China might not be a great place for a search engine or a social media site to localize, but if you are in the O2O business, things are looking up.
Last week AirBNB sought a CEO for its China operations, the company also announced partnerships with China Broadband Capital and VC giant Sequoia Capital China, who will likely assist them in finding the right candidate. According to AirBNB, their customer base in China has risen 700 percent over the past year, making it their fastest growing market of outbound travelers.
But the growth in China’s short term rental market isn’t unique to AirBNB.
The short term rental market in China has seen an unprecedented boost as the country’s middle class works up an appetite for travel abroad. Statistics from China’s biggest search engine, Baidu, shows that the Chinese term for short term apartment rental ‘短租公寓’ barely existed as a search topic just one year ago. Over the last year, searches related to the short term rental market have skyrocketed.
Santiago Mateos, the Director of International Business Development at Chinese search engine marketing service Netconcepts, says that AirBNB has seen more search demand growth, and may have the upper hand over companies that stay attached to the local market as the industry thrives.
“Mayi and Xiaozhu [two of AirBNB’s prime competitors], have not registered the same level of search demand growth despite online and offline advertising campaigns, and numbers are lower in absolute terms,” says Mateos. “They also do not list any overseas based inventory and it remains to be seen whether Chinese travelers will show the same level of interest in P2P apartment rentals in the domestic market compared to overseas travel.”
AirBNB has a handful of competitors in the Chinese market, including Xiaozhu, Mayi , Muniao and Tujia, the later of which run a series of other rental services on top of short term rentals. While the local players have a head start in the local market, AirBNB has clear strengths in overseas markets, which explains their strong focus on outbound travelers.
Tujia has positioned itself as the competitive high-end local service, with value add services such as post rental cleaning and laundry. The company reached a valuation of $1 billion USD following a $300 million USD investment this month. In an interview with the Wall Street Journal Tujia CEO Melissa Yang said “we started managing our properties ourselves, so we can ensure a high quality of service.” She also noted that Tujia strongly outweighed local competitors in funding, saying it was a vital factor in the success of Tujia. The company still has a weak outbound service compared to AirBNB however, focussing primarily on the Asian region including Southeast Asia.
In July this year, Xiaozhu, which is often referred to as an AirBNB clone, sealed a $60 million USD funding round from four private equity firms. The company also has a strong domestic focus, with offices across 20 Chinese cities and 30,000 listed rental homes.
While most Chinese competitors have a local effort that easily outweighs AirBNB’s 10-person-strong China management team, it’s likely the US company will continue to be a strong competitor for outbound travelers.
Like Linkedin, AirBNB will be expected to hand over data to the Chinese government including user information and possibly booking data. It’s an uncomfortable feature of entering the Chinese market that all foreign tech companies face. Google refused to make the allowances and has remained blocked in China, while Linkedin made concessions to share data, drawing criticism but ultimately allowing them to operate in China.
Barriers to entry are certainly less than the potential benefits for AirBNB. The market for short term rental companies in China is set to double, with a potential value of $1.69 billion USD, according to Chinese internet consultancy iResearch.
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