When Airbnb announced its latest funding round this June, it was easy to gloss over one of the names attached to it. At the time, the fact that China Broadband Capital was among the dozen-odd investors on board was much less interesting than the size of the round itself—a stunning $1.5 billion that valued Airbnb at $25.5 billion and vaulted it toward the top of the elite billion-dollar startup club. But on Tuesday, the home-sharing company made clear that China Broadband Capital is more than just another backer. It and Sequoia China are serving as two “strategic partners” in a newly announced Airbnb push to capture the vast and lucrative business of Chinese tourists traveling around the world.
Should this story sound familiar—“sharing economy” company lands big investment, makes equally big bet on China—that’s because it is. Back in December, Uber partnered with Internet giant Baidu, and then just two months ago announced it would devote more than $1 billion to expansion in China in 2015. In a letter to investors, Uber chief executive Travis Kalanick described the massive growth the service had seen since arriving there in February 2014. After its first nine months in Beijing, Uber’s trip volume was 29 times what it was during the same initial period in New York City. In Hangzhou, that multiplier was 422. “This kind of growth is remarkable and unprecedented,” Kalanick wrote. “To put it frankly, China represents one of the largest untapped opportunities for Uber, potentially larger than the U.S.” And finally: “Simply stated, China is the #1 priority for Uber’s global team.”
Top expansion priorities never come cheaply, and especially not when they involve winning the hearts and wallets of an estimated 1.3 billion people living halfway around the world. Uber hasn’t publicized its burn rate in China, but it must be astronomical. On “People’s Uber,” the UberX-like service the company operates in cities including Shanghai and Hangzhou, rider fares cover only basic driver expenses like gas. Uber subsidizes the rest, with some drivers making the equivalent of several thousand dollars a month. On a recent trip to China (arranged and paid for by the China–United States Exchange Foundation, a nonprofit, nongovernment organization based in Hong Kong), a 10-minute, 1.8-mile ride in a People’s Uber cost just 8 RMB, or about $1.30. With Uber providing a reported 100,000 rides a day in China, I’ll leave it to you to imagine how expensive that operation is.
Airbnb didn’t specify in its announcement how much it plans to spend on a China push, but again, it’s unlikely to be cheap. Airbnb’s efforts are focused on Chinese tourists looking for places to stay around the globe, though it also offers rentals within China. The company says China is its fastest-growing outbound market, with bookings from Chinese tourists traveling outside the country increasing 700 percent in the past year. (A company representative declined to provide additional specifics on bookings in China, pointing instead to a blog post by chief executive Brian Chesky.) Like Uber, Airbnb has identified China as a tremendous untapped opportunity; Chinese travelers took 109 million trips in 2014, the company explains, citing data from the World Tourism Organization. “It’s clear that Airbnb is uniquely positioned to connect Chinese guest to amazing travel experiences,” Chesky writes. “And as we move into our next phase of expansion in China, we know we will need deep local knowledge and expertise to keep this momentum going.”
That, of course, is where China Broadband Capital and Sequoia China will come in for Airbnb, and where Baidu is already helping out for Uber. To state the obvious, running a business in China is nothing like running it in the U.S., and American tech companies have largely either struggled to crack the tightly controlled market or chosen to keep their distance. Here again, the Uber narrative is telling—while the company has expanded and lobbied for regulatory changes aggressively in the U.S. and parts of Europe, Uber has carefully fallen in line in China. Earlier this summer, Uber made headlines when it warned drivers to steer clear of a protest in Hangzhou to “maintain social order.” The startup that brashly smacked down Bill de Blasio over a proposed vehicle cap in New York City is hardly recognizable in the Middle Kingdom. Airbnb’s reputation is far less brazen, but it will also presumably need to be extra-accommodating to position itself favorably in the Chinese market.
Lastly, what’s left unsaid in the Airbnb announcement is that it’s by no means the only company attempting to win the alternative-lodging game with Chinese travelers. One of the biggest competitors Airbnb will face is Tujia.com, a Beijing-based site for home rentals that in June raised $300 million at a valuation topping $1 billion. The lead investor on that round, All-Star Investments Limited, also holds a stake in Didi Kuaidi, the dominant provider of on-demand rides in China and Uber’s most formidable local rival. Chesky says that Airbnb’s partners on its China efforts have “proven track records in localizing technology for the Chinese market” and growing Chinese Internet firms into “respected market leaders.” In poetically optimistic fashion, he adds that Airbnb had its biggest night ever this summer and is eager to “help more people in China travel through the Airbnb platform” and gain “memorable travel experiences from around the world.”
In short: Airbnb is ready to belong in China. The question: Is China ready to have it?