TRAVEL: Watch Out Tujia, Airbnb Checks in to China

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Bottom line: Airbnb should have a strong chance for success in China, thanks to its good choice of local partners, strong experience in its field and relatively little competition from homegrown rivals.

Airbnb hangs out China shingle

Not too many foreign Internet companies are coming into China these days, mostly due to the poor track record for previous big names. But that lackluster record of isn’t deterring online travel site Airbnb, which has been quite high-profile with a formal announcement of its entry to China.

The road into China is littered with cases of failure, with big names like Google (Nasdaq: GOOG), eBay (Nasdaq: EBAY), Yahoo (Nasdaq: YHOO) and Groupon (Nasdaq: GRPN) all entering the market at various times, only to withdraw later. In most cases companies failed to anticipate stiff competition, which was ready to use many tactics the big international names considered unacceptable. Failure to adapt to local tastes was also a factor, as many of these big names tried to use identical business models for China that they did in the west.

All that said, I do think that Airbnb could have a much better chance for success for a number of reasons. The company will have at least one big competitor in the form of the homegrown Tujia, which recently raised $300 million as it gets set for its own global expansion. (previous post)

But the big difference this time is that Airbnb’s business model is fairly straightforward and probably won’t require much localization, meaning it should be able to quickly compete with Tujia. That model sees Airbnb act as a middleman that brings together travelers who rent local apartments from property owners during their trips. The business model’s simplicity should also help Airbnb to avoid some of the shenanigans that other Chinese companies have used in the past to beat out their foreign rivals.

Strong Partners

According to the latest reports, Airbnb announced its formal entry to China on its blog, in partnership with 2 Shanghai venture capital firms, Sequoia Capital and China Broadband Capital (CBC). (Chinese article) I’m quite familiar with these 2 venture capital firms, as both are very well connected and have backed some of China’s most successful technology and media companies, and therefore should be very strong partners.

Airbnb was apparently planning the move for a while, as both Sequoia and CBC were members of a group that invested $1.5 billion in Airbnb in its latest funding round, giving it a valuation of $25.5 billion. Founded in 2008, Airbnb now operates in 191 countries, with a presence in 40,000 cities. One of those countries is already China, since Airbnb has been active here for the last few years through local properties offered over its English website.

Airbnb’s approach looks similar to what business networking site LinkedIn (NYSE: LNKD) did before formally entering China last year. In that instance, LinkedIn accepted China-based members through its English site, and even launched a Chinese-language app before formally launching a Chinese-language website. So far the cautious approach seems to be working, as I haven’t heard of any problems with LinkedIn in during the one and a half years since its formal launch.

One of the many unique issues that LinkedIn faced in China was censorship, since Beijing requires all Internet companies to police their sites for sensitive topics. Chinese websites like search engine Baidu (Nasdaq: BIDU) had few scruples about such self-censorship, but Google didn’t like the policy and ultimately shuttered its China search engine over the issue. Another high-profile case saw eBay quit China after refusing to offer its services for free, a money-losing model that was used by Alibaba (NYSE: BABA) at that time.

Airbnb won’t have to deal with many of those issues, though it could get into a price war with Tujia or other rivals over the size of the fees it collects for its services. But the service itself isn’t at all controversial, and issues like censorship and piracy, which Chinese firms have a generally higher tolerance for, shouldn’t be factors. At the end of the day, Airbnb has a proven track record for operating efficient markets for its special brand of travel services, and I expect the company should not only succeed but also do quite well among China’s budget-conscious travelers.

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