Xiaozhu CEO denies acquisition talks with Airbnb, betting big on business travelers

As a crucial part of the sharing-economy, home sharing industry has been accelerating exponentially in the past couple of years. China gets a fair share of home-rental startups and Xiaozhu is one of them. TechNode (in Chinese) got a chance to speak with Chen Chi, CEO of the company, on a variety of topics from Airbnb acquisition rumor, the prospect of home sharing industry and competition in the market.

Talk with Airbnb never touched capital cooperation

A previous Bloomberg report sparked a lot of speculation on Airbnb’s possible acquisition of its Chinese equivalent. The news agency cited people with knowledge of the matter that Airbnb in talks to acquire Xiaozhu to expand in China’s home rental sharing market. Other media reported that Airbnb gave up the deal because they think Xiaozhu lacks attraction for high-end customers.

Chen Chi has confirmed that the two companies have had lots of talks on different levels on business development and technological cooperation, but he said that’s all. Their talks never moved to capital cooperation.

Hotel business is still the biggest competitor

2010 was widely considered as year one for China’s home rental industry with the emergence of a group of Airbnb clones like Tujia, Mayi, Airizu and Youtx. The failure of Airizu, which copied Airbnb’s model completely, has forced a majority of the players to exit the non-standardized accommodation sector. Short-term home rental vertical welcomed a new round of revival in 2014 as several platforms like 107Room, Hhz360, and Zuber recorded capital injections.

With the maturity of regulations and public reception, China’s home rental market is growing quickly. Data from China’s Sharing Economy Report 2017 (in Chinese) shows that the country’s short-term home rental market is worth 10 billion RMB (1.45 billion USD) in 2015, up from 140 million RMB in 2012. The annual turnover of this sector reached 24.3 billion RMB in 2016 and the combined capital injection in this sector exceeded 4.6 billion RMB.

As the top players in this industry, Tujia and Xiaozhu have passed their D round and their numbers of registered accommodations exceed 400k and 150k, respectively.

However, domestic short-term rental startups still lack the power to compete with traditional hospitality groups.  “Short-term rental industry has been accelerating in the past two years, but on the macro-level, we are still facing fierce competition from hotels and this will be our focus in the future two or three years.”

“The short-term rental industry has been accelerating in the past two years, but on the macro-level, we are still facing fierce competition from hotels and this will be our focus in the future two or three years,” Chen says.

According to Chen, short-term rental platforms have yet to enter a battle with peer startups. Pressure from hotels and improvement of customer experiences are the two determinants in this industry in the future.

Business trips might be the next big thing

Airbnb’s success might shed some light on competition with hotels for Chinese online accommodations startups. Airbnb added services for business travelers in 2014. Certify that business spending on Airbnb grew 261% in the U.S. and 249% overseas in 2015.

Chen disclosed their plans on business trip services “Lots of business travelers weighing between hotels and short-term rental services.” China’s cooperate travel market is less centralized, so lots of accommodation demands come directly from individual customers on business trips. Xiaozhu wants to start with this group of customers.

Chen noted that vacation rental services are greatly influenced by seasonal factors, and therefore, it constitutes but a small part of the market. The core part still comes from short-term rental services in cities, which features high frequency, stable and right demands.

It’s still too early to talk about profitability

Airbnb turned profitable in the second half of 2016 and anticipates that it will be profitable in 2017 as well.

In respond to profitability questions, Chen responded “It is still too early to talk about profits. Xiaozhu can turn profits now if we give up further development. Currently, our commission revenue can cover all the basic costs. The home sharing industry is still in an early development stage and has great potentials. No companies would be so silly to give up market expansion potentials for short-term profits.”