Booking Holdings (formerly known as Priceline Group) is indirectly growing its stake in the Chinese tourism market with strategic investments and partnerships in the Chinese tourism sector. While Booking’s own brands, e.g., Booking.com, Kayak, and Agoda still hold extremely limited market shares in China’s complex world of online travel, its growing number of investments and partnerships indicate a growing interest and influence in the Chinese market. The latest such move in China is a “global strategic partnership” between Booking’s Agoda and Chinese Airbnb competitor Xiaozhu—which could also help the Chinese company expand its user base outside of China.
For Booking Holdings, the Chinese market is complicated and perhaps even hostile at times. Dominated by Chinese travel giant Ctrip, even well-financed players such as Alibaba’s Fliggy are in many ways underdogs. Other “underdogs” like eLong, TongCheng, and Qunar have largely been gobbled up by China’s leading online travel agency through various investments and mergers.
Meituan-Dianping is a perfect example of the strategic complexity in the Chinese market. The company, a competitor to Ctrip at least in the luxury travel space, is backed by both Booking Holdings and Tencent—where the former is hedging bets against Ctrip and the latter is hedging bets against rival Alibaba.
The strategically complex Chinese online travel market is all about hedging bets
To make matters even more complicated, Booking Holdings is a significant stakeholder in Ctrip to hedge bets even further, holding some 13 percent of Ctrip shares.
It’s with this background that Booking Holdings’ newfound friendship with Xiaozhu is particularly interesting.
Globally, Booking’s highly profitable hotel business is up against the rising threat of alternative accommodation in general, and Airbnb in particular. In China, it’s both up against an increasingly (and globally) expansive Ctrip, in which it also holds a large stake, as well as finding itself in a tech battlefield where Tencent and Alibaba aren’t pulling any punches. To add insult to injury, Airbnb China has been making some headway in the market after recovering from a series of missteps.
However, perhaps the biggest competitor to Airbnb China and Xiaozhu is Tujia, formerly a consolidated subsidiary of Ctrip, and still 45 percent Ctrip-owned.
If it all sounds very complicated, that’s because it is.
Now, for Agoda’s partnership with Xiaozhu, it means that both platforms will be collaborating in areas of listings, technology, “service innovation,” as well as branding and marketing. What this will eventually result in is not clear at this time, but it’s an ambitious outset that could result in a tight partnership that encompasses significant aspects of both businesses. To start out, both parties are sharing inventories with one another, which, according to Xiaozhu, will mean an additional 100,000 listings on both platforms.
It’s an elaborate partnership that could benefit both Booking and Xiaozhu
In many ways, it’s clear that the tie-up with Xiaozhu is a hedge by Booking against both Ctrip and Airbnb, not to mention attempting to make more headway in China than international rival Expedia. Xiaozhu gives the company better access to a new wave of Chinese travelers that travel independently and are open to home sharing and technologically adept.
For Xiaozhu, however, it’s all about the internationalization of its business. While far from an unknown brand in China, it’s largely unknown beyond China’s borders and struggles to compete with Airbnb’s inventory outside of China. If homeowners outside of China don’t know about Xiaozhu, and therefore don’t list their properties on Xiaozhu, the company has very little to offer the growing—and much more profitable—wave of Chinese outbound travelers. Similarly, international travelers in China may know of Agoda, but not of Xiaozhu, and thus not considering its homestays as an option for accommodation when traveling in China. Ideally, Xiaozhu can address both challenges by partnering with Agoda.
Being big in China is not enough to satisfy China’s outbound travelers
“As Chinese outbound and inbound tourism is [sic.] growing rapidly, homestay platforms must be able to provide high-quality services to global consumers. To this end, Xiaozhu is accelerating cooperation with our industry partners,” Chen Chi, co-founder and CEO of Xiaozhu, said in a press statement.
And just like that, Booking Holdings is now a stakeholder in China’s growing sharing economy and indirectly competing with Airbnb China—a company that eyed acquiring Xiaozhu back when it severely struggled in the Chinese market.