In a previous article, I laid out some basic theory for how platform businesses compete (you can read here). Based on this thinking, I think Airbnb should do 6 things differently than Uber in China.:

#1: Airbnb will need to crack the code for Chinese home-sharing.

Unlike in ride-sharing and taxi-hailing, the right services and pricing for home-sharing in China are still somewhat 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). They had mostly solved the services, features, and “chicken-and-egg” problems of this platform business. Pricing still wasn’t that clear as they were using venture capital money to subsidize drivers, build critical mass and kill off competitors. But by the time Uber entered, it was mostly a question of who was going to get to scale first – and achieve a network effect and economies of scale. The services provided were pretty clear.

However, in Chinese home-sharing, this question is still sort of evolving. Market leaders Tujia and Xiaozhu have not gotten huge adoption (say +650,000 listings and +150,000 listings). They have struggled 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. The adoption rates have just been much slower than services like taxi-hailing, Wechat and Alipay. Also, keep in mind, hotels in China are quite cheap, which is a difference with home-sharing in the West. Short-term rentals, especially in vacation spots, are also a big established business in China, albeit run in a B2C manner.

As a result, the business models seen today in Chinese home-sharing today 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. Earlier on, they worked with property developers and many of their listings were within holiday resorts, often owned by asset management companies. They also often directly control their core listings. On the traveler-side, they have been 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.

Basically, nobody has totally cracked the code for Chinese home-sharing yet. And as mentioned in Part 1, this is fairly common in two-sided networks. It is often the 3rd or 4th entrant that gets it right, not the first mover. And if they do figure it out, they still need to get around the chicken-and-egg problem.

This is good for Airbnb and a much better situation than Uber faced, which basically had to play catch-up to Kuaidi-Didi. Airbnb is facing a more unclear and evolving market. That’s a good situation if you’re entering later than others.

#2: Airbnb should focus first on dominating China’s outbound home-sharing market.

In 2017, around 140M 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 international part of the market is much clearer. First, one side of the platform (the listed homes) is already in place internationally. 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 already up and running.

That’s all good for Airbnb. They should try to dominate this space.

Airbnb’s first line of attack can be a horizontal attack on travel agencies (an MSP vs. VI attack). They can use their big platform to subsidize the prices to Chinese tourists currently using travel agencies and packages. Many Chinese tourists do not really travel independently yet. Non-millennials tend to prefer flight and hotel packages (plus visa and other services). Organized tour groups are also popular.

However, MSP competitors are already 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 local. Adding drivers in Chengdu doesn’t really benefit riders much in Singapore. 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.

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 acquisition of UK-based Skyscanner). They also are the largest investor in Tujia. Ctrip should worry Airbnb.

#4: Airbnb should try to marry Alibaba or Tencent – preferably both.

When Uber entered China, Kuaidi and Didi were already partnered with Alibaba and Tencent. Their ride-sharing services were integrated, to some degree, into these big ecosystems. As mentioned in Part 1, complementary and inter-linked MSPs can be a big advantage. Uber, in contrast, operated mostly independently. It was not even available on Wechat at certain times. It is worth remembering that the BATs carry over 50% of all the mobile data traffic for China. Being in these big ecosystems really matters.

However, Tencent and Alibaba are pretty unattached when it comes to home-sharing (mostly). Tujia has backing from Ctrip (and therefore Baidu, sort of). But Alibaba and Tencent are the bigger platforms and are mostly unaligned.

Airbnb should partner with Alibaba and / or Tencent if possible. Lock one or both of them up. Sell them part of Airbnb China. Integrate your service with their ecosystems as much as possible. This is a very big deal.

#5: If they partner with Alibaba or Tenent, Airbnb should then start a money war.

Airbnb already has two big groups of users internationally (listings and travelers). Currently, Tujia doesn’t really have scale in either group (in terms of revenue). So Airbnb could subsidize prices to Chinese home-owners and travelers. Offer prices that will encourage usage and that Tujia and Xiaozhu simply can’t match.

This approach would probably start a money war. Tujia would raise capital (probably from Ctrip and Baidu) and everyone would start subsidizing apartments. But Airbnb has a big fundraising advantage with a +$30B valuation. It can raise $1-2b with little dilution. However, I would do that after partnering with Tencent or Alibaba.

Recall, much of the Uber vs. Didi fight was really a money war. It was about who could raise and then outspend the other in driver and rider subsidies. And as neither could outspend the other, they eventually sued for peace. However, Airbnb plus Tenent or Alibaba could outspend its current China rivals and it should.

#6: Airbnb should “be like Travis” in attitude.

Finally, Airbnb should copy the attitude of Uber CEO Travis Kalanick in China. Chinese companies will often bleed the foreigner with a money war to see if the foreign company will give up and go home. It’s a common tactic. To his credit, Travis made it clear he was coming to China to win. He spent $2B fighting Didi. He showed total commitment. And everyone gave up on the idea of scaring him off. He also would never had walked away with 18% of Didi if there was any doubt about his willingness to keep fighting.

Airbnb will need to show this same “burn the boats behind us” total dedication to China.

If they do this, then there are probably two outcomes for Airbnb in China. They will win the market or they end up with significant minority stake in the China winner (like Uber did). Both are great outcomes. Keep in mind, Uber’s stake in Didi is now raising at a +$50B valuation, which makes Uber’s stake worth about $7B. And it could be worth a lot more than that one day.

Thanks for reading. Cheers, -jeff

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

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