Uber was the last American firm failing to enter China. But it has not stopped newcomers to enter this tough market. Airbnb is the latest arrival and Peking University business professor Jeffrey Towson gives the US firm some tips on how to win access at his LinkedIn page.
2: Airbnb should focus first on dominating China’s outbound home-sharing market.
In 2015, over 110M Chinese tourists flew overseas – where they stayed in hotels, short-term rentals and / or home-shares. Note: over 50% of tourists in Asia this past year were from China.
This part of the market is much clearer. First, one side of the platform (the listed homes) is already in place. Second, the price differential for home shares versus hotels in places like New York and London is much more compelling. Especially for families. And third, the chicken-and-egg problem is already solved. The international platform is up and running.
Uber did not have this type of cross-border market in China. Airbnb does and should try to dominate it quickly.
Airbnb’s first line of attack can be a horizontal attack on travel agencies (an MSP vs. VI attack). They can use their big MSP to subsidize the prices to Chinese tourists currently using travel agencies and packages. Chinese tourists do not really travel independently yet. They prefer flight and hotel packages (plus visa and other services). Organized tour groups are also popular.
However, two MSP competitors are operating in this space, Ctrip and Zhubaijia. Zhubaijia offers all-in-one outbound services, including accommodations, car rentals and customized guided tours for Chinese travelers. They are bundling home-sharing with other services. And they are providing quality control for Chinese families on their trips, such as convenient locations, quality checks, security, etc. However, Ctrip is the big competitor and will discussed in the next section.
Uber never had this type of cross-border market when it entered China. The ride-sharing market is mostly locally. I would argue it is mostly city-by-city. Adding drivers in Chengdu doesn’t really benefit riders much in Beijing. But home-sharing is a naturally international market. So Airbnb should focus on this outbound segment. The market is big and clear – and they have strong advantages already in place.
#3: Airbnb should worry about Ctrip. This is their biggest threat.
In September, Airbnb announced it has had “a 500% increase in outbound travel from China in just the past year.” They also said “since 2008, there [has] been over 2 million guest arrivals from China at Airbnb listings worldwide.” These numbers strike me as pretty suspect (if you have good numbers in 2016, you don’t point all the way back to 2008). But let’s assume they have some decent adoption in China today.
As mentioned, there is no chicken-and-egg problem for Airbnb cross-border. They already have an international network of apartments and guests. And, most importantly, they already have many of the strengths I mentioned in Part 1: a network effect, economies of scale in operations and marketing, a full suite of features and services, an ability to bundle services, and an ability to subsidize across their MSP.
I don’t think Chinese competitors can compete with them internationally in home-sharing. It is very difficult to launch an international two-sided network in general. But to do so against an entrenched incumbent is next to impossible. So I think Tujia and Xiaozhu on their own have very little chance against Airbnb outside of China. However, Ctrip is a serious competitor internationally. They are making moves in this area (i.e., their recent acquisition of UK-based Skyscanner). They also are the largest investor in Tujia.
Ctrip should worry Airbnb.
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