A previous Bloomberg report sparked a lot of speculation on Airbnb’s possible acquisition of its Chinese equivalent Xiaozhu

As a crucial part of the sharing-economy, home sharing industry has been accelerating exponentially in the past couple of years. China gets a fair share of home-rental startups and Xiaozhu is one of them. TechNode (in Chinese) got a chance to speak with Chen Chi, CEO of the company, on a variety of topics from Airbnb acquisition rumour, the prospect of home sharing industry and competition in the market.

Talk with Airbnb never touched capital cooperation

A previous Bloomberg report sparked a lot of speculation on Airbnb’s possible acquisition of its Chinese equivalent. The news agency cited people with knowledge of the matter that Airbnb in talks to acquire Xiaozhu to expand in China’s home rental sharing market. Other media reported that Airbnb gave up the deal because they think Xiaozhu lacks attraction for high-end customers.

Chen Chi has confirmed that the two companies have had lots of talks on different levels on business development and technological cooperation, but he said that’s all. Their talks never moved to capital cooperation.

Hotel business is still the biggest competitor

2010 was widely considered as year one for China’s home rental industry with the emergence of a group of Airbnb clones such as Tujia, Mayi, Airizu and Youtx. The failure of Airizu, which copied Airbnb’s model completely, has forced a majority of the players to exit the non-standardised accommodation sector. Short-term home rental vertical welcomed a new round of revival in 2014 as several platforms such as 107Room, Hhz360, and Zuber recorded capital injections.

Also Read: Singapore govt to enforce ban on Airbnb rentals, but alternatives could be on the way

With the maturity of regulations and public reception, China’s home rental market is growing quickly. Data from China’s Sharing Economy Report 2017 (in Chinese) shows that the country’s short-term home rental market is worth RMB10 billion (US$1.45 billion) in 2015, up from RMB140 million (US$20.3 million) in 2012. The annual turnover of this sector reached RMB24.3 billion (US$3.5 billion) in 2016 and the combined capital injection in this sector exceeded RMB4.6 billion (US$667 million).

As the top players in this industry, Tujia and Xiaozhu have passed their D round and their numbers of registered accommodations exceed 400,000 and 150,000, respectively.

However, domestic short-term rental startups still lack the power to compete with traditional hospitality groups.

“The short-term rental industry has been accelerating in the past two years, but on the macro-level, we are still facing fierce competition from hotels and this will be our focus in the future two or three years,” Chen said.

According to Chen, short-term rental platforms have yet to enter a battle with peer startups. Pressure from hotels and improvement of customer experiences are the two determinants in this industry in the future.

Also Read: GuestReady raises US$700K to help Airbnb hosts manage their property

Business trips might be the next big thing

Airbnb’s success might shed some light on competition with hotels for Chinese online accommodations startups. Airbnb added services for business travelers in 2014. Certify that business spending on Airbnb grew 261 per cent in the US and 249 per cent overseas in 2015.

Chen disclosed their plans on business trip services “Lots of business travelers weighing between hotels and short-term rental services.” China’s cooperate travel market is less centralised, so lots of accommodation demands come directly from individual customers on business trips. Xiaozhu wants to start with this group of customers.

Chen noted that vacation rental services are greatly influenced by seasonal factors, and therefore, it constitutes but a small part of the market. The core part still comes from short-term rental services in cities, which features high frequency, stable and right demands.

It’s still too early to talk about profitability

Airbnb turned profitable in the second half of 2016 and anticipates that it will be profitable in 2017 as well.

In respond to profitability questions, Chen responded “It is still too early to talk about profits. Xiaozhu can turn profits now if we give up further development. Currently, our commission revenue can cover all the basic costs. The home sharing industry is still in an early development stage and has great potentials. No companies would be so silly to give up market expansion potentials for short-term profits.”

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The article Xiaozhu CEO denies acquisition talks with Airbnb, betting big on business travelers first appeared in TechNode.

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