Is Beijing-based vacation rental platform Tujia taking a shot at global rival Airbnb? Sally White investigates
As Airbnb was being evicted by regulators in New York last month, a very different story was unfolding for its Chinese peer Tujia. Already deemed to be a unicorn, the Beijing-based vacation rental platform made a quantum leap. It signed a strategic agreement to acquire the apartment and house rental business of major Chinese OTAs, Ctrip and Qunar. Rumours in the market have it that this could be a precursor to a Chinese shot at its global rival Airbnb.
What’s behind the rumours?
Firstly, the announcement of the deal included the intriguing words “more M&A may be coming to complete the industry chain”. Since there is already a link between Airbnb and Tujia, that was enough to get the febrile Chinese market going - they are both are backed by tech and media investor China Broadband Capital. Then, no one is quite sure how well Airbnb is doing in China, where it launched a year ago, but the guess is that the US group is finding the going less than easy.
And there is a precedent. China is a very cut-throat market and Airbnb would not be the first foreign group to throw in the towel there. Uber did so in August. It merged its local operation with Didi Chuxing, opting out of bruising battle between the two companies for leadership in China’s fast-growing ride-hailing market.
No details have been given of the new Tujia tie-ups, nor of any values. This comes just three months after Tujia’s acquisition of short-term rental site Mayi.com. Founded in 2011, Tujia operates in China and Southeast Asia, with overseas offices in Japan, Singapore, Taiwan and South Korea.
While always compared to Airbnb, Tujia likes to stress that its business model is ‘different’ in that it targets “high-end properties rather than bargain accommodation”, and offers services that Airbnb has steered away from (although this is changing). To date, however, Tujia takes a more active role in property management than its competitors, organising bed making and cleaning for the owners. It also takes care of broken furniture and fixtures, as well as problems such as theft.
Airbnb's China strategy so far, apart from last year’s partnership with Qyer, has been to focus on the Chinese outbound market - a market of 100 million and expected to grow by 30% this year. Tujia, by contrast, covers both domestic and overseas travellers.
Five year plan
Tujia co-founder Justin Luo took the opportunity of this deal to launch his company’s next five-year plan in public, signalling that the company will enter a new fast-growing period as the start-up stage is concluded. “This will help fuel the development and thriving of China's accommodation sharing industry. The five-year plan will focus on two dimensions - continuing to build the ecosystem and set apart Tujia's online and offline businesses,” he announced in his press release.
Tujia's offline business includes the self-managed homestays brand Sweetome, the self-managed villa and resort brand Tu Villa, (launched earlier this month), and several other business branches. The online business includes Tujia.com, Mayi.com and the newly acquired business units of Ctrip and Qunar. The division between online and offline operations will help both of Tujia's business lines to be more focused and have bigger room for growth in the future.
The division between online and offline operations will help both of Tujia's business lines to be more focused and have bigger room for growth in the future.
Since it is not quoted, the market can only guess at Tujia’s figures. Bloomberg put 2013 rental revenues at $16 million in a 2014 report, but added that management and house-keeping brought in more than that. Its performance has been strong enough for Tujia to raise a total of around half a billion dollars from a range of investors. The last major funding round was in August when it received $300 million investors that included Ctrip and HomeAway.
According to the Japanese information hub Nikkei Asian Review, Tujia has built a network of 430,000 rental properties in China and abroad, ranging from single rooms to historic farmhouses and country villas. The Chinese service has been broadening its reach to cater to the increasingly diverse needs of Chinese tourists with options such as luxury rentals.
Massive travel demand in China has been the propelling force for Tujia’s growth, commented the Nikkei Asian Review in September. The number of domestic travellers in China reached around four billion last year, and the numbers of those travelling overseas topped 120 million. For those holidaying in groups, as many Chinese tourists do, renting out a house or units in a housing complex is typically cheaper and more convenient than conventional hotel options.
For those holidaying in groups, as many Chinese tourists do, renting out a house or units in a housing complex is typically cheaper and more convenient than conventional hotel options
Recent overheating in China's real estate development sector means there is a glut of empty residential units, with their owners struggling to put them to productive use. Tujia has partnered with developers such as China Vanke to tap such property owners.
Meanwhile, what is Ctrip up to given that it is shedding what seems to be lucrative business? One plausible explanation comes from investment website Seeking Alpha. It suggests, explaining the complex cats-cradle of links that make up Chinese business, that “....online travel agent Ctrip is back to doing what it knows best, neutralising competition through formation of savvy alliances with its rivals.” Qunar has just announced that it is taking the company private. That move will leave Ctrip as one of its largest shareholders and in a good position to pull strings.
Tujia’s deal, it says, will bring “a wide range of benefits from Ctrip and Qunar, including inventory, traffic, branding and operations support”. So, the three will work jointly to promote Tujia's services. Conjecture is that Ctrip and Qunar are getting an equity stake in Tujia in exchange for their assets and support - a signal that as these major locals see it, there is some fast growth ahead.