At the start of August, Airbnb announced an essay contest: Four winners would fly to China to stay in a watchtower on the Great Wall. They’d be treated to a gourmet dinner at sunset, a traditional Chinese music experience, and a sunrise historical hike through the countryside. The official Beijing Tourism Twitter account even promoted it.
Six days later, the company called the contest off abruptly. The only clue to its former existence was Airbnb’s statement on the contest webpage, in which it apologized to those who’d already entered and wrote that “we deeply respect the feedback we have received.”
This latest debacle illustrates the challenges Airbnb faces as it attempts to grow its business in China. A culture commission official told the Beijing Morning Post that the competition came from a collaboration between the state-owned Beijing Badaling Tourism Company. Once it was announced, however, the South China Morning Post reported that it faced criticism on Weibo, the Chinese version of Twitter; the paper included translated posts like: “The Great Wall is a historical relic under protection, how can they let it be turned into a common guest house?!” A few days later, the government bureau responsible for that section of the wall said it hadn’t approved Airbnb’s plans. The promotional @BeijingOfficial tweet was removed. Airbnb had little choice but to rescind the contest. The startup thought it had followed all the rules, but it appears that the rules had morphed in the moment.
China is littered with the virtual carcasses of startups that attempted to do business in the country and then gave up or were shut out. These companies often discover the Chinese market is hard to understand. A few entrenched technology players dominate nearly every business. The government tends to create a regulatory environment that favors domestic companies. And the rules change arbitrarily with little warning. It doesn’t seem to matter that Facebook founder Mark Zuckerberg learned to speak Mandarin; his company is still banned there. Google shut down its Chinese search engine in 2010, a move it is now questioning as it reconsiders launching a censored search engine in the country. Two years ago, after Uber tried to outspend local ride-sharing service Didi, the company finally merged with its Chinese competitor, taking a 17.1 percent stake in Didi.
All of this hasn’t stopped Airbnb from doubling down on its own strategy to broaden its stake in the travel industry in the world’s most populous country. Airbnb China is one of the four businesses Airbnb has prioritized (along with its core “homes” business, its activities-driven “experiences” business, and its push into luxury rentals). Partly, this is because of the country’s size. Consider that China has more millennials than the United States has citizens, and many are traveling for the first time, so their ideas and habits about where and how to travel haven’t been fully formed. Last year, in an effort to win over Chinese tourists traveling inside the country, the company launched a domestically focused operation that it called Aibiying, which translates to “welcome each other with love.” Growth in the country has been robust. The revenue from Airbnb’s China division is expected to climb by more than half, to roughly $130 million this year, which is as much as 4 to 5 percent of the company’s overall revenue, according to The Information. Cofounder Nathan Blecharczyk, who is chairman of the company’s China business, has said Chinese tourism will be Airbnb Inc.’s largest source of business by 2020.
In an already crowded travel market, Airbnb has attempted to define its niche as “quality” listings. In a blog post, Blecharczyk wrote that the company would improve its customer service in China, hire staffers to communicate with customers on a variety of services, including WeChat and Weibo, and open offices in more Chinese cities. Earlier this year, the company launched a “Host Academy,” which offers workshops, live chats on WeChat, and educational videos for hosts.
But figuring out how to build the Airbnb brand in China will be hard. For one, it’s harder to figure out how to reach new customers on the web in china, according to Maggie Rauch, senior research director at the travel research firm Phocuswright. Unlike in the United States, where search is ubiquitous and travel companies can buy search ads, most people are surfing the web from inside mobile apps like WeChat. “Without search being this great way in as a travel provider, you have to become who travelers think of.”
What’s more, Airbnb faces a slew of homegrown competitors, all of whom are competing by offering discounts and cheap services to budget-conscious travelers. In general, the Chinese market is dominated by three companies. “If you are not part of the Alibaba-Tencent-Baidu market system, it’s really hard to compete,” says Kyle Lui, a principal with DCM, which invests in China. Funded by Alibaba, Xiaozhou is a marketplace for listings by individual homeowners. Meituan Dianping has a sizable investment from the parent company of Booking.com, an Airbnb competitor that is also pushing aggressively into China and has recently invested $500 million in the ride-hailing company Didi Chuxing. And Tujia, which is aligned with the largest Chinese online travel agency, Ctrip, strikes deals with landlords to rent out blocks of apartments.
In addition to trouncing its competitors, Airbnb will need to stay in the good graces of the Chinese government. It has come to agreements with several Chinese cities to insure it can operate, and it has been upfront about its plans to share guest data with the Chinese authorities. But if Airbnb starts to pose a threat to homegrown companies, the government could step in to regulate it more harshly.
Beyond its aborted contest attempt, the company has had several public stumbles so far. The name it chose, Aibiying, was the subject of ridicule by many Chinese consumers, who thought it sounded goofy. Also, Airbnb has had trouble finding and keeping a chief for its Chinese business. Its first chief, Ge Hong, left in October 2017 after just four months in the role, shortly after a romance with an underling was discovered. Blecharczyk has been searching for a business lead for much of the year. In July, Airbnb finally named a new head of business in China, Tao Peng, a serial entrepreneur and China native who co-founded the high-end property management startup CityHome, in which Airbnb invested $5 million. Peng will start in September.
Despite all of this, Airbnb’s listings in China have surged this year. The number of active listings is up 133 percent year over year, according to AirDNA, a service that analyzes Airbnb data. As the company looks for new growth opportunities in the run-up to an initial public offering, which could come as early as mid-2019, the data suggests that Airbnb’s China business is worth the fight—for now.