The following is an abridged translation of an unsigned article.
October 9, 2019
Just as Airbnb announces its 2020 IPO ambition, it is going through the biggest personnel shake-up in China since its entry into the market.
China’s guesthouse market was worth RMB 20 billion (about $2.8 billion) in 2018. Airbnb may be one of the big players but it’s not number one. According to Trustdata, its penetration rate for Q1 2019 ranked third at 36%, behind Tujia at 69% and Meituan’s Zhenguo at 43%.
After four years in China, Airbnb China is now a 400-strong company. And until now, the struggle for the right leader for greater China has been incessant.
In June 2017, Ge Hong became China CEO, lasting just four months. He was followed by another year of vacancy.
In September 2018, the local entrepreneur Peng Tao arrived on the scene. This was the third of three power shuffles at Airbnb China. With each leadership change, the company has taken a small step forward.
There is a consensus that foreign companies fail in China is because they haven’t acclimatized to a sometimes brutal business environment. But what is the face of cultural conflict in business?
Chaos kicks off in China
By September 2015, global Airbnb had secured a huge $1.5 billion in financing and ranked global third among unlisted companies, valued at 25.5 billion USD. Nine west-coasters had just landed at Beijing Capital Airport. The founders couldn’t wait to fly their CFO, CMO, and CTO into China to open up the massive market. Fresh off the plane, all three had already downloaded WeChat on their phones. They were set.
Up to this point, there were two diverging opinions on China at Airbnb. Proponents were swayed by China’s staggering growth rate and felt the company should accelerate its rollout. Conservatives worried about Chinese tourist “quality”. Chinese clients would be getting into disputes with landlords across Europe and the US. Airbnb couldn’t take this kind of hit in its bread and butter markets.
Airbnb’s senior execs visited Baidu, Xiaomi and other leading tech firms. They met with Uber’s China head, eBay’s people, and the tech circle entrepreneurs everyone was talking about. And while the visits were a success – in the end, the leaders reported to their Chinese team: “China wants to run fast, and we want to support you” – as for allocating support, they would need to seek resources, authority and space from headquarters, and it would need time.
In fact, Airbnb had been in China for a while already. In 2013, its Asia-Pacific headquarters moved from Hong Kong to Singapore, and were allocated 2-4 people to expand into China, Japan, Korea and Southeast Asia. In 2014, Robert Hao and Bruce Li moved from Singapore to Beijing and became the first staff resident in China. They rented a floor of an apartment building, and got to work, but things went slowly at first.
Before 2017, unlike Uber, Airbnb was just a minnow. It lacked a driving force and struggled to find a CEO in China with the all-encompassing requirements of:
- Product and technical background
- Chinese entrepreneurial experience
- Good government relations.
In terms of reporting, at the beginning, the China, Japan and South Korea teams reported to the head of North Asia, and then the head of Asia, before eventually gaining the attention of the global COO. By 2017, they reported directly to the founders, meeting with the CEO every month.
Parachuting in the engineers
In the past, the marketing, operations, product teams, and engineering teams for the Chinese market were all headquartered in the US. Headquarters did not have any KPI indicators for China, aiming just to develop the brand.
After 12 rounds of interview, a product leader was found for China, Roc Yu, a man with an Alibaba background. He had to report to the American boss, and his daily counterparts were all in the US. But China’s products were not given high priority and were often queued by colleagues in the States.
To further its China’s strategy, Airbnb’s greater China region took the initiative of proposing a local product technology team. The company had never set up a technology branch outside the United States before. It was felt that technicians from Airbnb headquarters would be best suited with recruiting local engineers. No one expected that the parachuted in engineering troops to bring such change to China were such a contradiction.
Eight Chinese and two Americans were selected. They all spoke Chinese. The leader of the group was Ge Hong, a top student and a workaholic. In the same year Ge Hong was admitted to Tsinghua University’s Computer Science Department as a college entrant and received a Master’s degree from Yale University with top grades. During his time at Facebook, he drove information towards the company’s revenue pillar and was favored by Zuckerberg. Airbnb scooped him up, soon giving him heavy responsibilities.
Inside Airbnb, everyone knows the slogan: “Win China.”
“We only have one goal for 2020 and that is to reach $1 billion in business,” a key insider said three years ago. Company leaders wanted a quarter of these earnings to come from the China market.
In October 2016, the group of ten engineers landed in Beijing. The team did not intend to stay in China for long. In fact, they had an agreement with the headquarters. One year and they’re on a plane back home.
June-October 2017: Ge Hong
Ge Hong had neither local entrepreneurial experience nor a strong government relationship. “He didn’t even have an EMBA,” remarked one insider. Chesky made a strong push for giving Ge Hong leadership power. He valued his pursuit of quality. But Chesky was pretty much his only supporter on Airbnb’s board of directors. Airbnb’s other co-founder, Nathan Blecharczyk, was said to have raised objections.
But Ge Hong got results. The number of Chinese tourists who used Airbnb in 2016 increased 142% year-on-year. In 2017, the number of Airbnb users staying in China increased by 289%. With the rise in China business, Airbnb achieved its first annual profit in 2017.
He became known for having an aggressive and ambitious strategy. Efforts to speed up meant promoting the localization of products, close cooperation with Alibaba, accepting Alipay, swapping Google maps for local app operator Gaode. They did a lot of recruitment, interviewing big numbers every week. Its staff increased from 30 to 200 in 2017.
The local staff had time to go to the gym and got off work at six. The parachuted in tech team was working till 11 p.m., or into the first hours of the morning. Both sides started whispering about fairness, complaining that the other side was making less effort.
Eight months after coming to China, in June 2017, Ge Hong was appointed global vice president in charge of China, reporting directly to Chesky. He stood center stage.
He wanted to prove himself as quickly as possible, not only to repay Chesky’s trust in him, but also to gain broader authority for himself. All too soon, he found he had stepped on too many toes. He left in October, after just four months.
2018-2019: The successor’s blade
Unlike Ge Hong, who was promoted by Chesky, Peng Tao was a professional manager entrusted by Chesky.
In April this year, Peng Tao told reporters that Airbnb first found him through a headhunter, and that as he had just started a business, he wasn’t that interested. Regional leader Bai Siqi had to make a special trip to China to convince him. They talked from 6 to 11pm, and again all morning the next day.
Under the recommendation of Bai Siqi, Peng Tao became the president of China in September 2018, and has been in place for a year now. Unlike Ge Hong, with his engineering background, Peng Tao is a more experienced manager.
“Unlike Ge Hong, he wants to be sure to balance all competing interests,” said one Airbnb resignee.
But Peng Tao had been biding his time. Over the past year, the turnover among management and employees of Airbnb China has been steady. Three of the management members left and one position was cut. Head of Legal, Liu Ze (Derek), and Design Director Vivian Wang left. At the end of 2018, the marketing department was split in two, with half the team now reporting to the growth department. Marketing director Chen Muru (Mia) had her reins shortened, and others in the team left. Then, in a shakeup of operations, Airbnb’s longest-serving executive in China resigned.
In general, there is the view that Peng Tao’s approach should not be overly criticized. Airbnb’s global marketing department has also shifted from branding to growth, given the company’s development stage, as it makes it easier to measure returns on investment. Of course, most people are in a wait-and-see period and cannot say anything conclusively.
It is too early to evaluate the current CEO on his actions. His current focus is on promoting localization. Specific tactics include launching mini programs, adjusting the collection model and going deeper into the market. According to Airbnb official statistics, business in China in the second half of 2018 and the first half of 2019 has nearly tripled.