Airbnb looks to further penetrate burgeoning Chinese market

The Airbnb app logo is displayed on an iPhone on August 3, 2016 in London, England. Photo: Getty Images

After years of low-key operations in China, US home-rental company Airbnb recently announced the official entry into the world's most populous country, where the second-largest unicorn of the US will face a flurry of uncertainties.

The announcement shows Airbnb's strong confidence in China, which the San Francisco-based firm said has become the fastest-growing market of customers booking stays abroad. According to Airbnb, there have been 3.5 million Chinese travelers renting short-term accommodation in the residential properties when travelling abroad through Airbnb, with the year 2015 alone seeing an exponential increase of 500 percent in outbound bookings from the Chinese tourists.

It marks a major step in Airbnb's China strategy, especially compared with three years ago when the home-rental company normally prohibited the Chinese homeowners from publicly talking about its services due to concerns over the Chinese government's supervision.

At the same time, Airbnb also announced to follow the Chinese laws to store its Chinese customer data on servers located in the Chinese territory. It is a common practice that a foreign Internet company has to follow if it seeks to enhance its presence in the country, which means giving the Chinese government access to data in the name of national security.

A team responsible for developing products for the Chinese customers and another team tasked with negotiating with the Chinese government and local partners will be dispatched from the headquarters, said an Airbnb employee who asked not to be named.

Previously, Airbnb Chief Financial Officer Laurence Tosi said that Airbnb China, a separate entity listing some 75,000 residential properties in China, plans to increase the number of its employees to 300 from today's 30 in two years. The CFO revealed that another priority is to find a chief executive officer for Airbnb China.

In the absence of a head of Airbnb's operations in China, it could also been seen as a renewed effort by Airbnb to deepen its localization in the country, with the company's Asia Pacific regional director Julian Persaud saying at a November homeowners conference that Airbnb's China strategy is to better serve the Chinese customers as China has been the world's largest outbound tourism market since 2012.

Building ties

Aware of the business rules for foreign companies operating in China, Airbnb has built firmer relationship with the governments of Shanghai, Shenzhen, Chongqing and Guangzhou in deals that help it prevent possible troubles in the four cities.

Tosi has said that the company's strategy is "to work closely with regulators and build through on-the-ground partners".

The company also struck an agreement with Alibaba in 2014 under which the Chinese users are allowed to use Alipay, a mobile payment service owned by the Chinese e-commerce giant, to pay for Airbnb rentals, followed by a partnership forged in February with Tencent, a leading technology company in China, to incorporate Airbnb into the popular messaging app WeChat.

An Airbnb investor was quoted as saying by Bloomberg News that the company is more worried about its relationship with Baidu, China's leading search company, which holds a sizeable stake in Ctrip, a major backer of Tujia, Airbnb's major Chinese competitor which has 450,000 listings. It is reported that Airbnb is negotiating with Baidu for a deal similar with those it sealed with Alibaba and Tencent.

Additionally, there have been rumors that Airbnb is in talks to acquire Chinese rival Xiaozhu, a home-rental startup listing about 100,000 homes, a tactic some industry insiders say is better to take on market leaders in China.

A source close to Airbnb said that given its overwhelming advantage in seeking home sources Airbnb should shift its focus on improving its home quality verification system in China in the face of the local players which are good at duplicating their foreign counterparts' business models. In 2016, Airbnb set up a special team which is responsible for helping the Chinese homeowners improve their properties' quality.

Trust crisis

A recent complaint from a Chinese user, who was angry about a homeowner's arbitrary cancellation of the lodging he booked through Airbnb, created a credibility crisis for the home-rental platform. After getting a refund and compensation, the user booked another place on the Airbnb platform only to find that the room did not have the kind of heating and air-conditioning facilities it had advertised.

It came after a series of revelations of unhappy experiences about booking and offering rooms through Airbnb, which included some Chinese homeowners who beefed about lodgers for messing up their apartments after stays.

The complaints led to calls for detailed industry regulations as the home-sharing market is still at a nascent stage in China.

China's Zhejiang province has been the first to make rules for the burgeoning market, restricting the size of houses used for Airbnb-style rentals and raising security standards.

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