Airbnb Sees China as Next Big Pie

AirBnB Raises $1bn of Investment Funding

Home rental company AirBnB is the second most valuable start-up company in the US. It has raised $1bn of investment funding in a deal that values the firm at $31bn.

The San Francisco-based firm disclosed the investment in a filing to the US Securities and Exchange Commission. AirBnB did not comment on how it would use the funding， but is expected to expand its operations globally.

It has grown rapidly since its launch in 2008， and currently operates in 65，000 cities worldwide. The firm， which does not publish its sales figures， makes its money by enabling homeowners to rent out their homes.

It takes a 3% cut of each booking and a 6% to 12% service charge from guests. It made its first profit in the second half of 2016， and will continue to be profitable this year on an underlying basis， according to media stories.

They also reported that the firm had no plans to list its shares on the stock market in the near future.

AirBnB has been diversifying and recently began offering users new services， such as tailor-made city tours and exclusive experiences with local experts.

However， it has also faced criticism over claims it is driving up rents and contributing to housing shortages in some cities.

In December， under pressure from MPs， the firm said it would block hosts in London from renting out homes for more than 90 days a year without official consent.

The accommodation site lets people rent out their properties， often at prices undercutting hotels and traditional Bed and Breakfasts.

It was started by university friends Brian Chesky and Joe Gebbia in 2008 to help pay the rent on their San Francisco flat.

As the site expanded into more and more cities， helped by the use of professional photographers， it attracted backers including Amazon founder Jeff Bezos and actor Ashton Kutcher.

In total it has raised more than$3bn from investors and it is now the second most valuable start-up in the US after Uber， which is valued at about $70bn.

AirBnB Launched a Chinese Version

"China has the fastest growth in the world，" Nathan Blecharczyk， cofounder and CTO of Airbnb told reporters on the sidelines of Summer Davos in China’s northeastern coastal city of Dalian.

The number of Chinese who use Airbnb for overseas trips increased seven-fold last year.

"That is very impressive and far faster than any other country in the world. We just want to double down on it，" Blecharczyk said.

China has the most outbound tourists in the world. In 2014， Chinese tourists spent more than 160 billion U.S. dollars overseas， one report estimated.

"China is still growing. There is a huge opportunity which we want to invest more in，" said the 32-year-old man who started the company in 2008 with his two roommates Brian Chesky and Joe Gebbia.

Airbnb announced its entrance into China on Aug. 19 and has established cooperation with a major Chinese travel website .

Airbnb raised 1.5 billion U.S. dollars recently and some of the money was from Chinese investors， including Sequoia China and China Broadband Capital， Blecharczyk said.

"The purpose of having Chinese investors is that they know the China market best. The partners are helping us understand what the edge should be，" he said.

The company has launched a Chinese version of its website and is preparing to open an office in Beijing.

The company has invested a lot in its presence in China， integrating with Chinese social networking services WeChat and Weibo and opening payment access through China UnionPay and Alipay.

"The website is for the real people buying the offline experience， that is the online-to-offline. The real challenge is the offline，" Blecharczyk said.

"Beyond that， what people care about most are the local experience and personal style，" he said.

Blecharczyk has visited China for many times. He stayed at many places in Shanghai’s former French concession area. His own place in San Francisco has been rented by two Shanghai girls. In Beijing， he prefers to live in Hutongs.

"It’s a unique Chinese experience that you will never have if you stay at a hotel，" he said.

Airbnb was born when the three founders did not have enough money for their rent. In summer 2007， the rent of their apartment was raised by 25 percent. Blecharczyk said it was too expensive and decided to move out. The other two wanted to stay， but they just quit their jobs and did not have the money either.

There was going to be an international design conference in San Francisco， therefore many hotels were sold out. They had the idea of renting out the spare bedroom to designers who needed a place to stay.

"In October 2007， three designers stayed for a weekend. They had a good time，" Blecharczyk said.

Blecharczyk said Airbnb users are mostly people in their twenties to thirties， a generation of， as he describes， being "curious." About 40 percent of those people are willing to spend as much as 20 percent of their income on travel， he said.

He sees business opportunities in young people and he believes Airbnb has brought a new spirit to them.

The homeowners started to have business experiences by renting their places. Being good hosts gives them confidence in entrepreneurship， which may encourage them to have their own startup adventure.

"To embrace the adventure really means to explore the unknown， and don’t be afraid just because you might get lost but actually see that as a positive thing，" Blecharczyk said.

Airbnb will Need to Crack the Code for Chinese Home-sharing

Unlike in ride-sharing and taxihailing， the right services and pricing for home-sharing in China are still unclear. This is the biggest difference between Uber and Airbnb’s situation in China.

When Uber entered China in late 2014， Kuaidi and Didi already had riders in hundreds of cities （mostly through taxi hailing）. Didi and Kuaidi had mostly solved the services， features， and "chicken-and-egg" problems. Pricing still wasn’t clear as they were using venture capital money to subsidize drivers， build critical mass and kill off competitors. By the time Uber entered， it was mostly a question of who was going to get to scale firstC and achieve a network effect and economies of scale. The services provided were pretty clear.

However， in Chinese homesharing， this question is still unclear. Market leaders Tujia and Xiaozhu have not gotten big adoption （450，000 listings and 100，000 listings）. They have struggled both to get quality listings on their platforms and to convince travelers to stay in other people’s homes. In particular， they have struggled with a big lack of trust in the market.

Also， hotels in China are quite cheap， which is a big difference with home-sharing in the West. Short-term rentals， especially in vacation spots， are also a big established business in China.

As a result， the business models seen today in Chinese home-sharing are pretty different. Xiaozhu is kind of like Airbnb （a C2C model）， but they also offer renovation services to get quality home listings. Xiaozhu staff will actually go and decorate the home listings themselves. It is basically a C2C platform with lots of additional services.

In contrast， market leader Tujia is mostly a B2C model and much more like a short-term home rental service. They work with property developers and many of their listings are properties within holiday resorts， often owned by asset management companies. They also directly control their core listings. On the travelerside， they are more focused more on vacation rentals and holiday housing for families. There are actually a lot of standardization and quality benefits with this type of B2C approach.