A number of Chinese start-ups have attempted, and failed, to duplicate the business model of online lodging marketplace Airbnb. One company has set itself apart from the crowd, however, by pioneering a new marketing strategy with uniquely Chinese characteristics.
The winner is Tujia.com, China’s largest vacation rental website, founded in 2011. In less than five years it has grown from an unknown to a unicorn – one of an elite group of tech start-ups whose market valuation surpasses the $1 billion mark.
Melissa Yang, cofounder and chief technology officer of Tujia.com, said her company is based on a model entirely different from Airbnb’s. That is because of the stark contrast in cultural and consumption behaviors between travelers in China and the United States. Chinese tourists don’t trust industry intermediaries, she said. Also, they often travel in large groups. And they tend to demand Chinese food wherever they go.
That’s why her company, Tujia, took to managing all the properties listed on its website in order to guarantee service quality, becoming something akin to a serviced apartment provider – and a smart one at that.
“We managed all the properties ourselves from the beginning,” she said, speaking on the sidelines of the “Most Powerful Women International Summit” hosted by Fortune magazine in Hong Kong.
“There are huge differences between U.S. and Chinese travelers,” she explained. “Chinese travelers do not trust travel agencies or their services.”
Last August, Tujia raised $300 million in its latest funding round, led by Singapore’s top property developer and early investor in China, Capitaland, and its fully owned serviced apartment unit, Ascott Limited. Together the pair invested $50 million. Ctrip, Tujia’s single largest investor since its founding, and newcomer All-Stars Investment, also joined the funding round.
The bedrock of a sharing business model is trust, but building trust in China’s jungle of mad capitalism has never been easy. Yang and her business partner, cofounder Justin Lou, had to jump through multiple hoops to win trust from homeowners, to get them to hand over the keys to their properties – many of which were exclusive villas or luxury apartments – and to entrust the management of their properties to an obscure start-up. They also had to win trust from travelers to get them to feel comfortable about sleeping in a stranger’s bed.
Tujia set its standards by managing the first 10,000 units listed on its website. Its direct association with Ctrip, China’s largest online travel services provider, helped establish its integrity. Only at a later stage would it add listings of Airbnb-type, privately owned units, and much later, serviced apartments came along, through a partnership with Ascott.
In a hectic dot-com era, Tujia has prospered primarily the old-fashioned way: by word of mouth. “The business has been doing well. We have over 400,000 properties on the website,” Yang said. “And our monthly bookings hit a record high in March, which is a slow season, all with little market promotion.”
To illustrate Chinese travelers’ consumption habits, Yang cited her parents’ experience. Yang previously worked in Seattle for Escapedia, a vacation rental online start-up acquired by HomeAway in 2010, and her parents would visit her regularly from China. One time she planned to take them to Olympic Peninsula for a two-week retreat, but her parents balked. To stay in a typical American hotel for two weeks would mean they would have to make do without home-made Chinese food for the entire duration. “So I found a villa there for us to stay in,” she said.
Chinese tourists often travel as three generations of an extended family, and sometimes even travel with families of friends. Standard hotels are often too expensive for such big contingents.
Tujia also benefits from the slowdown after years of China’s super-charged economic growth, which has manifested in block after block of empty properties, as hot money chases after the soaring prices of real estate. A national survey taken two years ago showed more than 50 million housing units lying empty, based on their dormant electricity usage; the owners either lived elsewhere or had a separate primary home. The spare properties were intended as investments, or for speculation, as some would say.
“We have provided value,” said Yang. “These empty properties were not being used. Now they are available to travelers. This creates value for the government by adding new jobs. Another big reason (for our success) is because this is a growth industry,” she concluded.
A passionate travel enthusiast, Yang drew lessons from her early career working in the U.S. travel industry with Expedia, an online travel company started by Microsoft and Zeeshan, then with Escapia and a start-up she cofounded. In 2010 she returned to China with her husband and worked for Microsoft as head of Asia operations for its search engine, Bing.
A fact-finding trip to Sanya, capital of China’s southern tropical vacation island, proved especially crucial. Before founding Tujia, Yang and her business partner Luo stayed at a friend’s villa in Sanya, and found themselves surrounded by an eerie sea of silence. In the entire community of more than one hundred houses, only two had lights on. “These empty properties were a great waste of resources. That’s when I decided I would quit Bing and set up our company,” she said.
By that time, Luo had established himself in a similar setup, having founded in 2007 Leju Holdings, an online-to-offline real estate services company.
Tujia’s workforce of more than 3,000 takes care of housekeeping at the properties managed by the company, which are distinguishable by the Tujia logo on the door. The company holds classes to train property owners, and conducts due diligence to make sure that online pictures are a faithful representation of offline reality. All properties listed on its website, about 420,000 units, are classified according to a star system, with each and every star assigned and verified. The result is a gratifying response; customer ratings of their experiences with Tujia average 4.6 out of a total score of five. Properties that lag behind risk being evicted from the website.
In recent listings, Tujia was offering the following daily rates: 297 yuan (US$46) for a room in an unconventional mini-hotel of 200-plus rooms in an imperial courtyard in central Beijing; 2,240 yuan ($344) for a 410-square-meter villa designed by a well-known Japanese architect at the scenic Thousand Island Lake area near Shanghai, big enough to house eight guests; and 1,215 yuan ($186) for a villa with a swimming pool in Sanya, Hainan Island, courtesy of its owner, a Chinese actress living in Beijing.
How has Tujia stacked up against competition? On a business trip to Shanghai last July, Yang stayed in a Tujia-branded penthouse in a new residential building in the suburban Qingpu district. The place, about 2.5 times larger than the smallest hotel room at the Crown Plaza across the street, was priced at under 400 yuan ($61), less than half the starting rate of 890 yuan ($136) at the Crown Plaza. Through the grapevine, Yang heard the Crown Plaza was anxious about this new competitor.
Tujia seeks to maintain a diversified portfolio, from condos, luxury villas and flats to beachside recreational vehicles, both inside China and, increasingly, in Chinese tourists’ favorite overseas destinations. Some homeowners in Japan recently started listing their properties on Tujia, seeking to tap into the growing influx of Chinese tourists. Tujia has also expanded to Taiwan, Thailand, Indonesia, Hong Kong, Korea and big European and U.S. cities.
“We follow in the footsteps of Chinese travelers,” Yang said.
Next to come will be more properties in high-demand locations such as Beijing’s central business district. There will also be more serviced apartments; the company targets 2,000 units, through a joint venture with Ascott under the Tujia Somerset brand. Expansion has also led to rural China, where village houses have been enlisted from farmers who otherwise would have left their children behind to become migrant workers in cities.
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