Xiaozhu.com - Bellwether of China's Sharing Economy

BEIJING, Aug. 21, 2013 /PRNewswire/ -- "The issue of safety, or should I say, decision-making, is key to the operation of Xiaozhu.com and to the sharing economy at large. On a scale of ten, China can get no more than four points in this respect, so there's still a long way to go," said Chen Chi, founder of Xiaozhu.com, an online service for short-term property rental, during an interview on July 2, the day before Xiaozhu.com had unveiled its "Provisional Scheme for Host Property Safety" in an attempt to dispel owners' concerns about the safety of their property during rental. The Scheme provides a compensation up to RMB880,000 per booking for all damages sustained by the property during the guests' occupancy, ranging from those caused by negligence, vandalism, to theft and robbery.

In a similar move across the Pacific Ocean, Airbnb, the global pioneer in short-term online rentals, has launched its ID verification campaign late April. Users are required to supply their real-life information matching their online profile and no verification is granted unless the names match.

The required real-life personal information includes the official US identification such as the driver's license or passport, and security questions. This is another significant advance of Airbnb towards solving the issue of safety or decision-making.

On the day of the launch, a random selection of 25 percent Airbnb users underwent compulsory ID verification. "More users will be asked to verify their personal details in the future," promised Airbnb CEO Brian Chesky, "and eventually all our users will have their ID verified."

The Airbnb business mode is made possible by the widespread urge to convert your spare room or empty couch into a verified facility affordable to prospective guests. This sounds like a perfect win-win situation. However, in sharing your living with total strangers, concerns about safety is inevitably the biggest problem.

What on earth has Airbnb done to resolve the problem? What a differentiated path are the Chinese Airbnb replicators exploring in dealing with questions unique to their native land?

Social Networking Reduces Risks

Our latest check on the Airbnb website has found the number of bookings exceeding ten million nights; available are more than 300,000 living spaces in 33,000 cities of 192 countries across the world, with more than 600 million social connections.

What exactly have Airbnb done to dispel the worries of its users? In this respect Facebook has been of great help. Either as host or guest, the user has to choose from one of two signup procedures on Airbnb, namely, Facebook account or email account. With its bold, large font, the Facebook signup is evidently preferred and recommended by the website.

Thus, whenever a user accesses Airbnb through their Facebook accounts and searches for spaces in a city, Airbnb will display the social connections that link the user to prospective hosts.

"Say I am looking for a space in San Francisco. Airbnb will tell me the homeowner Sean and I have a common friend. That is, Sean is my friend's friend, which would greatly ease my concern. At least I can call my friend to ask how Sean is like," said a San Francisco Airbnb user. "If the owner shares two friends with me, I would consider him part of my friend circle and feel more comfortable."

It's worth noting that Airbnb has made full use of such Facebook features; the Airbnb Social Connection's filter function can help users confine their offers to specific circles of friends.

Besides Facebook, a user will have greater credibility if his or her LinkedIn is included. As with Facebook, LinkedIn also feature verified ID and detailed information such as educational background, work experiences, and current employers.

Moreover, credibility can be reliably checked through past reviews from customers. The preponderance of positive reviews is sure to reflect well on a user.

"Actually the Facebook solution is aimed more at decision-making than safety concern," said Chen Chi. "I've talked with many investors in San Francisco. The online trading risks in the U.S. have been reduced to virtually zero, for the accounts are tied to credit cards and thereby to an authentic identity. The purpose of social network is simply to supply the information for the user's decision-making."

According to Chen Chi, decision-making tends to involve the "interest-based preference;" for example, in choosing from among three hosts, a user is most likely to decide on the one sharing his love for the Rolling Stones and rock music.

According to CrunchBase.com, Airbnb has raised $120 million so far. Following the $620,000 seed capital, it raised $7.2 million in Series A funding in November of 2010 from Sequoia Capital and Greylock Partners, among others.

In Series B funding in July of 2011, Airbnb raised $112 million from venture capitalists such as Andreessen Horowitz, General Catalyst Partners, and Amazon.com CEO & Founder Jeff Bezos.

Response From Chinese Airbnb Replicators

According to Xiaozhu.com, its Series A investor Morningside has supplied nearly $10 million. Since its launch last August, Xiaozhu.com is booking 1,000 nights per day and its registered resources of over 30,000 rental spaces and 1,000 individual hosts are expanding.

Interestingly, long before its Provisional Scheme this July, Xiaozhu.com has set up a RMB10 million fund pool shortly after its launch last August, pledging double-to-triple compensations to users who find the facility unavailable or inadequate.

According to Chen Chi, there have been only two major cases of compensation, one in Hong Kong involving RMB10,000, the other in Hainan settled at less than RMB5,000. "In terms of guest experience, our complaint rate is about 0.03 percent and each month would average five or six compensation cases," Chen Chi said.

In contrast, Airbnb didn't offer any property safety guarantee until three years after its founding, let alone the guarantee of user experience. What's more, such guarantee schemes, which focus on the damages already done, can serve little preventative purpose like social networking.

"There're two reasons," Chen Chi pointed out. "First, Airbnb's experiences as a pioneer have given us some late starter's advantage." In June 2011 an Airbnb host had his place ransacked, which Airbnb hadn't expected. In response Airbnb decided to cooperate with Lloyd's in offering homeowners a free property guarantee up to $1 million.

"Secondly, unlike in the U.S., most early Chinese hosts were not regular homeowners but rather professional short-term rentals. So the user experience was quite different. Now we're trying to capitalize on this with the somewhat radical user experience guarantee," Chen Chi said. "But now the proportion of regular homeowners is steadily growing."

Chen Chi pointed out that the biggest obstacle confronting Chinese Airbnb imitators is the lack of a domestic ID-verified social networking service like Facebook.

"I believe Micro-messaging may serve as a useful decision-making tool for our users in a way similar to Facebook. We're talking with Taobao.com about sharing its credit rating system," Chen Chi said. "However, in view of the rivalry between Baidu, Tencent and Alibaba, we can't say to what extent these companies would share their systems. 

At Chen Chi's estimate, China so far has solved no more than 40 percent of the problems besetting the issue of safety or decision-making in short-term rentals and there's still much to be done. In addition to the user experience guarantee plan and the newly released property insurance, Xiaozhu.com is working on the ID verification in its online transaction system, which would ensure the validity of all user information.

"For a very long time, even bank accounts in China were plagued by false information; so there're still problems in this respect," said Chen Chi. Right now Xiaozhu.com is working on the integration of the second-generation ID card information of the Ministry of Public Security and a project in the lines of Airbnb's "ID Verification" this April to cross-check the online and real-life user information.

For more information, please contact:

Mimo Wang
[email protected]

SOURCE Xiaozhu.com