The State of the Online Presence of the Chinese Lodging Industry

The main objective of my recent trip to China was to learn about the Chinese lodging industry first hand. I decided to do this now and not later for two reasons: a) Once LetMeGo.com goes live, I will have little time to travel, and b) if you could graph in a chart the different e-commerce business practices from around the world, China and the US would be extreme opposites. We want to make the Merrcury Engine (the software behind LetMeGo) flexible enough to work in both the US and Chinese market. If we achieve this, it will probably work everywhere else in the world with little or no tweaking. This article will focus on my findings and opinions about the lodging market in China and its online presence. I will write about the size of the Chinese lodging market, Chinese hotel ratings, independent hotels, getting the best price when booking a hotel, Ctrip's leadership, and LetMeGo's potential in China.

Size of the Chinese Lodging Market

Huge... and getting bigger. The lodging market in China is big, and it is growing very quickly. Most of the demand is internal: Chinese traveling to other destinations within China. Online bookings are also growing very quickly both because of the growth of the Chinese economy and because of the Internet connectivity growth in China. Prices per night tend to be lower than in the US. I stayed in five different hotels in my trip. I paid around 30 to 50% less than what I would have paid, if I were traveling in the US.

Okay, the numbers I gave you are not very specific, so here are some actual, realistic values that offer a more specific perspective: Expedia.com (EXPE) is the largest travel portal in the United States. Ctrip.com (CTRP) is the largest in China. Expedia's market cap (value) is USD 2.47 billion, while Ctrip's is 1.89 billion. In other words: The Chinese travel industry is not as large as the US, but it is getting closer.

Hotel Ratings

This is not a big deal, but it is something to keep in mind. Hotels in China of similar characteristics to hotels in the US usually have one additional start in their rating. For example: a three-star hotel in the US would be listed as a four-star hotel in China. This, of course, can be very confusing for international travelers that are used to a different standard. Fortunately for LetMeGo, we will have this problem covered.

On a side note, I couldn't resist taking this picture when I saw this sign inside the Forbidden City in Beijing:


I actually came across one rated bathroom in China, but I am still trying to figure out the usefulness of having a rating system for public bathrooms that do not charge a fee. By the way, this bathroom didn't smell very good. I don't want to imagine how of a one-star bathroom would smell!

Independent Hotels Rule

In the US most hotels belong to large chains or franchises. In China, around 80% of the hotels are independent. Most travel portals in the United States and GDS networks have been designed, primarily, by and for large hotels chains. This is one of the reasons that it has been difficult for them to get into the Chinese market.

Face to Face, Last-Minute Negotiation, Gets You the Best Price

This is a little counter-intuitive for most Americans, but based on my experience and readings, it seems to be true. In the US, the best prices for booking a hotel are usually obtained when you book online and well ahead of time. This is not the case in China, at least for now. In China, the best prices are usually achieved if you go to the front desk right when you want to check-in and negotiate the price with the hotel representative.

There could be several reasons for this. One reason is likely to be the bargaining culture in China. Whether it is for a product or service, when you ask for a price in China, chances are that you will first get a price that is higher than the actual price that the seller is willing to sell for it. After several cycles of bargaining, you may get a good deal and both you and the seller are happy. Unfortunately, bargaining the price is not an option when booking online. Publishing low prices online may not be in the best interest of hotels as it would limit their negotiation power with buyers that go through the regular bargaining process.

Ctrip.com Is the [Offline] Leader

Ctrip.com is the leading travel portal in China with more than 50% of online bookings. Most of Ctrip's bookings, however, are made offline via their call center. It seems that most Chinese buyers still like the idea of talking to a person over the phone instead of booking a hotel or flight online.

Ctrip's leadership surely comes from understanding the Chinese market better than anyone else:

• Their system is friendly with independent hotels.
• They know how to market to the Chinese consumer: There were representatives and pushy promoters of Ctrip in every single airport terminal that I passed by while in China.
• They seem to know very well how to get their commissions paid. Not getting paid seems to be a common issue in China.
• Forget about credit cards. Welcome to the era of cash-on-delivery: You order your plane ticket on Ctrip.com, a delivery person then goes to your place, gives you a physical ticket, and you give him/her the cash. Crazy? Well, less than 2% of Chinese own a pin-free (credit or debit) card.

Another big player in China is Elong.net. They are Expedia's investment in China. Elong.net has less than 10% of the Chinese market, though. Although I did not know the reasons at first, I didn't have to wonder for too long: I sent them around five different email messages (to different people) trying to set up a business development meeting. None of them were answered. I wouldn't want to do business with a company that doesn't answer emails!

What about LetMeGo China?

First of all, it won't be called LetMeGo.cn - Maybe it will contain numbers. Chinese love web addresses with numbers, as it is easier for them to remember a number than to remember a word composed by Latin characters.

Secondly, and more important, it seems that the Merrcury Engine of LetMeGo will need little tweaking in order to work in China. As a matter of fact, given the state-of-the-art technology in China, it may be easier for LetMeGo to become a leader in China than in the United States. The business model for LetMeGo (which is still a secret that we haven't published) is likely to work pretty well in China as long as we can find a good, local partner, to manage it.

Our main focus continues to be our US release. Nevertheless, the lessons learned on this trip are leading me to believe that the release of LetMeGo China will follow the US release very closely. Whether we partner with Ctrip or go head-to-head against them is something that only time will tell. We'll see...

Alexander Torrenegra

P.S. If you want to learn more about the [huge] Internet market in China, I strongly recommend you to see the presentation "Google in China" by Kai-Fu Lee (in English). You can download it for free from iTunes at http://deimos3.apple.com/WebObjects/Core.woa/Browse/cmu.edu.1493991494?i=1587417220

P.S.S. Yes, it is true! Toilets in China flush the other way around. Well, at least some of them :P

Great news for us from one of our competitors

HomeAway, one of our potential competitors, just got an additional investment of USD 250 million. This is great news for us, as it shows how valuable our business will [hopefully] be.

More info at TechCrunch: Monster Round For HomeAway: $250 Million, At An Absurd Valuation

"And if I can make it there [in Shanghai], I’m gonna make it anywhere"

In my recent visit to China I was invited to be a presenter at 5G Shanghai. '5G' is a weekly meetup of Shanghai technology professionals (primarily web entrepreneurs). For this blog entry, I will write about the founders of 5G Shanghai, the organizers and attendees, my presentation, and some random thoughts and findings about the Internet in China.

The Founders:

Co-founders of 5G include Jiang Mingliang, Henry (华宏伟), and Jian Shuo. Mingliang is the founder of EasyTVC, a Chinese marketplace for TV ads (similar to Spot Runner), and HSL, probably the largest TV home shopping network in China. Henry is in charge of a start-up focusing on outdoor digital media. They have built a media network of big LED screens throughout the city metro system in Shanghai and Beijing. I got to experience the subway system in both cities and watch the LED screens. When compared to similar efforts in the US, Henry is further ahead. Jian Shuo is the CEO of baixing.com (eBay's venture in China formerly known as Kijiji) and a famous Chinese blogger.

The Organizers and Attendees:

As with NY Tech Meetup and BogoTech, 5G Shanghai has many people helping and many more attending. Around 40 people attended my presentation. I met dozens of them: Michael Meng, from Xinhua PR Newswire (the Chinese version of PR Newswire); Kenny Zhou, Technical Director of Real Networks Asia; Charles Shen, former strategist for eBay China; Stephen Tsing, from FU16 (a startup similar to iminlikewithyou); and many others. There were also government officials wanting to learn about startups and, I guess, how to help them.

My Presentation:

I was asked to tell my story as a serial web entrepreneur. Similarly to NY Tech Meetup and BogoTech, attendees of 5G get inspired by learning about other entrepreneurs, their stories, and their inventions. The presentation lasted around 90 minutes. Mingliang and Michael helped as translators. Most attendees, though, understood English fairly well. The presentation was followed by a Q&A session. I was impressed by the quality and rich complexity of the questions. Some of the questions where highly technical, while others showed a deep understanding of online marketplaces.

Right after that, I was invited to have dinner with most of the attendees. We went to a traditional Chinese restaurant. I was really happy! As all of my friends know, if there is something that I like as much as traveling, is trying new and exotic foods wherever I go. I had the chance of tasting at least ten flavors I had never tried before. I kept answering questions all night long. It was obvious for me that many of them were eager to innovate at any cost as we do here in the US.

The slide show of my presentation can be found here.

Random Thoughts and Findings:

Attending 5G Shanghai was an eye-opening experience. These are just some of the many things that I discover through observation and conversations:

• There is venture capital in China from both Chinese and American sources. I learned about several companies that have raised Chinese venture capital.
  
  
• There are more English-speaking people in China than in the US. However, Chinese only use English-based web sites when forced into it. Successful websites in China must be in Chinese. For example, I found out that 5G probably will not use Meetup.com to organize their meetings unless it has a Chinese (Simplified) version. Why? Because they don't want to alienate anybody.
  
  
• For most Chinese, Google is still a second thought after Baidu (even among tech-savvy people). It seems that Baidu offers results good enough, that there is no value in switching over to Google.
  
  
• Many Chinese are open to partner with American companies to launch their products and ideas in the Chinese market. There are many people already interested in being our partners to bring Voice123 and LetMeGo to China.
  
  
• Companies in China have PR (public relations) personnel as well as GR (government relations) personnel. Of course, relations with the government are very important for Chinese companies.
  
  
• Chinese and American capitalism and consumers are very similar. Nevertheless, the cultures, transactional methods, laws, and languages are very different. If you could graph in a chart the different ways in which e-commerce is done everywhere in the world, China and the US would be on the opposite extremes. As such, I am 100% positive that any successful venture in China should be managed by a Chinese native.

Frank Sinatra used to sing about New York "And if I can make it there, I’m gonna make it anywhere". I must rephrase this for Internet companies: "And if I can make in New York and Shanghai, I’m gonna make it anywhere."

Alexander Torrenegra

P.S. I am highly grateful for the warm welcome and plenty of attention given to me while in Shanghai. Thank you Henry, Mike, Jason, Royal, and specially Mingliang! Without your help I would have only learned a small fraction of what I actually learned about e-China.

P.P.S. If you want to learn more about the [huge] Internet market in China, I strongly recommend you to see the presentation "Google in China" by Kai-Fu Lee (in English). You can download it for free from iTunes at http://deimos3.apple.com/WebObjects/Core.woa/Browse/cmu.edu.1493991494?i=1587417220

P.P.P.S. Thank you Mike for the pics and Steven for the proofreading of this article!

Let Me Go to China

I just came back from my first ever trip to China. The main objective of my trip was to learn about the Chinese market and to find potential partners to expand and/or launch our marketplaces (Voice123 and LetMeGo) in China.

As an avid history and geography reader, I thought I knew a lot about China and what to expect. Such knowledge, though, only represented a small fraction of the China that I actually experienced. The China that I experienced is a social, progressive, capitalist China. The China that I heard has more English speaking people than the United States. The China that I saw is so massive, that it can create its own standards and expect the rest of the world to follow. The China that I experienced was, in short, a China that is showing to itself and to the rest of the world that it can do as well as any other country, if not better. Unfortunately, it seems to be misinterpreted by the majority of the western society.

During the next few weeks, I will be writing several articles related to my trip to China. The topics will vary as I will try to cover many areas of my nine-day, five-cities, Internet-entrepreneurial, full of meetings, eye-opening trip.

Alexander Torrenegra

P.S. Here is my "China" set of pictures at flickr.

世界, 你好!

I am writing this blog entry (not posting it, though) as I fly to Hong Kong to start a small business trip to China. The objective of my trip is to learn about the lodging industry in Asia and, primarily in China. We want to make sure that LetMeGo and the engine behind it (Merrcury) will have what it takes to easily release a Chinese version of it. Why China? The Chinese market and US market are as different as it gets. If the Merrcury Engine is flexible enough to work in the United States and in China simultaneously, it will be flexible enough to work anywhere else (or at least I hope so). China also intrigues me. Ebay, PayPal, Yahoo and many other successful Internet companies in the US have failed to make it in China. I look forward to learn as much as I can to avoid this from happening to LetMeGo.

The trip starts in Hong Kong. I will then visit Shenzhen, Guangzhou, Beijing, and then Shanghai. I will be meeting Chinese web entrepreneurs along the way. I have also scheduled meetings with executives of two major travel portals in China: Ctrip and Elong.

While on the flight, I just finished the documentation of use cases and user interfaces of the billing scope of the Merrcury Engine: the Waterrs Scope. This system will take care of tracking the commissions that lodgings will pay LetMeGo in exchange for the bookings that we get for them. Coming up with the business logic was tricky: accounting systems aren't too complex to build but, for most people, they don't make a lot of sense. I wanted to create something that was friendly and easy to understand. I had to rewrite some use cases several times, but I am happy with the result. Travelers will never get to see this interface. It will only be experienced by the staff of lodgings.

On a similar note, Maestro just completed the creation of the wireframes and screenshots of the Kubrrick Scope. The objective of this scope is secret for now and we will only make it public when we go live. All I can say for now is that Maestro, as usual, did a great job fitting a lot of useful information in a very small space and in a beautiful manner. Thank you Maestro!

Alexander Torrenegra

The Architecture of LetMeGo.com

In some of my previous posts I have written about scopes and subsystems. During the past month or so, I invested most of my time writing the use cases for two scopes that had to be split into four (Kubrrick and Waterrs were split into Kubrrick and Brrown, and Marrley and Waterrs respectively). Because all of this can easily become very confusing, today I decided to provide a general explanation of the architecture of LetMeGo.

LetMeGo.com is going to be powered by the Merrcury Engine. That is what we call the software we are writing. The Merrcury Engine has an object and service oriented architecture. Instead of using words, I will allow the next diagram to speak by itself. Please click on it to see the full size version:


For those of you familiarized with web architecture, you may be interested to know that this schema has one innovation over the status quo of web architecture. Our architecture is splitting the major models of the engine into separate subsystems. A few weeks ago at Web 2.0 Expo in NYC, I attended the presentation "Scalable Web Architectures: Common Patterns and Approaches". The speaker was Cal Henderson, head of engineering for Flickr. I had the opportunity of discussing our architectural approach with him. He said that, to the best of his knowledge, nobody had taken a similar approach. Will it work? As with many other aspects of our project, only time will tell. We are very confident, though.

Alexander Torrenegra

P.S. As you can see, we are using names of artists, primarily musicians, to name the subsystems. The only requisite is to have an "r" on the name that we can convert into double "r".

Who should write test case matrices? Answer: The product developer

Around six weeks ago I wrote about the RRápido methodology. I had presented RRápido internally (to the Torrenegra Group) two weeks prior. On the version of RRápido I presented, we had documented that the developer was in charge of writing the test case matrix. The test case matrix is a type of traceability matrix that we create for each use case. The test case matrix determines which test cases (columns) will be testing which triggers and extensions (rows). On that meeting German made a suggestion. "I think the product developer should write, or at least suggest, how the test case matrix should look like for each use case", he said. He argued that by doing that, the developer would be less anxious and, thus, more productive. I took note of the suggestion, applied to the RRápido methodology, and then released RRápido to the public.

Only last week, though, is that I, as product developer, got to experience this tip first hand. All I can say is that it works great! On top of German's prediction, it also offers an additional advantage: It is a wonderful reality check. When the product developer creates the test case matrices, it is forced to think how something should be tested in the browser. In some cases, as it happened to me last week, it will drive the product developer to reconsider how some of the triggers and extensions were born. Creating a test case matrix is very quick (five to ten minutes) and it can save hours and days of work to the developers. Why? Because they would have been the ones finding the errors while coding, or, even worst, when recording the Selenium test cases. Changing the documentation at this stage is doable, but, most of the times, expensive in terms of money and time.

Thank you German for the idea!