In recent years tourism has taken off in a big way in China propelled by rising disposable incomes and government support to the sector. Riding this boom is Tujia, an online holiday rentals website. Tujia, which was founded in 2011, is often called China’s Airbnb because it has a similar model: of connecting home owners with travelers looking for a place to stay. But there are significant differences between the two as well, most notably with regard to service.
In just about four years since its launch, this sharing economy company has already reached a valuation of more than $1 billion, and it has attracted investments from the likes of LightSpeed Venture Partners, GGV Capital and All-Stars Investment as well as travel industry players like Ascott, HomeAway and Ctrip. With the latest round of VC funding of $300 million that came through in the first week of August, Tujia is now valued at over $1 billion, making it the latest entrant into the start-up unicorn club in China.
Tujia, which lists close to 300,000 properties in 250 destinations in China on its site currently, is now working on its global expansion (it already has 15,000 properties overseas in 100-plus destinations). The strategy is simple: go where the Chinese tourist goes.
In this wide ranging interview Tujia co-founder and Chief Technology Officer Melissa Yang, an Expedia veteran, explains how a concept like Tujia gained acceptance with the Chinese consumer, how it is different from Airbnb and the rationale behind the global expansion.
Q. What was the idea behind setting up a vacation rental business in China?
A. From the supply side China is the largest housing country in the world—there are about 50 million vacant homes in China. All those homes are not being utilized. That’s the supply side with big potential.
On the demand side Tujia is more about vacations, and as you know the average GDP of China has been growing, so [there is a] stronger demand [for vacations]. We saw a strong demand and sufficient supply, so that’s why Tujia was born.
Q. The Chinese consumer, and to a large extent the Asian consumer, is very different from Western consumers. They would think 10 times before staying in a stranger’s house. What gave you the confidence to bring in a concept like this which the Chinese consumer may not accept readily?
A. I was in the US in the travel internet business for over a decade. [I noticed] two differences between Chinese or Asian travelers versus Western travelers. One is the trust issue. Unlike hotels, vacation rentals are not standard. The second is the expectation on level of services. I have Indian friends, who told me the same thing as Chinese: when people [go] on vacation, they like to be served. [When] my husband and I vacation in the US,… it’s easy for us to take out the trash. But in India or China, they don’t like to do that.
So what Tujia does is, one, we provide services tailored to Chinese customers. Second, to solve the trust issue, we actually have the offline [part]: we have local teams working to do the check-in, check-out, and for the properties served by others—by third parties—we actually have each house inspected. We make sure all the photos are authentic. One of the things you may think is the photos may not be correct. Some worries will be: “If I reserve it, will the room be reserved for me?” So if a room is not reserved [for some reason], Tujia is responsible for finding accommodation for that customer. By providing [such] services, we tailor our product to Chinese users.
Q. That is so different from Airbnb in the US. Are these services you introduced after you launched
A. No, we started with this. We figured out we cannot follow whatever [works in] the US or Europe. We have to tailor our products for our customers.
Q. So this is also very resource-intensive in terms of the number of people you have to employ.
A. There are over 300,000 properties [in China] on our site. [We manage] about 10,000 properties ourselves, and the rest of these are managed by third-party property managers. So the majority of them are managed by others.
For instance, in Beijing, one property manager manages 20-30 apartments in the Central Business District. If someone applies saying, “I want to get my property on Tujia”, we have [a] local person inspect her properties, take photos, and then get those listings on our site. If someone books one of her properties, we’ll take a commission from her.
Q. You say you offer a lot of services to the customers. What kind?
A. All our properties have services [such as cleaning]. It depends on the location—sometimes it’s a daily clean-up, sometimes once every three days. It depends on the property. We have some luxury villas in Qiandao Hu, pretty close to Shanghai. [These are] very expensive luxury villas designed by a very famous Japanese architect, so people spend $1,000 per night there. Each villa [has] a dedicated butler. If you stay there, you can actually get those butlers to cook your breakfast. Some of our properties are in tourist destinations, like one very close to Tai Hu, a famous lake in Suzhou. People go there for vacation, they want to play around, so we offer bicycles. We work with Ctrip [so we can offer] car rental if people need it. It really depends on the location, actual properties—our packages are different.
Q. So in a sense now, you are a service business with a lot of these human-centric services like butlers or cleaners. That makes you similar to a hotel that has housekeeping, restaurants, chefs, etc. The difference is that you don’t completely control the entire chain: it’s more like you have autonomous units in your model. It just takes one person who’s not so good at his job to break trust or bring quality down.
A. We do a few things. One, we are very careful in selecting properties. A lot of times people complain because the properties themselves are not good. So we have a very detailed criteria—what kind of properties are allowed to be listed on the website. We [do] personal inspections, and also watch customer feedback very closely—we have a 24/7 call center for complaint. We make a lot of effort to collect feedback from our customers [especially] for each of the not-so-good reviews. Not-so-good means out of five if the overall satisfaction is three or less or if the person said, “I’m not going to recommend this to my friends” or “I’m not coming back again”. We follow up sometimes with travelers, but definitely each time with the property manager to make sure what is actually going on and if they’ve got a follow up plan. Sometimes we delist those property managers, or rank them down on our list and say, “If you can correct these things, then we will [improve] your rank.”
Q. Do you even get involved in training?
A. Yes we do. Some of the properties are managed by ourselves, so then we have full control over that. And we actually developed our own SOP (standard operating procedure) [on] the process, [serving] customers better. [For] third-party property managers we have a salon on training. Sometimes if [we have] our own property in the area, we invite them [there] just [to] learn how we operate [our] business offering. It’s very tedious because this is a service industry. You have to do it. We get very nervous at every complaint.
Q. Which countries are you targeting in your global expansion? Also, in China you have a lot of control over quality: you have teams in place, you have even outsourced some work to third-party service providers. How are you managing all this in your overseas expansion?
A. For overseas, the most popular destinations for Chinese folks actually are Asia, particularly Southeast Asia like Thailand and Indonesia, and then Taiwan, Hong Kong, Korea and Japan. So we [are focusing on] those popular destinations first. Secondly, we actually have been very careful to select products favored by Chinese travelers. For instance, a lot of them actually are families [traveling] together, so they prefer a bigger property like a villa. A lot of Chinese love to cook, so we pick up properties [that] have a kitchen. Some people go there just for sightseeing so we pick up properties close to tourist places. We look at the kind of properties people want, we also look at the quality of the property and the services they provide.
We work with third parties: for instance, there are some local agents in Thailand. They inspect [and] get properties. We look at all the properties they have, we pick out the ones we want and we work with them to sell to Chinese customers.
Q. In China the tourism boom has encouraged other companies like Maiyi and Xiaozhu to enter this segment. How do you rank vis-à-vis local rivals as well as Airbnb’s China operations?
A. I don’t think Tujia has direct, head-to-head competitors yet. Our focus and customers are different. [Other] short-term rental sites [lean] more towards low-end properties, while Tujia focuses on the mid to high-end. Airbnb is more focused on the in-bound—foreigners in China—whereas Tujia focuses on Chinese outbound travelers.
Q. Recent news articles indicate that you have become a $1 billion start-up.
A. I’m not allowed to share that information yet.
Q. But hitting a benchmark like that: what does it mean?
A. The number probably shows two things. One, it shows the investor really feels very confident about this market in China, the sharing economy of accommodation in China. Also, it shows great confidence in Tujia. So that’s pretty much it.
We actually don’t care too much about the valuation. We [are focused] on business growth. If we take care of the business, the rest will take care of itself.
Q. Travel booking site Ctrip is one of your investors. How do you really work with each other apart from the investment?
A. Ctrip is the largest OTA (online travel agency) website in China, so it’s well recognized. Ctrip has been giving us a lot of support. If you go to Ctrip.com in [the] Chinese version, under accommodation there is a tab called Tujia. That actually brings traffic to our website.
Q. And how does your partnership with HomeAway work?
A. There are two types of things we get from HomeAway. HomeAway is the largest vacation rental platform worldwide and it has been in business much longer than us, so we actually learn [from their] experiences. Although China is different, [vacation rentals] is the same domain, so we learn things from them. The second is, HomeAway has inventories worldwide, so we can pick up properties from HomeAway listings and list them on Tujia’s website.
Q. Does this happen both ways?
A. HomeAway is working on that too [but there is] the language barrier.
Q. One of the challenges that Airbnb ran into in the US was opposition from the hotel industry. Issues like, for instance, where does this business model lie—it’s not a hotel, it’s run by individuals who own the houses. There were issues like taxation on income earnt from renting properties. How do you find the regulations in China in that respect?
A. First of all, it’s similar to the US and Europe—vacation rentals is not a well-regulated area, and China’s government [plays] an even bigger role in business in China. That’s why from day one when Tujia was founded, we have been collaborating with the Chinese government very closely. We [have] signed an agreement with over 160 governments in China.
[For example], we actually worked with the government [of Sanya] to create a Sanya vacation rental association. So we help [set] standards [for] vacation rental property managers, we categorize them, we [improve] quality and also pay tax to the government.
The second part is Prime Minister Li Keqiang chaired an executive meeting of the State Council, [and] in the meeting he said China’s government should advance with the times and soften restrictions on new Internet Plus businesses, such as the online vacation rentals and car rental sectors. Tujia was the first to introduce the online vacation rental [concept in] China, so that shows the government is becoming more supportive of this new business.
Q. So we’ve seen Phase One: 2011 to 2015, during which time Tujia has become a $1 billion company. What will Phase Two be about?
A. I always feel Tujia is actually an e-commerce [platform], so I always look at this from the supply side and demand side. Supply: there are 50 million vacant homes, so that’s a huge number—to just put it into some perspective, both Airbnb and HomeAway got more than a million listings last year, so we have 50 million vacant homes. If even 10 percent of them can be operatable, it’s already more than five times more than that. So the supply side is very promising.
On the demand side, the average [per capita] GDP in China, is about $6,700, so if you look at the history of other countries, once the average GDP of a country is more than $5,000, travel or vacation get strong demand. Tujia focuses on the vacation side, so if you look at that with time more people want to travel, there are more and more mature travelers. When they mature, they want to visit for more unique experiences instead of just sightseeing or staying in a traditional hotel. So I would think [there would be] big growth from both the inventory side and demand side, so I am quite optimistic about Tujia’s future.
Q. Would you consider an IPO in the near future?
A. We have not thought about that. The real thing that matters to us is actual business growth—that’s where we put 100 percent of our efforts on.
[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]