Qyer Wants to Make Money. Can It Stomach the Grunt Work?

Distinctive destination products are harder to copy and harder to scale. Making money this way will test whether a company raised on indie-chic charm can control a supply chain.

An idea about where to go pops into your head. Then come the research, the itinerary, the flights, the hotels, the visa. You work your way through several websites and apps, and after a long run-up everything is finally in place. Task complete.

Wait — something is off. Having everything ready is not the finish line; it is the start. And notice this: next to the crowd of companies that wanted your business before the trip, once you are actually there you have no idea who to ask about where to eat, drink and have fun.

China's travel services industry competes to the death. Look at the vicious price war that has pushed Qunar, Tongcheng, Tuniu and nearly everyone else into heavy losses. Yet for one person's trip, especially an independent one, all they are fighting over is the money at the two ends: the airfare out and the hotel at the destination. Apart from shopping, a large block of spending goes untouched.

The bad news is that hotels and airlines are going after that same space, and each of them holds advantages of its own. The room left for the online travel agencies keeps shrinking.

So why not earn the middle as well?

At the northwest corner of Chiang Mai's old city sits a small courtyard: a European-style building, its roof painted solid green and marked with a giant "Q" you could probably spot from a plane. The outer wall carries Thai-style murals, and tourists wander past to pose with the 3D elephant.

Behind the front desk are several Thai employees who speak Chinese. They answer questions and handle luggage storage, Wi-Fi and minibuses out to the sights. The place runs small local events and parties on a regular schedule, and it sells travel products too — Chiang Mai staples like elephant camps and jungle ziplining, plus an in-house City Walk route for 118 yuan.

This is not the work of some local Thai agency. It belongs to Qyer. Think of it as an unofficial information center with a small tour shop attached.

Qyer's own "2014 Outbound Independent Travel Industry Report" put the number of Chinese outbound travelers at 109 million, of whom more than 77 million — over 70% — traveled independently. Travelers aged 21 to 30 made up 62.4% of that group. Young people have tired of whistle-stop sightseeing; for them, the point of a trip is to live somewhere else for a while.

Qyer surely saw the opening in its own numbers, but so did others. As independent travel has grown, more and more companies have fixed on what you spend once you arrive, hoping to win you over mid-trip.

Trip.com Group, an industry giant, launched a local-experiences business in 2014, using its scale in flights and hotels to sell attraction tickets on the side. A crop of narrower startups has appeared as well: Taozai Lushang, founded in 2012, whose core product is booking as you go; Klook, which raised a $5 million Series A last year on the same promise of distinctive experiences at the destination; Zouzhe Lüxing, which raised a 51.46 million yuan Series A last year and entered through chauffeured cars at the destination; and Woniubang, which runs tour buses stringing together the smaller sights.

Flights and hotels are mature markets, while what you actually spend on food, drink and fun at the destination can run to more than half the cost of a trip. Qyer has joined the fight as a ground operator. But can it stomach the grunt work?

QDaily Research Lab once ran a small survey, What Trouble Have You Run Into Traveling Abroad on Your Own?, collecting the problems readers met overseas. Let's see how much of it Qyer's project can solve:

• You arrive but your luggage doesn't, and the airline is hard to deal with √
• You can't find anywhere that sells a SIM card √
• You ask for directions and the person doesn't speak English, or the accent defeats you √
• You can't read the French/Japanese/Thai menu and don't know how to order
• You don't know how much to tip at a restaurant √
• You want to buy something at the night market and have no cash on you
• You lose your phone √
• You lose your passport √
• You fall ill and land in hospital after your visa has expired √
• You run into racial discrimination
• Your return flight is at night, you checked out in the morning, and leaving the bags at the hotel means another trip back for them √
• You get to the airport and find your return ticket is booked for next month
• You left something at the hotel and you're already home √

Qyer's forums already answer some of these. And for years after it was founded in 2004, Qyer was simply a community for outbound independent travel, with advertising as almost its only source of money. Had it stayed a place to post trip reports and guides, the users and the brand it had built up might well have kept it alive.

But competition in that business is sharpening. Besides old rivals like Mafengwo, new entrants keep arriving — from Breadtrip, an app for sharing travel photos, up to Trip.com Group, all of them urging you to write up your trip and share your notes. Even WeChat Moments has become, for a lot of people, a substitute place to post pictures and write about a trip. The barrier to sharing a trip report keeps falling.

Meanwhile, monetization is the standing problem for travel sites that began as communities. They hold plenty of users and content and sit upstream of everything, but they are too far from the transaction to earn from it directly. Sites closer to the transaction have an easier time growing into giants and making money. Research guides on Qyer for a month, then book on Trip.com Group or Alitrip — that was the habitual path for many users.

Qyer in fact began trying to commercialize in 2011, adding flight and hotel retail alongside its content. This January it raised nearly $60 million in a Series D led by UTour, and its next move is to use UTour's supply-chain resources to turn more of its own readers into buyers.

By Qyer's figures, the Chiang Mai shop served more than 6,200 people between its opening last August and March 15 of this year — barely 30 visitors a day. Set against the nearly 8 million Chinese who traveled to Thailand in 2015, or against Qyer's own transaction volume, that is not the same order of magnitude.

Qyer calls the project Q-Home, and Chiang Mai is only the first. This year it plans to open Q-Homes in Kyoto, Paris, London and Queenstown, New Zealand. Evidently it has decided the time has come to publicize: in March it parked a video crew in Chiang Mai for a month to shoot a promotional film, and flew in a group of Chinese reporters to see the shop.

"Q-Home isn't a standalone thing. It sits inside Qyer's commercialization — and commercialization is certainly something we'll put every resource into," Han Zhe, Qyer's COO, told the assembled press. Han's previous startup was the discount app Tonight's Hotel Special; he joined Qyer in 2014 and has run its commercialization since.

With heavyweights like Trip.com Group and Tuniu in the field, Qyer cannot win a head-on fight for traffic by reselling the same agency products everyone else sells. Flights and hotels are largely settled, so the contest has moved to local experiences, which resist standardizing. "We pick categories that are small and painful. We can't fight across that many of them, but putting $100 million into building one — that's worth a try," Han said.

That one category is local experiences. Q-Home is its backbone. The Chiang Mai team does more than serve walk-ins; its greater value is buying locally. Five Q-Homes stand for purchasing power in five countries.

Purchasing is what matters most in this industry. The traditional chain runs: resource holder — an attraction operator, say — then ground operator, tour packager, retail channel, traveler. Most websites now selling destination products buy through agents, which makes their offerings nearly identical, and because they sit at the end of the supply chain their margins are thin.

In Chiang Mai, Qyer buys direct and buys out — 100,000 attraction tickets purchased at the start of the year, for instance. "Think of it as wholesale," Han explained. Shortening the chain this way leaves Qyer's Chiang Mai margin several times the average for China's OTA industry.

Han said the Chiang Mai Q-Home is already profitable on its own, with most of its revenue coming from distributing local products such as attraction tickets. Besides selling into the Chinese market, it distributes through KKday, a Taiwanese local-experiences company.

From the traveler's side, a local outfit that works in Chinese is obviously welcome. What you weigh when buying a travel product comes down to four things: a fair price, a good product, easy booking, and prompt help when something goes wrong.

But as noted, today's independent travelers are mostly young, and they are not the customers traditional agencies served. They don't want everything arranged for them, yet they expect something distinctive. Qyer knows this.

So Han wants standard products — attraction tickets and the like — and non-standard ones, such as self-sourced routes like City Walk, to end up at roughly fifty-fifty. All standard means a price war in a crowded market; all non-standard is simply too much work to carry. Qyer wants volume from the standard side and brand strength from the personalized products it runs itself, which is the part users will pay a premium for. It also means spending far more money and effort.

Beyond buying destination products, Qyer builds its own on the ground — City Walk, for one. That is Q-Home's other job: making the house products.

For those products, Han said, the test is whether the market is large enough, whether the need is real, and whether the team can do the work. City Walk passes all three. It is a city walking route Qyer designs itself, led by a guide with no more than 10 people in tow — essentially a Qyer-branded boutique tour. City Walk now runs routes in more than 20 cities around the world, and Qyer wants scale: in Kyoto it built a school to train guides before it built any routes.

City Walk asks a lot of its route designers and guides; the current roster includes architects, geography teachers and graduate students in history. That dependence on talent is itself a limit. Anne, who designed the Chiang Mai route, spent three months on research, scouting, the route and the script — and the next four Q-Homes will largely rely on her and her team to design their City Walks too. Whether quality survives if City Walk is ever produced at scale, and whether the line between it and an ordinary tour group blurs, remains an open question.

They also plan a Thai cooking school in Chiang Mai. The five or six that already exist all run from 8 a.m. to 3 p.m., which suits no Chinese traveler on a tight schedule, so Qyer's will open from 7 to 9 in the evening.

"At the start we were purely an agent, and then we found a pile of problems. Chinese travel habits are very different from foreigners'. The products that exist have no Chinese-language service, are built the way foreigners like them, and cost too much — they simply don't sell," Han said. "So running our own was forced on us. If this category is going to grow, there's no other way."

One thing working in Qyer's favor is the brand it has already built around independent travel. The name itself — qiongyou, travel on the cheap — has come to describe a way of living, and it carries real pull with young people. Evidence: the Taobao store Qyer opened last year sells merchandise far better than expected. A 49-yuan phone case printed with the Qyer logo and the line "Addicted to the World" drew reviews full of declarations of love, for the slogan and for the company.

If the point is only to build a brand through distinctive products, City Walk may be a good bet. The Chiang Mai walks sell well — "which proves at least 10 Chinese people a day in Chiang Mai know how to travel," Han joked — but against the number of Chinese tourists in the city, that is still nowhere near the same order of magnitude. At 118 yuan a head the margin holds; scaling it, for now, looks very hard.

Qyer has turned from a platform for user-generated sharing into a company with heavy assets, though it avoids words like "pivot." "With the market and capital both pushing companies to grow bigger, the commercialization Qyer is talking about today isn't how a media outlet commercializes by selling ads. It's how to break through the ceiling of being media and commercialize in a larger business — by selling products," Han said.

On the books, a Q-Home is not expensive to run: mostly staff and rent. But finding the Chiang Mai building alone took two years; the team came together only because Qyer recruited a Chinese travel professional who already lived there and spoke Thai; and opening the shop required five licenses, covering tourism, restaurants, a trading company and more, through a laborious process. All of which means Q-Home and Qyer's house products cannot be copied quickly and will struggle to reach scale, even if Qyer says margins on its own products in Kyoto and Chiang Mai both top 50%.

Competition in guides and content, broadly defined, is getting fiercer too — and now Qyer has stepped with one foot into a market that is more contested and less controllable still. It is rough, tiring work. The upside is that the market should keep growing 30% a year, and it may be worth 78.64 billion yuan.

The other upside is that Qyer may understand better than most what travelers need once they arrive. But that, too, tests whether a company raised on indie-chic charm can control a supply chain.

Q-Home is worth far more to Qyer's brand right now than to its books, as the choice of locations shows. Chiang Mai came first because Thailand is where many Chinese take their first trip abroad, and because the city is small enough to put Qyer in front of a large share of them. Of the shops to come, all but Paris — Kyoto, London, Queenstown — are small cities with concentrated populations, which lets Qyer cover local sourcing while reaching plenty of travelers and building the brand.

Judged as a strategy for earning money off what travelers do once they land, this is a hard thing to attempt, and it will stay hard. It should also burn a good deal of cash. Qyer's founder, Xiao Yi, said earlier this year that he wants to take the company public.

Cover image: Visual China Group