the larger cities, it runs an agent service which helps with all kinds of minute details – like providing a smart lock so that the host doesn’t have to hand the key to the guest every time. If owners want to manage their own properties, Tujia just provides services and charges for them – which is its most risk-free model.
But the Sweet Home brand still has a key role – Hai says 20,000 out of the 400,000 properties on Tujia are ‘Sweet Homes.’ That’s 5 percent of the total properties, but they account for 20 to 25 percent of all transactions. “The conversion rate is much higher,” adds Hai, emphasizing the importance of managed properties in China, requiring far more groundwork than the classic Airbnb model.
Hai points out that Airbnb’s inventory in China, about a fifth of Tujia’s, is mostly in mainland China’s five big cities and Hong Kong. “They have branding to attract the young, rich, and educated who know them well, those who go abroad a lot. But they don’t have feet on the ground to recruit properties beyond the first tier cities, and they don’t have a user base beyond the branding,” he says. “To touch customers beyond the top rung to use your product, you need to work with channel partners locally, and promote the concept. We have a team on the ground for that and not just the brand to do it with TV commercials – that’s not enough in China.”
Airbnb is trying to get its local act going. It has brought Airbnb Trips – its new concept of guided tours and local experiences – to Shanghai. And it has signed deals with local governments to promote tourism. But it may need more feet on the ground to emulate Tujia’s connect with property-owners and expansion beyond the major cities.
See: Why Airbnb is struggling in China
What about the role of the government, which blocked Google and Facebook? Doesn’t Tujia benefit from it just like Baidu and Tencent did?
According to Hai, the government isn’t interested in favoring a local company over an international company in the area of alternative travel accommodation, “because they don’t see it as a big business [or strategic interest] at this point of time, [unlike ecommerce, transportation, social media, and internet search].”
But shared accommodation and short-term rentals – unlike the well-established long-term rental or hotel businesses – do require close interaction with local governments. “It’s a gray area and depends on local government regulations,” says Hai. “Some welcome it, especially in tourist destinations, because they boost the economy and real estate market.”
Two-thirds of our bookings are confirmed within 10 minutes, and the total rejection rate is 3 percent for incorrect inventory or pricing.
A large revenue source for many local governments is selling the land and the properties they develop on them. It also provides jobs through tourism as well as sale of real estate. “We give an extra reason to [people with disposable income] to buy these properties,” points out Hai.
In the big cities, the government’s attitude is mixed. It has been supporting a shared economy for the past few years, which has led to the rise of Didi – and now bike-sharing companies like Ofo, or even umbrella-sharing and battery-pack-sharing startups. “At the same time, certain branches of the government are cautious,” says Hai, especially the bureau of public security.
Hotel guests have to present an ID, which can help the government track criminals or terrorists. Hotels are also required to have cameras in public areas. “That’s one of the big issues we’re facing,” Hai observes. “Many of our hosts don’t have the mechanism to check the ID of the guest. Besides, their properties are in residential areas, so it’s not legal to put cameras in the doorway or staircase.”
Tujia has been finding tech solutions to help its hosts comply with regulations. For example, a guest can hold up an ID card and take a selfie in the app. GPS can pinpoint the guest’s location and a barcode can identify the property. That way, there can be a self check-in without the need for a host’s presence. One reason that Airbnb set up a China unit last year was to store guest information within the country and work more closely with government agencies.
Battle lines shifting
Apart from regulations, there can be a push-back from local residents who dislike the comings and goings of strangers in their midst. “Sometimes communities protest,” admits Hai, “but as a trend, society is welcoming it more and more. We get the host or community association sometimes to convince people that it’s all right.”
It is this kind of deep-rooted local presence – identifying problems and finding solutions, connecting with property owners and communities, and ensuring the quality of listings even from smaller cities – that gives Tujia the edge in China. “Two-thirds of our bookings are confirmed within 10 minutes, and the total rejection rate is 3 percent for incorrect inventory or pricing,” claims Hai, suggesting that there are few zombie properties among the over 400,000 listed on Tujia.
China’s answer to Airbnb is yet to turn profitable – unlike its American counterpart which made its first profit in the second half of 2016, according to Bloomberg. But “we’re not burning cash,” claims Hai. “We can sit on the pile of cash [US$420 million in total funding so far] for a long time. Most of our properties are in tourist destinations with a revenue-sharing model, so our risk is limited.”
For now, it is focusing on scaling up not only in China, but also across Southeast Asia, South Korea, and Japan, to serve the rapidly growing numbers of outbound Chinese travellers. This sets up an intriguing battle, with Tujia pushing the battle lines across Asia, even as Airbnb steps up its China act.
In the second part of this series tomorrow, how Tujia is widening the war with Airbnb.
This post How Chinese unicorn Tujia altered the Airbnb model – and why Airbnb hasn’t adapted, yet appeared first on Tech in Asia.