The Downfall of Airbnb in China
Despite the absence of property ownership, an obvious essential to any real estate company, the US based tech startup Airbnb is still regarded as one of the most influential real estate companies around the world today. Airbnb provides an online marketplace for homeowners and renters for both long term and short term stays. Airbnb was first launched in San Francisco during 2008 as a way for homeowners to generate a new source of income and for renters to tackle the rapidly increasing rent, even with its slow start, Airbnb is now estimated to hold over 20% of the market share in the vacation rental industry globally.
Airbnb formally expanded its business into the Asia Pacific real estate market throughout the early to mid 2010s, targeting popular travel destinations such as Japan, Singapore, and Thailand. This proved to become extremely successful as Airbnb experienced phenomenal growth in many countries breaking one million listings in the Asia Pacific region during the May of 2019. However, the company has struggled to gain a foothold in China, which has a unique set of unforeseen competitive, regulatory, and cultural factors.
China has historically banned popular US social platforms such as Facebook, Youtube, and Instagram, replacing them with their own alternatives. In turn, Chinese consumers have become reluctant to use foreign platforms, prompting them to favor local competitors, most notably Tuija and Xiaozhu. Airbnb’s initial solution to this was to rebrand themselves as Aibiying, which translates directly to “welcome each other with love and respect” in Chinese. However despite their effort of establishing themselves as a trusted and culturally sensitive platform in China, they still struggled to break into the Chinese rental market. The local competitors have not only developed a loyal consumer base but have also managed to negotiate long term deals with established travel companies and the local governments, which has helped to increase its visibility and affordability among consumers.
The Chinese government heavily regulates the hospitality industry, and short-term rentals are no exception. In 2016 just as Airbnb broke into the Chinese housing industry, China's Ministry of Culture and Tourism introduced implements that require all short-term rentals to be registered with the government and for hosts to have a special license. In addition, the Chinese government has also imposed restrictions on the use of foreign online platforms, including Airbnb. A determinantal policy was that all online platforms store user data within China, which meant that Airbnb had to invest in new infrastructure to comply with the regulations. These regulations created a significant administrative burden on both Airbnb and the host, limiting the number of properties available for rental on Airbnb. As a result, Airbnb struggled to scale its operations, and compete with well established competitors.
The biggest struggle that Airbnb’s business model had failed to account for were the cultural barriers set by Chinese traditions. With China’s rapid urbanization in the 21th century, Airbnb had expected the Chinese consumers to be in support of the sharing economy, as it would help address the sudden rise in demand for housing. However, this was not the case as trust is a fundamental cultural value in China. Consumers were more hesitant to trust strangers or rely on online reviews when it comes to accommodation. A clear mismatch in preferences as Airbnb relies heavily on trust and user reviews to attract customers, so this cultural difference made it difficult for Airbnb to gain traction in China. Consequently, Chinese consumers prefer to stay in established hotel chains or with family members, who they already trust, rather than renting out a stranger's home.
In the face of all these struggles, Airbnb had remained committed to the Chinese market and continued to operate there regardless of its lackluster success and revenue earnings. But in early 2020 the COVID-19 pandemic proved to be Airbnb’s final nail in the coffin, as the Chinese government introduced their Zero COVID policy in the early stages of the pandemic. The policy targeted mass lockdown and testing all over China, resulting in record lows in demand and revenue for the company. In response to the decline in demand, Airbnb had begun to reduce its workforce and cut costs, but even as the pandemic came to an end, Airbnb was never fully able to recover, ultimately leading them to exit the market.
Although Airbnb’s attempt to enter the Chinese rental industry was followed by a series of financial disasters, Airbnb still holds the title as one of the most dominant and popular rental companies around the world. Their success in other countries has been nothing short of impressive and their annual growth continues to prove themselves as one of the most influential companies in the world.