This month train stations and highways around China are
experiencing peak volume, as hundreds of millions of the country’s citizens
travel to celebrate the Lunar New Year Spring Festival.
The Year of the Pig officially began February 5, but Chinese
people celebrate it during a 40-day travel rush period known as “Chunyun,”
which this year runs from January 21 and March 1.
During that time the government estimates more than three
billion trips will be made, up 0.6% over 2018, with an 8.3% increase in train
trips and a 12% increase in air travel.
Growth in travel is not confined to this celebratory period,
however. Chinese people traveling year-round have made the country the world’s
largest outbound travel market - and it's only getting bigger.
The China Outbound Tourism Research Institute (COTRI)
forecasts an increase of 11% year-over-year in 2019 to a total of 180 million
border crossings from Mainland China, with 49% of those trips ending in Greater
China (Hong Kong, Macau and Taiwan) and 51% going to other destinations around
the world.
And the robust travel industry is spurring substantial
startup activity, ranging from entrepreneurs looking to develop innovations and
existing players looking to identify and support the next great idea.
In fact, the overall startup ecosystem in China is booming.
According to London-based financial research firm Preqin, seven out of 10 of
the largest venture capital deals worldwide in 2018 were for companies based in
China.
China has nearly surpassed the United States in the
value of its venture capital investments: $107 billion for Chinese companies in
2018 and $113 billion for ones based in the U.S.
For this third piece in our China theme month, we talk to
three prominent and active players in China’s travel startup market.
William Bao Bean is a general partner at SOSV, an
early stage venture capital firm and the managing director of its
Chinaccelerator, China’s first startup accelerator based in Shanghai.
Lio Chen is senior vice president of travel and hospitality
for Plug & Play, which opened Plug & Play China in 2015 in Beijing and
now has seven additional regional offices.
And Margaret Feng is head of Oasis Lab, the startup
incubation and investment arm of Ctrip.
William Bao Bean,
SOSV
William Bao Bean has been active in startups and investing
in Asia since 2004, and he says in the last few years there has been dramatic
consolidation - similar to what has happened in other technology sectors - that
has left three dominant players: Alibaba, Tencent and Ctrip.
“This makes it challenging to be a startup,” he says.
“It’s almost like the mice trying to run around while three
elephants are walking around. And every once in a while they’ll accidentally - or
maybe on purpose - step on the mice and there’s nothing the mice can do about
it.”
To survive in what he says is one of the most competitive
markets in the world, startups must provide something that is truly unique and
useful.
“Going back five or 10 years, all you needed to do was show
up and run faster than the next guy and you could build a pretty decent
business,” Bean says.
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“Whereas now you need to actually provide an order of
magnitude better service in order to make a play.”
But even with a superior product, survival is not
guaranteed. Companies trying to reach a meaningful segment of China’s more than
1.4 billion residents need deep marketing budgets to pay for exposure on
WeChat, Baidu and other mobile platforms.
“Everywhere in the world customer acquisition cost is high,
but in China it’s really, really high,” Bean says.
“In the U.S. you might be able to spend $2 or $5 to get a
user. In China, to get a user to download an app and open it once, it’s between
$5 and $100.”
So where are there opportunities for travel startups in
China? Bean sees potential in areas such as experiences, particularly those
offering unique, specialized products, and for startups that can create
benefits for existing travel suppliers.
One example that SOSV has invested in: U.S.-based Portier
Technologies, which puts mobile phones in luxury hotel rooms, giving guests
access to free data and minutes and giving the hotels a cut of revenue from
services booked through the phone.
But for non-Chinese companies such as Portier to succeed in
that market, Bean says they need local market knowledge.
“So if you are a big global player, you basically have to
have a China play. But the issue is the infrastructure, the market, how you
advertise, how you retain. Everything in China is a bit different,” he says.
Bean cites Airbnb, a company his firm has worked with to understand
the Chinese market, as an example of the learning curve.
“Chinese culturally generally do not like being hosts. They
really, really do not want some random person in their frickin’ house,” he
says.
"But the funny thing is, Chinese are perfectly willing to
go live in somebody else’s house - especially if it’s in a nice neighborhood,
in Los Angeles, in the hills. They love that. So Airbnb has not done
particularly well signing up hosts, but they’ve been very successful at signing
up Chinese who are traveling abroad.”
Bean says the very large outbound market of travelers
wanting new, unique and local experiences provides many opportunities for
innovation.
“As an investor, will I do another online travel agency? No.
But there is still a lot of opportunity around travel, and there is still a lot
of money to be made.”
Lio Chen, Plug &
Play
Silicon Valley-based Plug & Play is one of the world’s
largest technology accelerators and venture funds, with 25 locations around the
world supporting work across 14 industry themes.
When there is a big idea come up, there will be thousands of competitors.
Margaret Feng - Oasis Lab
In 2015, Plug & Play opened its China office in Beijing,
and travel and hospitality was one of the founding verticals.
The Chinese office works with startups on multiple fronts: making early stage investments, running a corporate innovation platform,
hosting hackathons on behalf of universities and working with governmental
bodies on policies to drive innovation.
Lio Chen says progress in travel was relatively slow
until October 2018, when Plug & Play formed a strategic partnership with
Ctrip’s innovation hub, Oasis Lab.
Unlike in other parts of the world, Chen
says corporate venue capital, known as CVC, is a very an important funding
source for startups in China.
“The big four - you are talking about Baidu, Alibaba, Tencent
and JD.com - play a very important role when it comes to investments in
startups. And if there is a fifth player in the ecosystem for travel, I must say
Ctrip has been a very active player where it comes to making investments in
startups,” he says.
“Our goal is to
team
up to not only help startups to accelerate their business further by having the
backup of Ctrip, but more importantly, we have the ability to team up with Ctrip
and co-invest when the right opportunities present themselves.”
While globally, Chen says Plug & Play has seen a
lot of activity in the corporate travel space, in China he says
consumer-focused startups are more common.
“Anything
B2C tends to get more momentum from the venture capital community,” he says.
“And within that space, it’s a volume game. Overall the
Chinese startups want to have a broad product line, to do a lot more than just
a niche.” One example: TravelFlan, which has B2B2C chatbot solutions, B2B
reporting and marketing solutions and a B2C messaging platform.
As for specific sectors, Chen sees momentum in tours and
activities and in mobility startups, particularly those targeting
outbound travelers. An example he cites is HeyCars, a Chinese startup that
provides chauffeured car service for travelers within China and also in more
than four dozen other countries.
“It’s a segment that’s booming,” Chen says.
“Any companies targeting outbound travel from China are likely to
get investors’ attention and likely to get attention from companies like Ctrip.
And ultimately if you get both of those, at least in your early years, you
won’t have any trouble surviving."
Chen says he is seeing signs that Chinese entrepreneurs that are
enterprise level, B2B solutions can also get traction, and the steady growth of
travel in China provides a large enough market to keep them busy.
Yunji Technologies recently received an undisclosed sum from Ctrip
to further develop its service robots for the hospitality industry.
“For U.S.-based startups, it’s hard for them to ignore markets
outside of the U.S.,” Chen says.
“But Yunji openly said no, they are not interested in
exploring the rest of the world. Even though we think in our corporate
innovation platform we have plenty of hospitality entities that are ready to do
a pilot, make a commercial deal with a company like Yunji.
Their response is, 'We appreciate the opportunity, but we are busy with fulfilling orders in China.' It’s a good problem for them to have.”
Margaret
Feng, Ctrip’s Oasis Lab
In early 2018, Ctrip opened Oasis Lab, an extension
of the company’s internal incubation program that focuses on early stage and
angel-round investments in startups that have potential for future growth.
Any companies targeting outbound travel from China are likely to get investors’ attention and likely to get attention from companies like Ctrip.
Lio Chen - Plug & Play
Oasis Lab seeks innovative ideas from both Ctrip
employees and from outside entrepreneurs.
“For both insiders and outsiders, when they come to
us with ideas, we will first of all - like a venture capital firm – look at the
idea to make sure it is feasible and decide if we want to do a partnership or
we are funding them,” says Feng.
With 40,000 Ctrip employees worldwide, Feng says
there is “a lot of enthusiasm to run something by themselves,” and in fact
Oasis Lab is currently helping to develop three employee-generated projects,
although she could not share details.
But with less than a dozen people working in Oasis Lab, Feng
is counting on the partnership with Plug & Play to help them identify
innovations from outside the company.
“Ctrip has ambition to doing global business, and Plug &
Play has very good coverage global wise,” she says.
“They have been doing the accelerator program for years. We
want to learn from them. And also they are helping us find the startups to
incubate or accelerate within the Ctrip ecosystem.”
Feng’s advice for potential startup founders: “Do something
very vertical or very cutting edge … something that the big giants don’t want to
do by themselves.”
And then be prepared for intense competition.
“When I was in Silicon Valley, in each vertical you will
have two or three competitors,” Feng says.
“That’s already fierce competition enough. In China it’s
quite different. When there is a big idea come up, there will be thousands of
competitors. That happens all the time.
"When Groupon’s idea first came to
China, there were 1,000 similar websites that came up at the same time.
Probably only the top 5% can get money. The others go die.”
Along with the possibility of funding and behind-the-scenes
support, startups working with Oasis Lab potentially gain access to something
even more valuable: Ctrip’s 300 million members.
That built-in audience can be invaluable for a startup that
likely does not have the budget to invest in expensive customer acquisition
campaigns.
And that type of support may be particularly helpful now, as
China deals with an economic downturn. Feng is confident that innovative,
well-thought-out ideas can withstand this period of slower growth.
“It’s well-known China has been through an economic
downturn,” Feng says. “It’s not easy to run a startup or to be an entrepreneur.
No matter in hospitality or outside of this industry. I want everyone to be
patient.
"The entrepreneur, investor and even the employee. If you firmly
believe what you are doing you will be through that winter.”