Airbnb is Going to Get Crushed in China / Asia. Rethink Your Valuation. (Tech Strategy – Podcast 59)


This week’s podcast is on Airbnb and what I think people are getting wrong about its business model and future in Asia. Which has some effect on how you would value it going forward.

You can listen to this podcast here or at iTunes, Google Podcasts and Himalaya.

The valuation presentation by NYU Professor Damodaran is here.

The mentioned factors for Airbnb were:

  1. Market size and / or growth
  2. Competitive dynamics and strengths
  3. Industry and unit economics

Related podcasts and articles:

Concepts for this class.

  • Digital Platforms: Marketplaces for Products and Services. This is on the right side of the pyramid below.
  • Bundling and Cross-Selling. These are under soft advantages below (light green).
  • Network Effects. This is under competitive advantage below (dark green).

Companies for this class:

  • Airbnb
This is part of Learning Goals: Level 5, with a focus on:
  • #16: Basics of Ctrip, Meituan and Other Marketplace Platforms for Services


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.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

—–transcription below

Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy podcast. And the topic for today, why Airbnb is gonna get crushed in Asia. So adjust your valuation models accordingly. Now Airbnb going public, couple days to go, it’s the big story, everybody’s talking about it, everyone’s crunching numbers and putting up what’s the right stock price and all that. And a big part of that is figuring out the total addressable market, how well they’re gonna do against that, what’s gonna grow that market. And most people are using global figures. However, which I have yet to hear anyone talk about, is the fact that Asia is the second largest market, at least in terms of hotels. And when you start talking about growth, growing the whole pie, not just online to offline, or in this case offline to offline. But the whole spend within growth, Asia’s arguably the largest component. But people are just using global numbers. And I think when you start to look at Airbnb in Asia, you get a very different picture than what you see in North America and other places. And my summary of that is the title. I think they’re gonna get crushed. So I’m gonna talk about how that, how I think that plays out in the numbers a bit. However, I’m not gonna put evaluation number on the company in this podcast. I’m not gonna project the share price, anything like that. I do teach valuation at a couple business schools, but I’m not gonna go into that. And just so there is a clear disclaimer, nothing in this podcast is investment advice. The information and opinions expressed by me may be incorrect, the numbers information presented may be wrong. The views expressed may no longer be relevant or go out of date, may no longer be accurate over time. Overall, investment is risky. Do your own research. For those of you who are subscribers, this podcast is gonna be kind of an expansion on the email I sent out in the last day talking about Airbnb and what factors I think are important. For those of you who are not members, please sign up. You can go over to and sign up there with a free 30-day trial. See how you think about it and join the group. Okay, let’s get into the content. Now as a starting point, There is a YouTube video that we’ve been sharing around about NYU professor Aswath the Madheran’s evaluation of Airbnb. I’m not saying his name wrong. I may well be. Sorry about that. And I’ve been, you know, he’s obviously the valuation guru of NYU. I’ve been teaching his books for quite a few years. I’m, I mean, obviously he’s sort of masterful in his thinking about this, but I’m probably only about half in agreement with his approach. certain stuff I really do like, certain points I just really don’t agree with, a lot of the use of multiples and things, I just don’t do that at all. A lot of the focusing on the cost of equity, the capital asset pricing model and all that, I really don’t use that ever. But I’m going to put the link in the show notes for his valuation and sort of talk in reaction to that. Now when I listen to him talking about this, I think him and most… most people I’ve heard talk about this, they look at Airbnb going forward over five to 10 years, because obviously this is a growth company from top to bottom. Obviously there’s a lot of operating leverage that everyone is waiting to see show up, long-term growth. So it’s a longer term thing, at least that’s where everyone sees a lot of the big upside. And the management of Airbnb is definitely operating like a company going for growth and not profitability in the near term. But when you look at this, I think there’s three factors that everyone ends up talking about, but they use different language than I’m gonna use. First one, just market size and growth in the market. Second one, competitive power, competitive dominance, competitive position. And third, the sort of industry or unit economics. And those things can get kind of mixed together, but we’ll kind of call those one, two, and three. I’ll put these in the show notes, market size, competitive power, market size and or growth, competitive power and then industry, unit economics. When you look at Airbnb in North America and Europe, it actually looks really good in terms of their competitive position and industry and unit economics. And I’m going to expand on this, but not awesome in terms of market size and growth. It’s okay. There’s definitely growth. But it’s not like the hotel market of the United States is booming or anything. Now, you’re seeing a lot of shift from offline to online. You’re seeing some consolidation, but you’re not seeing an overall just big GDP growth. It’s when you take those same three factors and you look at Asia that Airbnb starts to look very different than the discussion you’re hearing. First of all, the market size and or growth question starts to look much, much better. and I’ll talk about some of the details of the Asia market, but it is fantastic. However, the competitive power of Airbnb drops dramatically. A lot of the things we like about Airbnb, it’s usually a North America, Europe story. It doesn’t exist that much in Asia. And honestly, I am not optimistic that they’re gonna do well in Asia at all. In fact, I think they’re gonna get crushed. So. I’m going to sort of break it apart among those three factors, but I’m just going to give you a laundry list of my general conclusions. There’s about six of them. And I’ll just run through them, and I think I’ll sort of cover everything that way. So sort of point number one, I’m valuing Airbnb. I take Asia out of the equation. I just remove it. The numbers you’ve heard from Professor Demotherin. is that you know hotel business is a $600 billion business. And there’s a lot going on in hotels, it’s being disrupted. That’s the most directly applicable market for Airbnb because that’s really what they’re disrupting. Now they’re doing other things as well, they’re expanding. So that’s definitely your starting point, they’re disrupting this. Hotel business is not growing terribly fast on its own when you look at it in North America, but the offline to online shift. makes it faster and then you’re seeing concentration among the major platform players. The, Expedia, you could maybe put TripAdvisor and some others in there, but let’s say the big three,, Expedia, and Airbnb. And when you look at that market globally, US is the biggest market. Great. But China’s number two or number three, depending how you measure those things, and when you growth, the growth is coming from Asia. That’s really where it’s coming from when they put out these big numbers of global growth in hotels. It’s an Asia story. I have long pointed to middle class families in Asia as sort of the great secular trend of our time. Now maybe there’s a couple others, but it’s on my short list. It’s hard to find anything better than this. And definitely Chinese middle class families, really Chinese middle class urban families. has been a huge driver of growth for 20 years, and that’s going to continue. And then I think you can expand that to Asia more broadly. But you go back 10 years, 2010, China wasn’t the number one market for many things on the consumer side. It wasn’t the number one gaming market. It wasn’t the number one auto market. It wasn’t the number one retail market. It wasn’t any of these things. And yet within five to eight years, almost every year or so we heard a new announcement, oh, by the way, you know, Chinese consumers are now the biggest spending tourist per capita on the planet. Oh, by the way, Chinese auto market now dwarfs other auto markets and GM and Ford sell more than anywhere else. Oh, by the way, now the beverage market is also number one and Budweiser sells more in China. than it does in St. Louis or whatever. I mean, it’s just every couple months there’s another announcement where Chinese consumers are now the large market on the planet. None of that was true 10 years ago. Now, imagine where we’re gonna be 10 years from now. The world has changed dramatically. So Asian middle-class families, that is my touchstone. I have bet my whole career on that as a long-term secular trend. Apart from that, you just look at the size of the population. The global population is not dispersed globally. It’s in a couple places. You fly four or five hours from Hong Kong in any direction, draw a circle around that. You’re talking about half the world’s population in that circle. That’s where people live. Everyone within that circle is growing in wealth. That’s the middle class family effect. And I always talk about families, because that’s really the unit of spending you want to pay attention to when you start looking at China and Asia. It’s the household spending that really matters. You can go back to 2011, 2012. Your average Chinese consumer didn’t have a passport and had never had a passport. You go back to 2013, 2014, Chinese tourists start going abroad for the first time. And the vast majority of them were leaving the country for the first time. And we had a whole host of stories, 2013 through 15, about Chinese consumers, with some pretty odd behavior around the world, going to hotels in Singapore and London, and cooking in their hotel rooms, various things like that. There was always some good stories. There was a bit of a learning curve in terms of what’s sort of normal. And now it’s… Pretty good now, we don’t hear those stories as much. Pretty rare now. My favorite one was always the Chinese brides would go to the south of France and they would stand in the lavender fields to have photos done for their wedding and all that. And they’re very pretty, purple sort of lavender fields, Chinese bride with her husband standing there, very dressed up in their gown. But there were so many Chinese couples showing up to do this that sometimes they would get into little fights about location. Who had the best location? Get out of the way. It’s my turn to take a shot. There’s videos on YouTube of Chinese brides in their full gowns fighting in the lavender fields. And like the brides are fighting and then the grooms are fighting each other. It’s really funny. So there’s a lot of that stuff. And now, you know, we are where we are on an annual basis. not during COVID, 130 million Chinese tourists will fly out of the country and they spend more per capita per trip than any tourists on the planet. Then none of that was the case 10 years ago. So imagine where we’re going to be in terms of hotels, in terms of tourism, in terms of hospitality going forward. I mean, this is really the market to watch, I think. Now you can kind of argue what is the appropriate market to consider for the total addressable market for Airbnb. I think hotels is a nice starting point. This is what the professor used, $600 billion for hotels 2019. The revenue per average sort of vacant room, $80 to $100 in North America and Europe, lower in Asia Pacific. But Asia Pacific’s growing rapidly. It’s number two or number three by market now. probably be number one in the not too near future or tied with the US. And then when we look at tourism by expenditure, Chinese consumers are number one, especially in Asia Pacific. We look at tourism within Asia Pacific and this is kind of the key point. That’s 50 plus percent are Chinese consumers. Now, why do I keep pointing to Chinese consumers? Because Airbnb doesn’t have much usage by Chinese consumers. They’ve got some stuff going on in Thailand and other places, but they’ve missed the massive market of Asia. They’re not really there in force. Now I’m putting a link in the show notes to a podcast I did a while ago, Podcast 25, which was called The Stunning Future of Interconnected Asia. And that was kind of a higher level regional talk. And my argument, which was really just summarizing a McKinsey study written by a my buddy Jonathan, was the future of Asia is interconnected. That’s when it gets really interesting. It’s not just that it’s big, it’s that it’s interconnected trade and capital, of course, but increasingly people, tourism, data, talent. It’s really becoming much more interesting in terms of its connections than anywhere else. And the inter-trade numbers within Asia are now greater than say trade with the rest of the world. So all those numbers are really becoming quite large. Trade is a part of that. It’s the movement of people around a region. I think what we’re gonna see when you talk about the global market and how there’s global players like Expedia and let’s say C-Trip and booking, I think Asia is large enough as a region that you can get players at scale just by winning in Asia. Anyone who wins in Asia… will be big enough to compete globally without getting the rest of the world. I know as I’ll talk about that when we get to network effects. Oh, I’m sorry, I skipped something. For those of you who are subscribers, the learning goals for this class, marketplace platforms for services, bundling and cross selling and network effects. And that all goes under learning goal 16, which was the basics of C-Trip, Mattoon and marketplace platforms for services. That is in the show notes and there is also a diagram now to show you sort of how all these ideas and concepts fit together. Okay, so back to the valuation. Asia’s a big deal, it wasn’t really discussed that much. When the professor talked about it, well Airbnb basically says that their market, their total addressable market is $2 trillion for hospitality, but that includes more than hotels. and then probably 1.4 billion, I’m sorry, 1.4 trillion for their experience business, which is a bit questionable, but they get you up into the three or the fours. The professor said, nah, it’s probably closer to one to two. So one to two trillion, something like that. Based on that, you split that up by market share, his projection, which is just a guesstimate, of course, that the gross booking value for Airbnb 10 years out will be 150 billion. which is, let’s say, 50%, 30, 40, 50% more than and Expedia have today. So not outlandish, definitely not too aggressive. I would say you basically take Asia out of all of that. My working assumption, they’re not going to be a big presence in Asia Airbnb. So that gets you down just in the hotel market instead of thinking about a $600 billion market, you’re probably closer to 400, 450. And when you look as going forward in terms of growth, keep in mind a lot of that growth had Asia baked into the thinking. I would sort of pull that out. Now based on that, the professor, I’ll summarize his. His assessment from his thing was gross booking value by 2031 of 150 billion, the take rate, how much of all that booking ends up in… as revenue for the company, 14%, that would be up a couple points from 12%. You take out all the fixed costs and the operating margin should expand significantly from where it is today, up to 25%, and he put out a valuation in the 35 to $40 billion range, but don’t take my word for that, definitely go listen to his podcast. Okay, I don’t necessarily agree with too much of that, but it’s not a bad starting point. Yeah, so point one. take Asia out of that. That’s what I do. Point two, when we look at North America, okay, Airbnb looks pretty good. It’s got a particularly attractive, although simple, marketplace platform, and it’s got a solid network effect and a strong brand. You know, it’s a pretty simple business, and that’s the scenario in North America, North America, but… It doesn’t really look that way when you start looking at it in Asia. Okay, hold on to that for a second. Within North America, within Europe, Airbnb is positioned quite well against what I would describe as a volatile but rising discretionary spending pattern in hospitality internationally in those regions. And against that trend, they got two big competitive advantages. global or at least regional network effect and a very strong brand. Those are their advantages. Now, marketplace platform, we’ve talked about those quite a bit and I’m putting a podcast in the link for a link to one of the podcasts, which was number 22, which was a lot about marketplace platforms for services. And I compared Ctrip, Meituan and Alibaba. I called it who’s going to win in the death match of services in China. Okay, Airbnb is a really particularly simple version of a marketplace for services. And you can see the contrast with say Uber, which is also a marketplace for services. Airbnb has a network effect, clearly. Uber really doesn’t have much of one and what they do have is mostly local. Adding drivers in Chiang Mai doesn’t make the service more valuable to me here sitting in Bangkok. It’s mostly local, and even when it is local, it asymptotes pretty quickly. Once there’s enough drivers such that I can get a ride in four to five minutes, adding a bunch more drivers doesn’t really improve the service for me. So it’s local, it’s not that strong, it flatlines. pretty quick, particularly on the consumer, the rider side. That’s kind of one extreme. That would be sort of an extreme. The other extreme is Airbnb. They are quite strong in this. It’s global. If I’m a consumer and I wanna fly from Brazil to Mexico to Dominican Republic to New York, Airbnb has hosts everywhere. The more hosts they offer, the better the service is for me. The network effect. It’s not local, it’s regional, if not global, and it’s basically linear. It keeps increasing. The more hosts they offer, the better and better it gets. Because it’s not just number of hosts and it’s not just number of locations, it’s types of locations, it’s types of experiences. It could be a family home where you could bring five people and rent the whole home. It could be a single apartment right near the airport because I got a flight the next morning. It could be… a farm where you can go up and live in a rural countryside. It can be a spectrum of experiences that Airbnb can really capture in a way that Expedia and really can’t. They’re basically offering hotels in tourist destinations and urban centers. They’re not offering a lot of locations out in the middle of nowhere. Airbnb is. Talk about that in the long tail discussion. So. The network effect is better, it’s global, and it is basically differentiated. Uber is more or less a commodity. You ever notice that when you go into Uber, they don’t ask you to choose the driver? You just tell the location and there’s no matching that you’re involved in. You don’t read reviews of drivers. It automatically assigns you a driver. That kind of tells you the difference between a commodity service and a differentiated service. A differentiated service, I want to think about this hotel versus that hotel, on the beach, not on the beach. I’ll read the reviews, I’ll look at the amenities. There’s a lot in the matching process. because the services are different, hotel by hotel hotel by hotel. Ride sharing, it’s a commodity. They don’t even ask you, they just tell you which driver you have. Okay. You put those two things together, you put that plus their brand, and basically Airbnb is pretty hard to compete with. They have huge entry barriers. If you wanna go head to head with them in North America, you’ve gotta replicate their entire network. their user base on the host side and the guest side, and you’ve gotta replicate their brand, that would be very difficult, would cost a lot of money, and it’s especially difficult when you have a incumbent that’s gonna fight you every step of the way. Okay, that’s kinda point number two. Yes, this company looks really great, even though it’s pretty simplistic. You don’t really see much of that story when you start to look at Asia. I mean, we have lots of local players. We have lots of low priced hotels. We don’t have as many hosts for one, they’re not that common in China. They’re there, but it’s not that many places you can stay. It doesn’t really offer you the same savings you get when you check into an Airbnb in New York, you save a lot of money, their biggest lever is really lower price. It’s in your, it’s number of available locations, and then it’s a lower price relative to other options, which is the, pretty much the phrase they use in the S1. Well, in China, there’s a lot, in Thailand, there’s a lot of lower priced options. It’s not cheaper. That lever is not as significant. And the availability is also not particularly better than say in the US and other places. So they’re just weaker on the consumer side in a lot of these markets. We don’t see that same picture of big brand, big network effect like we do in North America. That’s point two. Point three, what I really do like about Airbnb is not the network effect. Everyone talks about that. I mean, that is good, obviously. It’s not my favorite thing. My favorite thing is in a developed economy, they are the low-cost provider in a service that doesn’t have any labor costs and doesn’t have substitutes. One of my standard questions when I look at companies is, are there substitutes, and in particular, are there low-cost substitutes? If you have a choice whether you’re gonna go on a trip. Am I gonna take the trip to Disneyland or not? I’m gonna take the trip wherever or not. But once you decide to take the trip, getting housing is not optional. It is an absolute requirement. You have to do it. And there aren’t actually that many options. There’s hotels. You could kind of find an apartment. Or you could stay with a friend. Or, you know, not gonna have money of those in most of the world. Or you stay in Airbnb. There aren’t really a lot of substitutes for housing when you’re traveling. And in particular, there aren’t low-cost substitutes. And that really does impact their economics. Uber has the opposite situation. I decide I’m going to go across town. I could take an Uber. Or there’s substitutes. I could take the subway. I could walk if it’s not too far. I could take a public bus. There are plenty of substitutes, and a lot of them are fairly low-cost. That really does sort of impact their economics. It’s hard for them to keep increasing prices when there is something that’s cheaper right down the street. It does sort of impact that in a way that it doesn’t impact Airbnb. The other factor within here is, okay, so let’s say low cost substitutes. When you talk about how much it costs to provide the service, if you’re Uber, you have to hire, the driver’s gotta get paid. There’s labor costs. For a lot of individual hosts, not the professional hosts, but the individual hosts, there really aren’t very many costs associated with doing this. It’s kind of free money. You’re sitting there in your apartment, you got the spare room, well, I might as well put it up. So you can keep sort of lowering the price and the host can keep offering. the vacancies without pushing back at a certain point saying it’s not worth it. You can’t, Uber can’t do that. If they keep dropping the price and trying to cut the cost to the drivers, eventually the drivers say, no, no, no, we’re not going to do this. There’s sort of a, there’s a ceiling in pricing that comes from low cost substitutes and there’s a floor in pricing that comes from the fact that there are actual labor costs. But if you’re renting out a sofa or a spare room, there aren’t really any of those costs. So that gets me back to my first three points, which was, you know, what are the three factors? There’s the market size and growth, I talked about that. There’s the competitive dynamics, which I talked about that, that’s network effect and brands. And then there’s the, is there, are the economics of this business attractive? And in Airbnb, they actually are quite attractive. And in Uber, they are not. And it’s because of those sort of more industry factors, like labor costs, substitutes. And the fact that most hosts, this is just kind of free money. There’s no downside in terms of cost or risk, just to put your room up and make a little extra money. That’s a pretty important factor. I was joking with some people today in Bangkok. We had a meeting to talk about this. By the way, that was an awesome group today. Thank you for the team that presented. You know, two of the phenomenon I love most about digital, the first one is anytime you can give stuff to consumers for free. You know, stop paying for your SMS, here’s WhatsApp, it’s free. That’s just a huge lever for growth and adoption. On the merchant side, the one I like is anytime you give a merchant or a service provider or a professional the ability to make money with really no effort or cost, because it’s just free money for them, they will all sign up. Like it really does work on the merchant side. It’s not as good as the consumer thing, but it is pretty awesome. They’re basically giving individual hosts the ability to make money for free, or with very little cost. Okay, next point. There are actually some subtleties here in the marketplace that I haven’t really heard people discuss. At first glance, Uber and Airbnb look kind of similar. You could say, okay, it’s a marketplace model, two-sided, indirect network effect, very fragmented, lots of riders, I’m sorry, lots of drivers, lots of different hotels, great. The marketplace for safe flights, not very fragmented, pretty consolidated, you know, it’s only so many people that provide airline flights. But for hotels and for rides, it’s pretty fragmented services, fine. When you look closer, you realize that Airbnb is actually pretty impressive compared to say Uber and even compared to Expedia and It is a somewhat different platform. business model. And I think the bit where people are missing it, it’s on the host side. It’s on the fact that individual hosts are very, very different than small hotels. Now, if you’re going to win as a platform, you have to win on both sides with both user groups. You have to add value to both of them. What is it you’re adding to consumers on Airbnb that is different than, say, Expedia or Well… If I go on Expedia, I’m gonna see a lot of hotels, one star, two star, well probably not one star, two star, three star, four star, five star, in a lot of urban areas, in a lot of popular areas. And they’re all gonna be kinda the same. There’s gonna be a room, there’s gonna be a bed, there’s gonna be a shower, it’s a standardized service, more or less. There are some resorts and some other things, but the locations are definitely a subset of all the locations there could be in the world. And the experiences, the type of things you can do, is a subset of all the spectrum of experiences there could be. So for example, three-star hotel, I don’t know, downtown Mexico City. You know exactly what that’s gonna look like. Compare that to rural farming townhouse for you and your whole family up in the hills of Guatemala, away from everything. Different experience, different location. It’s a long tail effect. You know, one of the reasons YouTube and TikTok are so powerful is because they are platform business models, in this case, audience builders, that connect viewers with not just the popular content that most people watch, like the 200 channels you may see on cable, but they connect you with the entire spectrum of content. They connect you with the long tail. And when you start doing matching in something with… preferential interests like media or traveling, with the entire long tail of supply, you get lots and lots of engagement and lots of interesting combinations. It doesn’t work when you’re offering rides downtown because the service is basically a commodity. But there’s a lot of interesting experiences that you’re gonna see on Airbnb in theory, and there’s a ton of locations. They actually mentioned this in their S1 quite a few times, you know, that the majority of their their locations or hosts are outside of areas that would be traditionally considered tourist or travel destinations. You know, platform business models get a lot more powerful when you start to match between the buyer and a long tail of supply, if it’s a preferential based good like media, content, entertainment, travel, tourism, fashion, things like that. That’s kind of what TikTok does. It’s what YouTube does. So I think that’s important. When you look at the consumer view going on to Airbnb versus going on to Expedia, you are seeing a much. larger spectrum of locations and experiences you could have on Airbnb. And the other thing you get is low price because the merchants, the small hotels, they’re not going to drop the price to next to nothing in most countries. They do in Thailand and China, but definitely not in North America. But the same host effect, because you have individual hosts with no costs of doing this often, they will drop their prices. to almost nothing if they feel like it. So the price lever can be more powerful and the sort of spectrum of available experiences can be much greater with Airbnb than it can with Booking or Expedia. You flip that to the host view because you have to win on the host side as well. And this is the area I don’t think people talk about nearly enough. This is the area that I’m most interested in. Like I love individual hosts on Airbnb. I think there are phenomenally interesting user group. These are not the managers working at a random three-star hotel in Baltimore. These are owner managers. These are entrepreneurs. They’re very ambitious. They don’t have a cost structure. They have tons of ambition. They’re willing to do things, try different things. Your average night manager at the Best Western in Omaha doesn’t do any of this. I mean, I’ve gone to visit hosts like in Jamaica where you show up and there was a middle-aged woman who had turned her house into sort of a commune for visiting people who fly into Montego Bay and need somewhere to stay for a night before they go onto the beach over, you know, Negril or whatever. And you know, it’s just phenomenal. And she had dinner and food and just really great in terms of her level of, and what caught my attention was This is someone who’s acting like an entrepreneur. This is someone who’s acting like an owner manager, not an employee at a standard two-star hotel. So I think the host side is fantastic. I think there’s a lot that can be done. And I think we see other marketplace platforms for services really leveraging this in. For example, Didi, Didi, Chu Xing, the Uber of China. If you look at the app, that they give for their drivers. It’s got like 30 services now. It’s all, I mean, I’ve gone through all the services. It’s amazing. It’s like, you can get discounted gas if you’re a DD driver because they have negotiated with the gas stations of China to get a discounted rate for their, you know, tens of millions of drivers. You can get discounted rates on repair services for your car. You can get special insurance. You can file all your government registration docs in the app. There’s maps of every toilet you can use, street by street in every city in China. You know, you can chat with the other drivers in real time and they actually have teams, they work in teams, not individually. You can get financing for your car. There’s a whole suite of services and tools they have built out for their drivers. Airbnb could do the same thing for these hosts and they could really let this group run because they are motivated. And a lot of the drivers in Didi, The majority of them either own their cars or want to own their cars and the company or the other drivers will provide financing. And a lot of them are building small businesses by they buy a bunch of cars and then they bring in new drivers all within DD to run that. So they’re becoming SMEs. There’s a lot going on there. So I think that side is going to be really interesting. Okay, so there’s a lot of subtleties in this marketplace, but I think Airbnb is cooler as a services marketplace. than people are giving them credit for. So if they’re so cool, which I think they are, why are they gonna get crushed in Asia? Well, I mean, not to be mean, but their management is super slow and they don’t seem to be able to innovate or don’t seem interested in innovating at all. I mean, you put Airbnb up against any of China’s tech companies and they’re gonna get pounded. I mean, it’s… It’s ridiculous. I read the Airbnb S1, I feel like I’m traveling back in time. I feel like, wow, I’ve forgotten what 2012 looked like. I mean, the platform business model they launched in 2007-ish was very cool at the time, and then it was in place pretty quick, and they’ve just sort of stayed frozen there. It’s a really simple services marketplace. That’s a good eight years behind, five to eight years behind what we see in China Asia. Let me give you some examples like. Why haven’t they built out tools for their hosts? Why haven’t they expanded and offered new tools and services to their hosts, like I just mentioned for Didi? Didi is rolling out new services all the time. ByteDance is rolling out new tools for their content creators that they can use to make videos and to edit them and do graphics and to do slow-mo and all this, they’re rolling out stuff all the time. Now that’s not a services one, but let’s say Matwan. You know, they’re operating operating systems that restaurants can use to run their businesses. They went into this business and where are the tools? Why aren’t they activating this group of people? When Ali Baba, this is one of my favorite things of the last couple of months, when the Ali Baba CFO was speaking about the total addressable market for Taobao and Tmall, their e-commerce platform. You know, she described the total addressable market. On the consumer side, obviously, is the share of wallet. How much money do Chinese consumers have? But on the merchant side, she described the total addressable market as how much value they could add to the income statement of a typical merchant. And they put up an income statement of a merchant that would be selling on Taobao. They have marketing spend, they have logistics spend, they have GNA, they have all the various costs of running this small business. They are trying to add services to every part of… their income statement to add value to them, to make them more efficient, to make them more effective, to make them more productive, to save them money. And within the value they create for the merchant at every level of their business, they know that they will take a small percentage of the value created. Okay, why isn’t Airbnb doing that for hosts? Why aren’t they giving them way to make more money? Why aren’t they addressing the way that they run their operation? Why aren’t they automating? Why aren’t they giving them automatic check-in? Why aren’t they letting them cross-sell food? Why aren’t they? They haven’t done anything. It’s the exact same thing as it was in 2012. It’s primitive. That would be my first question. And then once you offer more services, you can start to do cross selling, you can start to bundling. Why haven’t they expanded into other hospitality tourism type services? Why aren’t they offering flights? Why aren’t they offering trains? Why aren’t they offering car rentals, tickets to popular destinations for tourists? I mean, hotels and the stay part of a trip. That’s not really the full solution. I mean, you’re one complement to a larger consumer need, which is I’m going on a trip. Why haven’t they expanded into those? Any reason? You’ll get a lot more activity, you’ll be able to cross-sell, you’ll be able to bundle, which companies like Ctrip in particular is quite good at this. Next one, why haven’t they expanded into travel-related content? I mean the idea that we’re gonna have commerce and merge it with content and merge it with social media, that is, you know, that’s the model going forward. We’ve been saying this for years and years in Asia. And you can do this in some sectors like fashion because there’s a interesting entertainment component. So the content naturally goes there. Beauty, makeup, you know, a huge amount of sort of integration of content and commerce, travel, you know, vloggers, things like that. Travel and tourism inherently lends itself to this. You can’t do this if you’re selling tables and silverware. But travel is naturally interesting to people. You can do videos, you can do live streaming, you can do travel vlogs, you can do short video. Ctrip, which is a pretty interesting company, it’s kind of started out as the Expedia of China, but now it’s going international and it’s getting a lot more aggressive. They launched sort of an Instagram-like service where users could take photos of things that they see and post them, and they would get shared on social media, which people love to do, and they were getting a million views a day almost immediately. Why isn’t there any content aspect to Airbnb after all this time? You know, it’s a natural way to turn your users, both hosts and guests, into basically marketing agents of your platform. And then you can… You can start to get influencers and KOLs and they’ll start pushing it through social media. It’s a natural play. And C-Trip is moving pretty fast down this dimension. Anyways, they haven’t done any of that. Why haven’t they expanded into non-hospitality services? I mean, this is Maytwan. Maytwan has transportation, food delivery, movie tickets, beauty services, and hotels. Why not have all of them? Why not expand beyond this? traditional definition. Because the first thing it lets you do is it lets you start to pair low frequency services, like hotels, with high frequency services, like buying food every day. That’s a really powerful move and you can start to bundle on the advertising side, on the merchant side, and on the consumer side. Creates a lot of dimensions of action that can grow your user base, grow your activity, grow your data, and make offerings that others can’t match. That’s what kind of Ctrip is somewhat doing. It’s definitely what Meituan is doing. Gojek, which is more or less copying Meituan, but in Indonesia, they already have 20 plus services they offer. The Amazon of services model, why aren’t they doing that? Why haven’t they just decided to jump into new areas entirely? I mean, it wasn’t obvious that Alibaba should go from e-commerce to entertainment, but they did. They went from a marketplace platform to a YouTube platform, and then they started their own movie studio, which is making really good movies with like Tom Cruise and stuff. You know, ByteDance jumps into a new sector almost every month. They started with news headlines, Toe Tiao. They went into short video, they’re going into long video, they’re doing casual gaming, they tried Messenger. They launch a new mobile app, like every one to two months. You know, they have created what? 50 mobile apps in the last couple years and then they kind of go with the most successful ones. Compare that to what Airbnb is doing. They created one very simple version of a marketplace platform 10 years ago and then they took a stab at experiences and that’s it in a decade. ByteDance has done more in the last six months than Airbnb has done in 10 years. So you’re telling me this company is going to come to Asia and go head to head with any of these companies. Alibaba is in hotels. They’re the number one or number two hotel group in China now. In addition to products and services and entertainment and on demand delivery and everything else. And Ant Financial, oh by the way they created that too. You’re going to put this slow, completely non-innovative company up against any of them. Sorry, I don’t think they’re gonna, I think they’re gonna get KO’d in round one. Now, why are they so sluggish? I don’t know. I kind of wonder if it’s, it’s because they don’t have any competition, really. I mean, they’ve had some competition, but they haven’t been in a bruising fight for your life battle in a long, long time. I mean, they’ve had a fairly non-bloody existence. And I often think about this about a lot of the Silicon Valley companies is they just don’t have enough competition and they’re stagnating. I don’t know. Anyways, overall, Airbnb looks to me like a company stuck in time. They are unable or unwilling to move out of their original lane and beyond a fairly basic marketplace platform for services, and they’re definitely not pushing the frontiers of hospitality on the consumer side or on the host side. So you put them head to head with the real innovator. One of these gladiators of Asia, digital China, that sort of stuff, and I think they’re going down. Okay, that’s a bit of a rant, but I’ve been thinking about that for a while. So two more last short points. First one, everything I just said, that all gets a lot worse if Airbnb has to go against a super app. Because we have super apps in China. We have WeChat, we have Alibaba, although they’re now calling Alipay their super app, so that’s kind of changed. But we have super apps in China and we’re seeing super apps emerge in Southeast Asia and the rest of the region. We’re also seeing maybe hints of it in Latin America and it appears like Facebook wants to build one, but by and large, it’s a China phenomenon and an Asia phenomenon. Grab and Gojek, maybe Line, Doubtful, they’re all fighting to be the super app of Southeast Asia, which is kind of the It’s super perhaps a sort of a vague term. I view it as multiple complementary platforms or linked business models that effectively become the operating system for your digital life. Everyone goes to WeChat first for everything and everything is there. It’s closer to an operating system. Now you get there by linking together multiple businesses or by having multiple complementary platforms, which I’ve talked about before. But the sort of net net of that is it becomes more or less the operating system for your digital life. We know what that is in China. We’re almost there in Southeast Asia. That’s a pretty powerful thing because they have so many dimensions of action in terms of what they’re able to offer consumers, what they’re able to bundle, what they’re able to cross-sell, what they’re able to share in terms of resources and price shifting and subsidies and data sharing and low customer acquisition costs. They have so many advantages across that. that it’s really hard for a standalone, single business line like, you know, individual hosts and guests, it’s so hard for them to compete with that. If a super app wants to take down this business, there’s probably nothing they can do to stop it. So I think we’re gonna see the super app thing be in all of Asia fairly shortly. And even if we don’t see a super app emerge in Asia in the near future, the super apps of China and most of the digital giants of China view Asia as their strategic backyard. And they are willing to come to the rest of Asia, lose money for a long, long time because it’s a strategic priority. I don’t think Airbnb is willing to lose money, lots of money in Asia. for five to 10 years, but the big companies are. And we saw this before. Expedia actually did quite well in Asia 20 years ago. Came out, invested in, did really well. And the giants of Asia, SeaTrip in particular, but also Chunar, they just kept fighting forever and lost money forever and ever. And eventually 15 years later, after losses and losses and losses, Expedia just walked away and sold their stake. which C-Trip promptly bought. So, you know, I don’t think Airbnb is willing to fight that kind of bloody long-term capital losing fight. And most of these companies are not only in China, but cross Asia. Okay, last one. The other, the floating question I have here in my mind is C-Trip. That’s the other player I think is worth thinking about. They’re kind of started as the Expedia of China, but they are going international. Well, one, they’re very good in terms of expanding into, they offer flights and trains and rental cars and all of that stuff, but they’re also getting into content. You know, they’re expanding into other things. They’ve invested in Tuja, which is sort of a little bit of an Airbnb competitor, but a bit of a different model. I mean, they’re part of a bigger ecosystem than just a standalone company. And they have global ambitions. They are very big in China, and it’s clear that their goal is to be big everywhere. And if you’re number one in China, that’s big enough to fight everywhere. So you see them following Chinese consumers abroad. They bought Skyscanner out of the UK several years ago, which gave them flight reservations. They bought, which became their English and other language portal. So that’s kind of the international version of C-Trip, which is mostly in Chinese. Yeah, they’re trying to go global. And they’re extending and cutting deals around the world. So I think more and more they’re going to be a player in this mix. When people talk about Airbnb, they usually cite booking and Expedia, you know, maybe in Indonesia. Is that how you say it? Traveloka? I always say Traveloka, the Indonesian one. But people don’t really pay enough attention to Ctrip. And I think they are going international much the same way that AliPay wants to and Credit Union has, which is putting them head to head with companies like Visa and Mastercard. There is a bit of an international global level competition emerging between the China giants and some of these others. So I would watch for that. But I’m not getting a good read on what they’re trying to do right now, but it’s on my watchlist. And that is basically my take on all this. The overall sum, I really like Airbnb. I think it is simple and really, I keep thinking about it like Coca-Cola. Yeah, it’s simple, but it’s a powerhouse. I mean, it is a strong company in a big market, as long as you define that market as North America, Europe. and not necessarily Asia. I mean, it’s a simple marketplace platform. It’s got a huge moat by virtue of mostly a global network effects and a global brand. It’s got attractive economics. You know, those three factors I mentioned at the beginning, is the market big and or growing? Does it have a strong competitive position? Does the industry that you’re dominant in have attractive economics? And the answer is yes, yes, and yes, as long as we’re talking about that region. It’s when you take that same question and you apply it to Asia, where it’s like the market is a lot more interesting, but their competitive position is simply not the same. And the unit economics are not totally clear, but they actually seem fine, but we’ll see how that plays out. And ironically, I think maybe their lack of ferocious competition in the North American market is what has made them somewhat weak in the Asia market. which is an interesting sort of way to think about that. Their service is just too basic. They don’t innovate nearly, and they’re not even the same league as the China Asia companies. And they just don’t seem tough and ferocious. They don’t look, when you look at a guy like Jack Ma and you look at Wan Xing who founded Meituan, in my mind, this is the dude who’s standing in the middle of the arena, the gladiator. and there’s like 500 dead people on the sand around them, and this is the last person standing. That’s what I see when I see these people. I don’t see that when I see Airbnb. I just don’t. I think you put them head to head and we’ll find out who the real gladiator is and who isn’t. So anyways, that’s kinda my take. I removed the Asia bit from the valuation completely. And yeah, but it’s pretty fun. I’m excited to see what happens when they go public. Just a review for those of you who are subscribers, this all goes under Learning Goal 16, which is the basics of C-Trip, Meituan, and Marketplace Platform for Services. The main ideas, Marketplace Platforms for Products and Services, Bundling and Cross-Selling, and Network Effects. As for me, it’s a pretty nice week here in Bangkok. I’ve been teaching quite a bit over at Sassen and finished up a class at Siebes in Shanghai via Zoom. And it’s great. I mean, there’s so much interesting stuff to study in terms of digital in this part of the world. So having a good time. What else was fun? For those of you who like Star Wars, it was like the best week ever because I like the show The Mandalorian. I mean, not because it’s actually stunning. I mean, it’s good, but it’s not. It’s just because, you know, the Disney movies for Star Wars were so bad that, you know, it’s just like a breath of fresh air to get start to get something good after a bit of a dry spell. For those of you who like this stuff, it was the week when they finally showed Asokitano, who is a big popular character in animated live action version for the first time, which was Rosario Dawson. And it was great. Like, everyone was, well, not everyone, people I know were very, very excited. Like, oh, we’re finally, you know, that’s about where my life is. But it was pretty great. I mean, it was a… If you haven’t seen that one, go watch the Mandalorian, the episode, the Jedi, when they have this character appear. And it was spectacular. It was just the best. So for better or for worse, that was the highlight of my week. Anyways, thank you so much for listening. I hope this was helpful. I hope everyone is doing well and getting geared up for the holiday seasons. There’s… Christmas music playing in the malls of Bangkok, which is a very odd thing given how hot and tropical it is, but it’s a nice time of the year, so I’m in a pretty great mood. Anyways, thank you much, have a great week, and I will speak to you next week.


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