Airbnb cofounder Nate Blecharczyk explains its success in China: 'We're not trying to boil the ocean.' (ABNB)
Summary List PlacementAirbnb is one of the few US tech companies to successfully plant a flag in China. Others, like Facebook, Alphabet's Google and Twitter are still blocked in the country. Uber famously lost more than $2 billion in two years in a costly a battle with its local rival, Didi Chuxing.In order to maintain a foothold in China, Airbnb has had to to run its Beijing office as a separate business unit with a Chinese name, led by a local president. Prior to the pandemic, co-founder Nate Blecharczyk would fly from San Francisco to Beijing once a month. In an interview with Business Insider, he explained why China remains such an important market for Airbnb to conquer. "Travel is inherently global, but our mission is to create a world where you can belong anywhere and China represents 20% of the world's population," said Blecharczyk. "So it's a really important part of achieving our vision." Risky business in China In January, before guest check-ins in Beijing were suspended temporarily due to COVID-19, Airbnb had about 480,000 active listings in China, up 62.5% year-over-year, according to AirDNA, a research and data firm that tracks short-term rentals. Back then, Airbnb had high hopes for China and expected Chinese tourism to be Airbnb's largest source of business in 2020.After the pandemic hit, Airbnb became less optimistic. In its most recent prospectus filing to the SEC, Airbnb listed China as a risk factor that could impact its brand and profitability. Airbnb also said it expects to continue incurring significant expenses to operate the China business, and "may not achieve profitability in that market." While Blecharczyk acknowledges the difficulties of doing business in a competitive market filled with regulatory risks, he shared Airbnb's strategy in how to approach the Chinese market. "We're not trying to boil the ocean," he said. "We're really trying to think about what are our unique strengths as a company. And our unique strength is the fact that we're a global company."So Airbnb took a strategically smart first step: reaching Chinese globetrotters. "Our initial focus in China was purely on the outbound business, helping Chinese travelers go abroad. And there's no local company that actually does that," said Blecharczyk. As millions of Chinese travelers got to experience Airbnb through their international travels, the domestic business grew organically, he said. "We very much organically bootstrapped our domestic business in China off the fact that travelers were using Airbnb to travel abroad," said Blecharczyk. "And for us, there's really this strong synergy between the domestic business and the outbound business that has allowed us to create a business without burning a ton of cash." That said, Airbnb still has to contend with local competitors. Airbnb's efforts in China have so far yielded a firm position in second place. In 2019, Ctrip-backed Tujia led the Chinese short term rental market with 24.3% of the total market. Airbnb has made some progress but still lags behind, capturing 21.6% of the total market, according to Euromonitor International, a market research provider.
The China Playbook In 2015, Airbnb seized on an opportunity to enter China by bringing on two strategic partners, China Broadband Capital and Sequoia China. In a statement on its blog, Airbnb said outbound travel from Chinese tourists had grown 700% at the time, making it one of the fastest growing markets outside of the United States. The first item on the agenda was to recruit a China CEO to build out a team on the ground.The strategy mimics a playbook that was written years earlier by the professional social network LinkedIn who introduced a local Chinese site in early 2014. That's because Airbnb tapped LinkedIn co-founder and board member Reid Hoffman to help navigate a government that has been traditionally unwelcoming to U.S. tech companies. In the early days, much of the attention was focused on following the rules of the Chinese government, city officials and regulatory agencies. LinkedIn also worked with the same two venture capital firms, and hired a separate China chief for its operations.
Becoming 'China friendly' The China unit formally launched in 2016 but it hasn't been an entirely smooth ride. There were some early leadership fumbles. The first China chief the company hired stepped down only four months into the job. It then took Airbnb almost nine months to find a replacement, appointing Tao Peng to the role in 2018. Airbnb has also been criticized for working with Chinese authorities and sharing guest information, including passport and booking dates. The costly decision to keep the lights on in China has been debated amongst Airbnb's senior leadership team and led to one top executive departing last year, according to the Wall Street Journal. "They are playing by the rules there," said Santosh Rao, Partner at Manhattan Venture Partners and an Airbnb investor. "They have become very China friendly to survive." Critics also say without a local partner, Airbnb's future is uncertain as it continues to operate an unregulated home-sharing industry in a foreign country. The company once considered a merger with the Chinese local competitor Tujia, but reportedly pulled out in the final hours of negotiation. Blecharczyk admits that while it's rare for a U.S. company to grow business in China without a local partner, he's proud they have remained independent and kept a very strong business in China. Investors seem to agree. "It's such a massive market that even without a local partner, they can do great in China," said Hans Tung, managing partner at GGV Capital, and Airbnb investor.SEE ALSO: With 16 unicorns, Hans Tung tells us how he became one of the most successful under-the-radar VCs of 2020 and why he chose Airbnb over Uber SEE ALSO: INTERVIEW: Airbnb co-founder Nate Blecharczyk on how the company survived its darkest pandemic days, why it went public now, and how he surprises Airbnb guests Join the conversation about this story » NOW WATCH: Epidemiologists debunk 13 coronavirus myths