Ziroom: Creating Quality Rental Living

Ziroom: Creating Quality Rental Living

Case

Author: Chungling Yu & Chuanjiang Mao

Online Pub Date: March 06, 2016 | Original Pub. Date: 2014

Subject: Marketing Management, Services Marketing

Level: Intermediate | Type: Direct case | Length: 10188 words

Copyright: © Tsinghua University School of Economics and Management

Organization: Ziroom | Organization size: Large

Region: China | State:

Industry: Real estate activities| Rental and leasing activities

Originally Published in:

Yu, C., & Mao, C. (2015). Ziroom: Creating Quality Rental Living. 8-114-311. Beijing:

Tsinghua SEM China Business Case Center.

Publisher: Tsinghua University School of Economics and Management

DOI: http://dx.doi.org/10.4135/9781473970212 | Online ISBN: 9781473970212

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Ziroom: Creating Quality Rental LivingPage 2 of 25

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Abstract

On 22 December 2013, in a Ziroom apartment located at the Overseas Chinese Town(OCT) in Beij ing's Chaoyang District, Beij ing Ziroom Youjia Property AssetManagement Limited (hereinafter referred to as “Ziroom”) held its first-ever nostalgia-themed party, inviting more than 120 Ziroomers.

The gathering began with Ziroom's 2013 annual feature film Forgive my peculiarity. Inthe film, Ziroomers from different places told their true stories in Beijing, sharing theirvaried work and living conditions, and different attitudes towards life. After that,Ziroomers gave performances, received awards, enjoyed food and took part ininteractive games. Inspired by the anchor, the gathering had a heated activeatmosphere. At the gathering, the hard work and happy lives of Beijing's youngpeople in 2013, with 100,000 Ziroomers as representatives, were acknowledged andthe 2014 Declaration of Ziroomers—“Enthusiastic, Positive, Persistent”—was putforward.

When the gathering came to an end, Ziroomers could scarcely tear themselves awayfrom the venue. After the gathering, Ziroom's founder and general manager, Mr.XIONG Lin, went back to his office, inspired, wondering how to further improve thequality of Ziroom's products and services.

Case

On 22 December 2013, in a Ziroom apartment located at the Overseas Chinese Town (OCT)in Beijing's Chaoyang District, Beijing Ziroom Youjia Property Asset Management Limited(hereinafter referred to as “Ziroom”) held its first-ever nostalgia-themed party, inviting more

than 120 Ziroomers1.

The gathering began with Ziroom's 2013 annual feature film Forgive my peculiarity. In thefilm, Ziroomers from different places told their true stories in Beijing, sharing their varied workand living conditions, and different attitudes towards life. After that, Ziroomers gaveperformances, received awards, enjoyed food and took part in interactive games. Inspired bythe anchor, the gathering had a heated active atmosphere. At the gathering, the hard workand happy lives of Beijing's young people in 2013, with 100,000 Ziroomers as representatives,were acknowledged and the 2014 Declaration of Ziroomers—“Enthusiastic, Positive,Persistent”—was put forward.

When the gathering came to an end, Ziroomers could scarcely tear themselves away from thevenue. After the gathering, Ziroom's founder and general manager, Mr. XIONG Lin, went backto his office, inspired, wondering how to further improve the quality of Ziroom's products andservices.

I. Background of Ziroom

1. Parent company—Homelink

The parent company of Ziroom, Beijing Homelink Estate Brokers Limited (hereinafter referred



to as “Homelink”), is the most influential brand in China's real estate brokerage industry. It is areal estate service provider operating real estate agencies throughout China. Its activitiescover real estate brokerage, financial services and asset management. This includes propertysales and rental, warrant handling, mortgage loans, new properties sales, etc.

Homelink was set up on 12 November 2001 in Beijing, with Mr. ZUO Hui as the founder andchairman. The company, originally operated by a small team of 27 staff, has, after 12 years ofinnovation and development, grown into an enterprise operating across North, Northeast,Southwest, and East China. Currently, it operates more than 1,400 offices in eight citiesincluding Beijing, Dalian, Tianjin, Nanjing, Chengdu, Qingdao, Shanghai, and Hangzhou. Ithas more than 25,000 professional real estate brokers and support teams on board. It hasalso established long-term cooperative relations with dozens of financial institutions. Itprovides services to more than 100 million households, reaching monthly sales of over RMB100 million yuan, and has had an annual compound growth rate of over 100% for the past fiveyears. While adhering to the guideline of “Customer demands first”, Homelink established thestrategic goal of expanding to cities covering a total population of 100 million, having 2,300offices nationwide, and employing more than 45,000 brokers by 2016. It would strive toprovide clients with secure transactions and personalized services while continuing tostandardize services throughout the country.

Beijing is one of the most important markets of Homelink. It has an office about every fourblocks, and handles 1/4 of loans in the market. Holding over 50% market share, BeijingHomelink has ranked first for several years, far exceeding industry peers.

Over the next five years, Homelink plans to create a real estate brokerage company withbusinesses across the Bohai Rim, the Yangtze River Delta, the Pearl River Delta and theCentral Plains region, with annual sales totaling more than one hundred billion yuan. It aimsto become the national industry leader in providing housing brokerage services (seeAppendix 1 for Homelink's mission and values).

2. Ziroom's founder and general manager Xiong Lin

Xiong Lin a computer science major worked at Lenovo for nearly three years after graduation.In Lenovo, he started as a development engineer, undertaking simple and yet slightly boringprogramming work every day. He wanted, however, to do more than this “technical stuff.”Later, he worked successively as a sales manager, and an ERP implementation consultant.As he learned management software, he gradually found himself becoming more interested inmanagement. He came to believe:

“To work on a big stage and carve out a career there, I have to become a manager. Imust shift from just technology skills to a management position and learn to lead ateam.”

Consequently, in 2000 he entered Tsinghua University's MBA program, where he studiedfinance and management courses, and listened to a number of lectures from managers ofwell-known companies.

During the time of his MBA studies, Lenovo restructured its businesses and establishedShenzhou Digital. While continuing his MBA work, Xiong was dispatched to ShandongProvince, serving as a branch manager and taking on the responsibilities of new businesspromotion. This marked his transition from being an IT technology professional to becoming a



manager. For over two years, Xiong traipsed back and forth between Beijing and Shandong,pursuing studies while growing his business skills.

Highly interested in management, he wished to gain an in-depth understanding of operationand management modes of the world's leading enterprises. After graduation, he joined IBMGlobal Business Services in 2005, where he and his team provided companies with a fullrange of consulting services related to strategy development, organizational structure, humanresources and process management. They were also engaged by large-scale enterprises forconsulting services, offering complicated solutions to a wide range of businesses.

This work experience greatly enhanced Xiong Lin's ability to work in all aspects of a firm, andallowed him to accumulate a wealth of contacts through associating with customers fromdifferent industries. He successively held positions as strategy consultant, senior consultant,and chief manager.

3. Birth of Ziroom

In 2009, Xiong began consulting for Homelink, helping them build a systematic operationsarchitecture. In 2010, he left IBM joining Homelink and taking full responsibility for their newrental business.

Prior to this, the rental business was not Homelink's core business, with its sales accountingfor only 10% of the total firm's revenue. Prior to Xiong's appointment, the rental businesssales had been suspended by Homelink. After careful investigation, Xiong found the primaryproblem was that the rental market lacked high-quality properties. The market prospectswould be promising, if existing rental properties could be renovated and upgraded. Xiong tookover the rental business and ran it according to Homelink's guideline of “Slowing down thepace of development.”

In May 2011, the Ziroom business unit was started, with an intention to expand the rentalbusiness by developing Ziroom product lines. To do this, Xiong Lin engaged professionalconsultants from IBM to work with the team in product design.

At the start, Xiong felt ignorant about the residential rental industry. Consequently, hecarefully investigated Beijing's second-hand housing rental market, looking for opportunities.He uncovered real needs. For example, he saw a one-bedroom apartment in a residentialestate near a university being divided into six tiny parts for different tenants and was“shocked” at the low quality of living. Xiong found that:

“Beijing has a huge second-hand housing rental market. The main customers areyoung university graduates, most of whom are unable to get properties suitable fortheir needs. Because the real estate brokerage companies only assist with preparingdocuments and handling procedures, the young peoples' requirements for quality,furnishing and services of properties are inadequately considered. The status ofproperty leasing, including the properties themselves, and the way for a customer tofind a property lagged far behind the market demand. What people needed was notonly a place to stay, but a better life. If the properties available for rental could berenovated and altered to adapt to the needs of different consumer groups, and thenleased to the targeted customers, the rental market would provide much betteropportunities.”



Xiong and key members of his team visited many places abroad to learn the practices offoreign counterparts. They carefully focused on a few well-known residential rental brands.For example, they visited Leopalace of Japan which targets the long-term rental market. Theyalso visited Airbnb and HomeAway of the U.S. which targets the short-term rental market andvacation market respectively. Through these investigations, Xiong found that:

“Real estate rental brokers in the United States and Japan can usually get propertieswith good quality. Therefore, they do not have a need to modify and standardize theinternal decoration. This is quite different from the situation in Beijing.”

On 18 October 2011, the Ziroom subsidiary was formally established and Xiong served asgeneral manager, managing a team of under 100 people. As Homelink's independentsubsidiary, Ziroom's main businesses are asset management and real estate rental services.Their objective is to provide tenants with high-quality decorated residences. In particular,Ziroom wanted to create a high-end rental brand and in so doing improve quality of life formillions of tenants.

II. Beijing Residential Rental Market

After the 2008 Beijing Olympic Games and the subsequent economic restructuring, Beijing'seconomic situation had significantly improved. The ongoing urban development createdabundant employment opportunities, which attracted many migrant workers and universitygraduates to Beijing. In 2011, Beijing's residents and transient population amounted to 28million, of which 10 million had rental needs. In the same year, the total value of Beijing'sresidential real estate management market reached RMB 28 billion yuan, growing at anannual rate of over 15%.

1. Leasing transactions: rising volume and prices

Due to the great population influx, and the wait-and-see mood of property purchasers causedby the continuous hiking of property prices and various government policies which lifted thereal estate purchase threshold, transactions in Beijing's residential rental market had beenactive in recent years. The annual transaction volume in 2010 rose 13.78% over 2009. In theChaoyang, Haidian, and Fengtai districts where offices, schools, hospitals, commercial andother institutions are concentrated great growth in transaction levels were achieved, thanks tothe vast geographic areas, abundant buildings available for rental, convenient urban publictransportation, and good support facilities. These three major rental markets in Beijing,accounted for 35.32%, 20.63%, and 13.88% respectively of the entire rental market of the city.Meanwhile, however, Beijing's urban construction companies also launched large-scale urbandemolition and renovation work, including the eastwards expansion of the Central BusinessDistrict, renovation of Chang'an Avenue, westward expansion of the Financial Area,construction of the second airport, etc. Temporary housing demands arose from a largenumber of relocated households which needed to be met by the rental market.

Because of the rising rental demand, rising inflationary pressures, and the hiking of the realestate prices, the prices of residential rental in Beijing had risen in recent years. In 2010, theaverage rental price in Beijing was 2,793 yuan/suite/month, rising 15.56% over the sameperiod of 2009.

Supply could not be effectively increased in the short term to fully meet this strong rentaldemand. With about 4.5 to 5 million suites of stock properties, the supply in Beijing's rental



market lagged behind the demand. Additionally, regulation complexity obstructed someowners from making their properties available to the rental market. Consequently, the numberof vacant properties amounted to 300,000 to 400,000 in Beijing. In addition, the number ofproperties available for rental in downtown or hotspot areas were diminishing year by year asoffices expanded. Beijing's second-hand property market has achieved an average annualprice increase of 22.26% over the past seven years, while the average rental price only grewat an annual rate of 9.86% over the same period. The large gap of pricing between the twomarkets meant the property owners were anticipating significant corrections in tenant rentalrates.

2. Characteristics of rental transactions: main customers from outside of Beijing and below 30years old, rising proportion of shared rental.

In 2010, most rental customers were two or one-member families under 30 years of age(representing 87.81%). Approximately 80% were from outside of Beijing, with family annualincome between 20,000 to 80,000 yuan (representing 65.64%). They were generally welleducated, working in private companies, foreign companies or the government sector(accounting for 64.35%).

Because the tenants are generally young, with limited income, the rapid increase in rentalprices in 2010 led to rising demand for shared rentals. According to a survey conducted onnon-Beijing college graduates, 83.6% live with others, among whom 67.4% with classmates,colleagues, or friends, and 19.2% with an unmarried lover.

In recent years, shared rental had become a common phenomenon in Beijing. Because largeapartments are more economic for shared rental, their sales had risen rapidly. Beijing haspromulgated various policies on shared rentals. In May 2011, the Beijing MunicipalGovernment issued a document to crack down on multi-people shared rental. In May 2012,the Beijing Municipal Construction Committee issued another document that refined therelevant provisions, forbidding landlords to individually rent a kitchen, bathroom, balcony orunderground storage room for living. They require the number of tenants living in a room notto exceed two and per capita living space no less than five square meters. The provisions areinterpreted as permitting a landlord to rent the living room for dwelling.

3. The reasons for renting, considerations and concerns

The reasons for a person renting, ranked by priority are (1) the inability to purchase aproperty, (2) unwillingness to live with family members or colleagues, (3) wishing to live closeto working places rather than in owned properties far away, (4) consider renting moreeconomic than acquiring a property, (5) renting a property to care for elderly or familymembers, (6) owning a property that is too old and small, (7) having no intention to settle inBeijing, (8) renting a room near the child's school, and (9) demolition of owned properties.

Ranked by priorities, considerations for renting a specific property include distance from thework place, rent, convenience for shopping, distance from the child's school, residentialenvironment, quality and interior decoration of the property, whether friends are living nearby,leaser's quality, rent payment method.

Ranked by priorities, concerns on renting a property include (1) fear that the landlord wouldraise price or retrieve the leased property earlier than as agreed, (2) surrounding safety, (3)fraud of brokers, (4) need for sub-leasers, (5) disputes caused as a result of damage of indoor



facilities, and (6) neighborhood quality. Currently, Beijing's housing rental market is a seller'smarket, where it is common for a landlord to commit defaults, raise price without notice orretrieve the property in advance.

4. Rental standards and business entities

China's housing rental market lacks standards on supporting hardware and after-salesservices, resulting in false or fuzzy listings of properties. Property brokers and tenants have toaccept the properties offered by the owners. Renting is often considered to be “the last optionand one that sacrifices living quality.” Inadvertently, problems arise. This includes poorproperty quality, lack of security, unwarranted withholding of a deposit, and poor quality ofcotenants.

Rental businesses are mainly operated by real estate companies, which, in the Beijingmarket, include Homelink, 5i5j, Centaline Property, Century 21 Property, Zhongda House,Zhong Yu Hui Tong, and Maitian Property, among others. Before 2011, real estate rentalcompanies generally provided intermediary services only, acting as a go-between for tenantsand owners. After tenants and owners concluded a transaction, the agency would charge thetenant an agency fee, usually one month's rent. In addition, the owner would charge thetenant one month's rent or more as a deposit. After that, the agency no longer providedfollow-up services except for collecting rent for the owner. For problems that occur during thelease, the tenant and the owner would have to seek solution through direct negotiation.

5. Renting on the Internet

As a channel of information distribution, the Internet offered two modes of renting:

The first mode utilizes large platforms, such as 58.com, Ganjin.com, SouFun.com and so on,where real estate brokers, principal tenants, and individual property owners publish propertyinformation, allowing potential tenants to choose properties on these platforms and thensubsequently completing the deal offline. These platforms charge brokers an informationpublishing fee (known as port fee). The platforms are not the owner of properties, and do notparticipate in the offline transactions. The authenticity of the listed properties, therefore,cannot be guaranteed, the prices are not transparent, and there are a large number ofduplicate postings, reducing users' efficiency in finding a suitable property.

The second mode is utilizing small platforms, such as real estate broking companies'websites, where information on available properties is released for tenants' selection. Thenthe broking companies contact the owners, who then sign a lease contract with tenants.

6. The main participants of chain apartments

In the past, real estate private equity funds were the main participants of chain apartmentrental markets, such as Bullock Beijing, New White-collar Apartment operated by SAIF realestate fund, and Xiezong Youth Apartment operated by Shenzhen Synergy Capital. Therewere barely any real estate agents involved in this market.

III. Marketing Strategy of Ziroom

Xiong Lin believed that the domestic rental market lacked residential property or apartments



suitable for young graduates before they can afford to buy their own. They have to acceptwhat is offered to them, no matter how low the quality is. He hoped to provide a product totenants which would upgrade their living quality. The following is what Ziroom means by“quality”:

“PROPERTY: safe, comfortable and tasteful rental space; SERVICE: exceedingcustomers' expectations; PRICE: the highest quality/price ratio.”

Furthermore, Ziroom breaks down the market into sub-markets such as new graduates,young people starting out on a career, young couples just starting a family, and so on.

Regarding Ziroom, Mr. GENG Huajun, Ziroom's marketing director, said:

“We use a Ziroom B2C mode2 to brand all properties as ‘Ziroom’. We own properties,convert them into standard products, and then sell them online. After moving-in oftenants, Ziroom provides a variety of services during the lease term. Ziroom alsoworks with property suppliers and designers to process properties into finishedproducts for sale, and then provide after-sales services, so Ziroom is not a brokerageagency. Agencies have no own products, they only provide buyers and sellers withbrokering services. From the start, however, Ziroom has been a company focusing onproducts, which are built on a solid base of online services. In general, it focuses on

three things to improve users’ experience: products, services and O2O 3: PRODUCT-quality of property decoration, furniture, appliances; SERVICE—maintenance,cleaning and handling other tenancy affairs during the lease term; O2O—makingmore efficient the process of selecting properties, visiting rooms, and signingagreements.”

1. Ziroom Friendly Home

(1) Products and services

To find property sources, Ziroom targeted the large number of vacant apartments in Beijing,which were scattered in various residential districts. Xiong explained:

“One of the key functions of the Ziroom mode is to solve the problem of propertyvacancy for the owner. The most fundamental reason for the existence of so manyvacant apartments in Beijing is that the owners have no time to take care of theapartments, while young people cannot afford the renting cost of a large number ofbig apartments available. This leads to a mismatch of supply and demand in Beijing'sresidential rental market, which allows Ziroom to find opportunities in changing thesupply and demand relations in the rental market. Ziroom hopes to manage propertieson behalf of the ‘lazy landlords’ through providing long-term services, therebylaunching the vacant apartments into the market.”

Ziroom first rents these vacant properties from their original owners. It then renovates,upgrades, and equips them with appliances. After that, Ziroom divides the properties intodifferent rooms and then rents to them. Ziroom also provides follow-up services. The entireprocess is under a unified management which operates based on a database of informationplatform.



To lower costs and reduce risks, Ziroom signs lease contracts with the original owners for aterm of at least two years. To ensure the interests of the owners, Ziroom's rent payable to theowners will rise by 3% per year. The first thing after Ziroom gets the properties is to upgradethem in accordance with Ziroom's standards, including conducting standardized design anddecoration and purchasing furniture and appliances. According to Xiong:

“Ziroom represents a new form of property commission and leasing services differentfrom the traditional housing agencies. Ziroom is more concerned with the value-adding and management of assets. We want to do more than providing propertyowners with traditional services, which involve finding tenants and collecting rentsthrough signing contracts with the owners. Our mode is to help owners upgrade andoptimize their properties based on an in-depth understanding of the demand oftenants, therefore transforming ordinary residential properties into optimized roomsthat better meet the needs of rental living via modern appliances, furniture design,and the most humane renovations.”

In order to ensure the best quality, Ziroom won't attempt to save money by choosingdecoration materials of inferior brand; electrical appliances that have been used for more thanfive years will be replaced. Geng explained:

“The quality of properties available for renting in Beijing's market is varied. Ownersgenerally have multiple real estate offerings, and those set aside for renting are old orunfinished interior properties. Though there are a few properties featuring betterquality, the inner decoration and furniture will be seriously worn out after several yearsof renting. The first priority of making products is to guarantee product quality.”

In October 2011, Ziroom officially launched the Ziroom Friendly Home 1.0 product. Positionedas a high-end product for shared renting, Ziroom Friendly Home's rooms are within ordinaryapartments with refined decorations dispersed in different residential communities. Everysingle room will cover an area of not less than ten square meters, so that the per capita areawill not be less than five square meters even if two persons are accommodated. Each roomhas a natural window.

Ziroom initially selected IKEA furniture for the 1.0 Product, but soon it found IKEA furniture tooexpensive and not suitable for rooms specifically designed for leasing. Because IKEA won'tchange their design, Ziroom set up a special team to design its own furniture and entrustedproduction to suppliers, trying to meet customers' needs in every detail. Ziroomers havebrought forward many suggestions to improve Ziroom's products. For example, a Ziroomerfrom the IT industry selected a router for Ziroom. Different from general household models,the router is suitable for shared living environments with multiple Internet facilities distinctfrom each other. Meanwhile, Ziroom also purchased a large quantity of appliances of superiorbrand name. In the first year, Ziroom purchased 5,000 refrigerators, 6,000 washing machines,20,000 air conditioners and 16,000 beds.

To offer tenants more choices, Ziroom Friendly Home 2.0 product was officially launched inOctober 2012, making more than 100 product upgrades on 1.0 Product and designing fourdifferent styles of rooms: latte, kapok, pudding, ad plain (see Appendix 2). Among them, thelatte style room is designed with black, white and red tones; kapok is furnished with maple-colour furniture and cotton fabric; the pudding rooms adopt British style with blue and redstripes; while the Plain style rooms are decorated based on the properties' original style.



In general, Ziroom Friendly Home furnishes the rooms with the same configuration: neworiginal furniture, such as bed frames, mattresses, wardrobes, racks, desks, chairs, lamps,etc.; new electrical appliances from Midea, Haier, Gree and other well-known brands,including refrigerators, washing machines, air conditioners, electric water heaters, electrickettles, gas stoves, range hoods, microwaves, lamps, etc.; high-speed Internet access viaWiFi facilities placed at a fixed position; number plates hang at doors of the different rooms;two white bulletin boards on the wall of the living room in each apartment, introduce Ziroom'sconcept and services; providing the customer service hotline.

Meanwhile, Ziroom Friendly Home provides unified services, including a biweekly cleaningservice, professional cleaning and disinfection prior to occupancy; the cleaning of public areasof each apartment twice every month; free equipment checking once a year, including water,electricity and gas safety checks; Ziroom housekeeper services to respond to any problems,such as network disconnection and household equipment failure (in the case of emergencyrepairs, maintenance personnel arrive at site soon after receiving the call); the O2O closed-loop services, allowing tenants to complete online payment of rent, make appointments forcleaning and maintenance, and submit complaints via PC/APP/Weixin and other availablechannels (see Table 1).

Regarding the services offered by Ziroom, Geng further explained:

“Ziroom's relationship with customers will continue after our products are delivered.We provide two basic services: maintenance and cleaning. Though in practicemaintenance is not frequently needed, these services can be reassuring to Ziroomers.We provide cleaning services for public areas once a month, which, in turn, enhancesZiroomers' awareness of maintaining public areas, therefore ensuring the maintainingof the Ziroom rooms' quality. Ziroom's maintenance personnel helps Ziroomers handlemiscellaneous affairs, such as changing a light bulb, provided that the Ziroomercalled the customer service hotline. In this way, Ziroom gradually obtains theZiroomer's trust. For aspects below a Ziroomers' expectation, for example, problemscaused by property companies and neighbors, Ziroom will try to solve the problemquickly, as long as Ziroomers file complaints. The solution results will be published onZiroom.com. Ziroomers, hopefully, will understand and forgive us for not beingperfect, as long as the problems are solved in a transparent way.”

Table 1: Services and products of Ziroom and the service goals

Services and products Service goals

Tenant certification Allow customers to enjoy high quality co-tenants and friends

WiFi coverage Allow customers to surf the Internet at high speed

One lock for onecustomer

Allow customers to feel at ease while working, studying and living



One price for one roomWith clearly marked prices relieve customers from the trouble ofbargaining

Original furniture Allow customers to enjoy the designer's fashion style

Appliances of superiorbrands

Allow customers to experience the convenience of modern life

Biweekly cleaning Keep the public space as clean as new

Deposit exemption Eliminate the risk of deposit withholding for customers

Paying rent online No more lining up and waiting

Ziroom housekeeper Help customers solve problems, allowing them to live comfortably

A Ziroom Orange Box Deliver convenience to the customers

A waste bucket No mess in customers' rooms

A set of curtains Provide warmth and comfort to customers

A message board Facilitate Ziroomer's communication with roommates

A dining table Allow Ziroomers to share food with roommates

A wardrobe A space for Ziroomer's clothes

A pot with plant A bit of vigor and vitality to the room

Xiong believes that although the tenants' demands and preferences are varied, all of themwant a quality life and consider cleanliness and safety as basic standards of a quality life.Therefore, Ziroom has made efforts to create a standardized shared rental mode, andcontinues to refine and upgrade the standards, covering property renovation, furniture designand configuration, selection of household electrical appliances, the layout of items, as well as



regular cleaning services, tenant selection, housekeeper services, etc. Currently, there arethousands of such standards. Xiong explained:

“In the current rudderless rental market, Ziroom has set the most normalized andrigorous standard, which is also the only standard.”

Ziroomers can make payments on a monthly, quarterly, semiannual or annual basis, and canpay rent through Ziroom.com or APP, Weixin, or at a Homelink's chain office.

To provide Ziroomers with better services, Ziroom made three promises in July of 2013: anoccupancy promise—offer a full refund, including rent, service charges and deposit, ifcustomers are not satisfied and apply for a refund within three days after occupancy; acleaning promise—offer unconditional rework if customers are dissatisfied with the cleaningand request for a rework within three days after the delivery of cleaning services (the servicesand acceptance criteria are listed on Ziroom.com, so quality issues can be identified if theacceptance criteria are not met); a maintenance promise—follow the “218” timetable for

maintenance, that is, emergency maintenance for a room located within the 5th Ring road ofBeijing will be provided by an on-site visit within two hours; non-emergency problems, ifreported before 18:00, will be solved though an on-site visit in the morning of the next day,and if reported after 18:00, will be solved in the afternoon of the next day.

With higher quality than other shared rental models (see Appendix 3), Ziroom continues toimprove the quality of products and services. For example, Xiong often personally stays in aZiroom room to find out the deficiencies in living from the perspective of an ordinary tenant,and then makes improvements accordingly. When traveling abroad, he will rent a localresidential house rather than staying in hotels, so as to experience the various aspects of therental business in foreign countries and the configuration and services for the rental house,and use these experiences as a reference to enhance the quality of Ziroom.

(2) Ziroom.com: a renting O2O

In order to provide goods and services, and better connect products and services withcustomers, Ziroom has built up a feature-rich website (see Appendix 4). Since June 2013,Ziroom has launched many features on the website such as booking, room visiting, contractsigning, payment, repair appointment and other aspects involved in renting, achieving O2Ofor the whole process of renting for the first time. On Ziroom.com, the main columns includeZiroom Rooms, Products and Services, Online and Offline Activities, Portraits of Ziroomersand Lifestyle, and a Self-service column covering maintenance, cleaning, rent payment andothers, enabling Ziroomers to enjoy convenient network services.

According to Geng:

“The key function of renting O2O is allowing users to select a room online and movein it immediately after paying rent. For users, the greatest advantage of O2O is thehigh efficiency of finding a room, which can reduce the time needed for renting a roomfrom ten days to one day, eliminating the troubles of selecting properties through anon-site visit. Ziroom has solved three problems: correcting asymmetric information,enabling online payment, and enabling online contracting.”

On Ziroom's website, there are real photos of each room, displaying all the actual informationof the properties. Ziroom has assigned a professional housekeeper for each room and users



can call the service hotline directly. Ziroom is gradually changing users' habits in selectingproperties. In the past one or two years, the haze hovering over the sky of Beijing acceleratedthe fast increase of online consulting and booking on Ziroom.com.

By using Ziroom's online services, customers need not visit Homelink's offices for renting aroom. All that needs to be done is to browse the website, find one's favorite room and thenpay the deposit online. Customers from outside of Beijing may book a room online and thengo straight to the room upon arrival in Beijing, without personally visiting the property inadvance. Ziroom.com supports the generation and printing of contracts online, so users onlyneed to sign the contract after occupancy.

(3) Pricing

Because of these configurations and services, the price for a Ziroom's room is about 200 yuanhigher than an ordinary room for shared rental. The average rent of a Ziroom Friendly Homeroom is 1,800 yuan/month. Xiong commented:

“This price is affordable for young people earning a monthly income of 6,000 to10,000 yuan. In the past, they might find renting a whole apartment at over 6000 yuanunaffordable, and were bothered by the troubles of shared rental. Ziroom's rooms areparticularly suitable for them.”

At the same time, Ziroom charges 10% of annual rent as a service fee and a month's rent as adeposit. The deposit can be exempted if the Ziroomer chooses to pay rent on a semiannualbasis, and provide an appropriate bank statement.

By comprehensively taking into account the property's location, area, rental mode (shared orfull rental), room type (number of bedrooms), with or without functional space (separate toilet,balcony), orientation, heating mode (independent, collective heating or central airconditioning), decoration style, floor, transportation (if near subway or bus station), and othersupporting facilities, Ziroom will set the rental price for each room (see Table 2).

Table 2: Rent for a Ziroom room (Unit: yuan/ month, compiled based on quotes onZiroom.com as of 28 February 2014)

District/Price < 10 m2 10–12 m2 12–15 m2 15–20 m2 > 20 m2

Chaoyang 1,090–3,660 1,160–4,260 1,160–4,960 1,390–5,390 1,530–7,260

Haidian 1,290–4,460 1,390–4,530 1,430–5,860 1,430–6,690 1,730–4,630

Fengtai 1,190–2,190 890–2,490 1,030–2,660 1,390–2,890 1,460–3,390

Xicheng 1,690–2,890 1,430–3,230 1,690–3,460 1,860–4,760 2,060–7,830



a.

b.

a.

Changping 760–2,460 1,130–2,430 1,230–2,960 1,190–3,160 860–3,530

Dongcheng 1,860–2,890 1,590–3,260 1,590–4,290 1,790–4,330 2,160–3,930

Tongzhou 830–1,790 860–1,790 860–2,060 990–2,590 990–2,130

Daxing 1,030–2,390 960–1,890 1,030–2,060 1,030–2,390 1,430–2,390

Shijingshan 1,160–1,960 1,260–2,560 1,290–2,590 1,330–3,090 1,560–2,660

Shunyi 930–1,460 960–1,790 1,060–1,690 1,2301,890 1,260–1,990

(4) Marketing channels

Ziroom.com

As the direct sales platform and the main sales channel of Ziroom's properties, Ziroom.comcomprehensively displays all the details of Ziroom's real properties, including the properties'basic profile (area, orientation, type, floor, year), configurations, community profiles, maps,room charts, comments, prices, surrounding commercial and living facilities, traffic conditions,etc. Ziroomers can view the properties through panoramic displays, select and book theirfavorite rooms, and then pay rent online.

Homelink's offices

Ziroom does not have its own offline offices, but is supported by Homelink's offices. Currently,Homelink has 1,100 offices located in Beijing. Each of the offices has numerous brokers, whorecommend and introduce Ziroom's business to potential tenants visiting the office. Inaddition, they introduce Ziroom's business to property owners consulting at the office, guidingowners to transform their vacant properties into Ziroom's rentable rooms.

(5) Communication

As of December 2013, Ziroom has carried out a variety of activities online and offline tofacilitate communication (see Appendix 5).

Communication online

Ziroom publishes information regarding various activities on the homepage of its website,such as Ziroom Lottery, Ziroomer Big Guess, Recommend Friends, Personal Show, RoomReservation, Ziroom Fast Booking, etc.;

Ziroom communicates and interacts with Ziroomers through microblog and WeiXin ofZiroomers, Xiong and Geng, so as to understand the customers' needs and difficulties, andtry to find ways to meet their needs and resolve their problems;



Brokers at Homelink's offices post information of properties available for renting on the rentingmodule of all types of real estate websites, including Homelink online, 58.com, Ganji.com,Anjuke, SouFun, Focus, and so on;

By adopting a Search Engine Marketing (SEM) mode4, Ziroom delivers its information totarget customers browsing renting information on Baidu, 360 and other search sites;

Ziroom participated in Baidu's network alliance promotion campaign5, which automaticallypresents promotional information on the sites frequently visited by target customers. Ziroom'sadvertisements automatically appear on real estate forums and ads are linked to Ziroom'swebsite.

b. Communication offline

When Ziroom was first launched in the market, road shows were carried out near officebuildings where young people were assembled;

Ziroom organized a variety of activities for face-to-face interactions with customers, such asZiroom Lottery, film watching gatherings, love-theme gatherings, free cleaning and testing ofair conditioners, free renting at Spring Festival, free tickets to Ziroom's annual dinner, first 30customers favorable renting, 2013 annual interviews of special Ziroomers, Ziroom nostalgia-themed party, etc.

In Homelink's offices, Ziroom housekeepers and brokers communicate with customers face-to-face or by telephone, and brokers often distribute leaflets on the street where targetcustomers are gathered;

Ziroom's telephone customer service staff answer in detail questions raised by Ziroomers andowners;

Advertisements, including videos, images and the Ziroomer Renting Guide, are launchedalong subway lines where there are more young people, with the subject of “I am a Ziroomer”and “Dreams lead the way”;

Recruitment campaigns have been conducted in major colleges and universities, detailingZiroom's development history, the current situation and future prospects, inviting young staffto join in their career. Meanwhile, Ziroom launched the Petrel Program to graduates, offeringthem preferable prices for renting;

Ziroom's activities were covered in media, including Beijing TV, Beijing Youth Daily, BeijingMorning Post, ifeng.com, and so on;

Ziroom's senior management regularly conducts face-to-face communications with customers.For example, Xiong often exchanges views with Ziroomers on diverse subjects, includinglistening to Ziroomers' suggestions on the improvement of Ziroom's product and customerservice, discusses Ziroomer's business plans, and even chats about sport skills withZiroomers.

(6) Service support staff

Ziroom's service support staff include Ziroom housekeepers, furnishing directors, cleaners,



service engineers, telephone customer service staff, home designers, and so on.

a. Ziroom housekeepers

Ziroom has a dedicated team of housekeepers. As product managers of Ziroom's properties,the housekeepers are responsible for organizing and coordinating in the design, furnishing,renting, and services of the properties. They work in a fixed area, training and counselingbrokers in the region, conducting on-site survey and accepting properties and negotiating withthe owners, setting the prices of the properties and signing agency agreements, identifyingupgrades and furnishing demands of the properties, organizing the visitors to the areas'apartment models, helping brokers sign lease agreements, coordinating follow-up cleaningand maintenance services for Ziroomers, as well as handling refunds or exchanges, deliveringrent invoices, and providing consulting services. Customers can rate a housekeeper'sservices. Each housekeeper is in charge of over 60 suites of Ziroom Youjia properties, servingmore than 160 Ziroomers. They respond to over 40 customer calls a day.

b. Furnishing directors

Ziroom has a dedicated team of property furnishing directors, who work out furnishingproposals and plans according to the needs of properties, dispatch work to suppliersaccordingly, conducting supervision and field inspection on the suppliers' work, and takecharge of follow-up maintenance. With the collaboration of eight suppliers, a furnishingdirector needs to upgrade more than 200 ordinary properties each year to Ziroom FriendlyHome apartments by going through hundreds of assembly procedures.

c. Cleaners

Ziroom provides cleaning services for more than 20,000 suites of rental properties per month.Because there is no company in Beijing that can fully undertake Ziroom's cleaning workalone, Ziroom engages a number of cleaning service providers and dispatches the cleaningwork to them by region. Although the cleaners in different regions are from different cleaningcompanies, they wear uniforms, use the same cleaning tools and follow the same cleaningstandards. Each cleaner serves 500 Ziroomers each year. Currently as a company with thelargest demands for cleaning service in Beijing, Ziroom has collaborated with nearly 600cleaners.

d. Service engineers

Ziroom needs to deal with 15,000 maintenance tasks per month. Similar to the cleaning work,Ziroom engages a number of property service providers and dispatches the maintenance workto them. Like cleaners, the service engineers also wear uniforms. To provide efficientmaintenance and repair to customers, the service engineers ride a bike to travel from street tostreet for a total of 35 kilometers a day. Nearly 300 service engineers have worked for Ziroomso far.

e. Telephone customer service staff

Ziroom has a dedicated team of more than 40 telephone customer service staff. Every day,they receive customer calls and answer all kinds of questions, including providing productconsultation, recording customer demands, coordinating and following up with problems,handling customer complaints, with an aim to maintain good customer relations. A customerservice staff needs to answer incoming calls for a total of 300 minutes every day, and solve



problems for 15,000 people each year.

f. Home designer

Ziroom has established a home designer team. With the enhancement of Ziroom's brandreputation, Ziroomer's demand for furniture of well-known brands has gradually declined.Therefore, Ziroom cooperates with furniture providers for customized manufacturing based onthe design of Ziroom designers, who work out the renovation plan for each apartment.

(7) Service process

Ziroom provides services through online self-service and service hotlines.

Online self-service: Customers can login to the Ziroom Space of Ziroom.com, Ziroomer APP orWeiXin to check the authenticity of a payment receipt, pay rent, change rooms, makeappointments for cleaning, report an appliance failure, file complaints, inquire on the progressof a cleaning, repair or complaints handling, convert credits to gifts, etc. Service is providedon a 24-hour basis.

Hotline service: Customers need to wait for a response after the call gets through, duringwhich telecommunication fees are charged; or customers can use voicemail to leavemessages. Hotline services mainly cover product consultation and registration, cleaning andrepair appointment, progress inquiries, complaints and suggestions. Hotline services areprovided from 9: 00–20: 00 all days.

Ziroom's services include cleaning, maintenance and complaints handling.

a. Process of cleaning services

Cleaning service process: Customer making an appointment for cleaning—Service supportstaff dispatching work—Cleaner visiting home—Customer evaluation and acceptance—Service support staff calling back;

Monthly cleaning time: a calendar month after the first cleaning is conducted, with thedeviation within five days;

After making an appointment for cleaning, customers need to wait, or have another person tobe at home at the scheduled time. The cleaning appointment is considered as being waived ifhe/she is absent at the scheduled time for cleaning; before the 29th of each month,customers can make only two cleaning appointments for the next month.

b. Process of repair services

Repair service process: Customer reporting problems–Service support staff dispatching work—Service engineer visiting home—Customer evaluation and acceptance—Service supportstaff calling back;

Appointment time: Customers will receive services in the morning of the next day if problemsare reported before 18:00; or receive services in the afternoon of the next day if problems arereported after 18:00. After the appointment, Ziroom will dispatch a service engineer to providemaintenance services at the appointed time;



For emergency problems that need to be solved within the day, such as the toilet pluggingup, lock-opening, serious leaks, etc., customers can call the hotline for emergency repairs.

c. Complaints handling process

Complaint handling process: Customer filing complaints—Customer support staff acceptingcomplaints—Verifying the facts—Feedback—Complaint handling;

Response time: complaints will be handled within 24 hours.

2. Ziroom apartment

In addition to obtaining individual rentable properties from different owners in the market,Ziroom is also involved in the operation of stand-alone residential apartments. After a year'soperation of Ziroom Friendly Home, Ziroom launched a new product line—the ZiroomApartment in October 2012 (see Appendix 2). Positioned as stand-alone youth apartmentswith high-quality services, it aims to create a new community lifestyle for urban youth,targeting young people aged 20–35.

When choosing the site for a Ziroom apartment, Ziroom takes into account public transportconditions, fundamental supporting facilities, the basic quality of the property and otherrelevant factors. Xiong explained:

“The walking distance from a Ziroom apartment to the subway station shall be withinten minutes, not exceeding 15 minutes in all cases. Whether there are inexpensiverestaurants around is also an important factor for consideration. In addition, to reducerenovation efforts and the cost, properties originally designed for apartment use areour optimal choice.”

Buildings for Ziroom apartments are rented directly from developers, and then renovatedbefore leasing to individual tenants with ongoing operational management services. Most ofthem are one-bedroom apartments or studio apartments primarily designed for young peopleand equipped with originally designed furniture, appliances of superior brand, bathroommodules, and WiFi coverage. A variety of services, including maintenance, cleaning, sendingand receiving parcels, item storage, home-moving, community activities, etc., are provided totenants. In addition, billiard rooms, gyms, public laundry rooms, video rooms, snack bars,bookstores, Ziroom inns and other public spaces are built in Ziroom apartments. Supportedby two housekeepers and professional maintenance and cleaning teams, Ziroom apartmentsimplement standardized management to facilitate Ziroomer's quality. Ziroom apartmentscharge 10% of the annual rent as a property service fee. Geng said:

“Ziroom apartments represent our higher-level pursuit of product. We hope to create aproduct with better quality, which enables people to imagine their future lives. As apioneering product, it is superior and cutting-edge, with some of its designs beingused by Ziroom Friendly Home.”

The costs of a Ziroom apartment building include rent paid to the original owners, costs ofrecasting building structure, renovation costs, follow-up service costs and labor costs,amounting to tens of million yuan. Because Ziroom has to invest a large sum of money at thebeginning, Ziroom always enters into lease contracts for a term of at least ten years with theoriginal property owners, to reduce costs and market risks.



The first Ziroom apartment was Ziroom Jiangfu Park apartment, with a total usage area of

9,600 square meters. The front spaces of the 1st floor are stores, while the internal spacesare public areas for tenants (leisure and fitness center, laundry, reception, property

management, etc.); the 2nd to 6th floors have a total of 175 suites of apartments, with eachroom covering about 30 square meters, leasing at a minimum rent of 3,479 yuan/month, lower

than the surrounding economy hotels.6 Ziroom prefers to sign long leases with tenants. Theapartment is conveniently close to bus and subway stations, and adjacent to the JiangfuPark, 798 Park, Electronic Science and Technology Park, central business district ofElectronic City and other downtown areas. In Ziroom Jiangfu park apartment, a bicycleparking shed was built for the Ziroomers who travel by bicycle. In addition, to facilitate younggroups of people who go out early for work and return home late, a café was opened in theapartment to offer coffee and simple meals to tenants.

Ziroom has replicated the mode in Chaoyang and Haidian districts. So far, six Ziroomapartments, including the Jiangfu Park apartment have been established. While almost allother operators of lease-type youth apartments are in the pursuit of rapid expansion, Ziroomchooses to “seek a slowdown.” Xiong explained:

“The six Ziroom apartments represent our exploration in rental-type living products.We have been pursuing experiments in product design, living experience, servicesystem construction, innovative operation modes, and the combination of online andoffline services.”

In addition, in order to maintain a diversified tenant structure, Ziroom won't lease an entirebuilding to a company as staff quarters. Xiong explained:

“Tenants coming from all walks of life make living in an apartment interesting. If theyare from the same company, it wouldn't be so interesting.”

IV. Comments from Customers

Some Ziroomers who had been renting for many years made comments on their experiencesof living in Ziroom apartments.

Ziroomer Mr. Guo commented:

“I was impressed by Ziroom's standardized services during my six months' staying inZiroom Friendly Home. Firstly, as a standard process of tenant management, tenantsare required to submit proof of identity and occupation. Secondly, locks are changedbefore the occupancy of a new tenant, ensuring living safety. Finally, Ziroom providesmonthly cleaning services and repairs the devices in public areas, responding quicklyto failure reports made through phones. As for the weaknesses, Ziroom's rent is alittle bit too high, and it charges 10% of the annual rent as a service fee; secondly, thenew renovations may bring environmental concerns. Overall, Ziroom Friendly Homeallowed us to find a satisfactory room in a short time, but it was not the mosteconomic choice.”

Ziroomer Mr. Miao commented:

“After a few instances of unpleasant renting experiences, I was surprised to find



Ziroom Friendly Home, a high-quality and standardized renting service provider, whobrought revolutionary changes to the housing rental market. In my opinion, Ziroomhas many advantages, such as a new residential environment, convenienttransportation, monthly cleaning, high-speed WiFi, professional maintenance, onlinepayment of rent, etc., all of which facilitated my daily life and reduced the timeneeded for renting a room. The disadvantage was the relatively high price. However,more importantly, in China's rental market that is not yet standardized, this normalizedrenting procedure greatly reduces the various conflicts and legal risks that may arisebetween cotenants and between tenants and landlords.”

Ziroomer Ms. Liu commented:

“In the past, I had to move around the rental market to find a satisfactory room. Then,I needed to bargain on the price and take the risk of my deposit being withheld.Through Ziroom Friendly Home, I found a suitable room after only two or three on-sitevisits, and then paid deposit-exempt rent online at a normalized price, saving bothtime and effort. In order to ensure safety, Ziroom conducts tenant certification,requiring tenants to have a proper job. Ziroom also provides follow-up services, suchas the monthly cleaning. The cleaners are polite and punctual when providingcleaning services. In addition, I can report failures online and get a response fromcustomer service staff immediately. Then, service engineers call me to determine thebest time for maintenance. I really feel good about Ziroom's services. But sometimesit is not easy to get through the phone with housekeepers; it seems that they are verybusy.”

V. Current Situation and Goals

1. Current situation of Ziroom

With Xiong and his team's hard work, Ziroom has achieved rapid growth. It seems that moreand more young people working and living in Beijing recognize Ziroom and are willing to trythis new rental mode to find their most suitable rooms, which further enhances the brandreputation of Ziroom. Today, Ziroom has 1,000 staff at an average age of 26 years, all of whomhaving a bachelor's degree or above and have been personally interviewed by Xiong beforeemployment. Among them, 600 people serve as Ziroom housekeepers. The number of staff isdoubling every year.

Ziroom has collected a total of 20,000 properties, including over 60,000 Ziroom Friendly Homerooms and six stand-alone buildings of Ziroom apartments that are distributed in more than2,000 real estate locations in Beijing. With the cumulative occupancy rate remaining at 90%and the renewal rate at over 60%, Ziroom achieved an annual revenue of about 800 millionyuan in 2013. Ziroom has realized O2O for the whole process, covering exploring and bookingproperties, contract signing, rent payment, room moving-in procedures, service applicationand so on. More than 95% of Ziroomers choose to pay rent online.

Currently, Ziroom also operates an “Enterprise Club” in collaboration with many enterpriseswhose employees need residential renting services, including Tencent, Baidu, Sina, Microsoft,Hewlett-Packard, Minmetals, China Construction Bank of China, Agricultural Bank of China,Taobao, and many others. These companies' employees can enjoy Ziroom's one-stop rentalservices, preferential prices (including no deposit, service fee discounts, free-for-change,



paying rent with reserved fund, etc.) as well as customized housekeeping services for thewhole process.

2. Profiles of Ziroomers

Since the establishment of Ziroom, the number of Ziroomers has achieved a sustained andrapid growth, amounting to 10,000 in May 2012, 30,000 in November 2012, 50,000 in May2013, and 100,000 in December 2013. Currently, the average age of Ziroomers is 27.

The following is a summary of Ziroomers' backgrounds:

First, Ziroom has served Ziroomers from more than 76 countries and regions, including Korea,Denmark, the United States, France, Russia, Kazakhstan, Germany, Japan, Indonesia, theUnited Kingdom, etc.;

Secondly, the Ziroomers now domiciling in Ziroom are from 31 provinces, municipalities andautonomous regions of China, which, ranked by the number of Ziroomers in descendingorder, include Hebei, Heilongjiang, Shandong, Beijing, Liaoning, Henan, Jilin, Shanxi, InnerMongolia, Hubei, etc.;

Finally, ranked by the number of Ziroomers in descending order, the industries Ziroomers areworking in include information transmission, computer services and software, leasing andbusiness services, education, scientific research, technical services and geologicalprospecting, culture, sport and recreation, financial services, manufacturing, construction,health, social security and social welfare, real estate and so on.

3. Ziroom's goals

Over the next ten years, Ziroom aims to grow an enterprise based on O2O platforms thatintegrate asset management, housing and related services, as well as information and dataservices, managing tens of thousands of assets in China. Ziroom will take three phases toprogressively realize the goal:

Phase 1 (the 1st–5th year): start businesses in 5 first-tier cities, managing 100,000 suites ofproperties of individual owners and 20,000 suites of properties of institutional owners, earningan annual income of 1.5 billion yuan; website visits rank the top three in the real estateindustry; become China's top brand of renting and living services.

Phase 2 (the 5th–8th year): expand businesses to 6–10 cities nationwide, managing 200,000suites of properties of individual owners and 100,000 suites of properties of institutionalowners, earning an annual income of 3 billion yuan; website visits rank the top three in thereal estate industry; create an integrated Internet-based platform of renting and living servicesby exploring innovation of financial business, and integrating and extending the industrialchain of services.

Phase 3 (the 8th–10th year): expand businesses to 10–30 cities nationwide, managing300,000 suites of properties of individual owners and 200,000 suites of properties ofinstitutional owners, earning an annual income of 6 billion yuan; establish a large enterprisebased on O2O platforms that integrate asset management, housing and related services, aswell as information and data services.



VI. Challenges and Reflections

Ziroom's rent is slightly high for some young people in need of shared rental. On the otherhand, Ziroom has to incur high costs. For example, a three-bedroom apartment of ZiroomFriendly Home costs a total of 30,000 yuan on average, covering housing renovation,alteration, household appliances and more. As a result, in room decoration of the muchsmaller Ziroom Friendly Home rooms, Ziroom Friendly Home has already invested hundredsof millions of yuan. As for Ziroom apartments, the leasing and renovation costs of a singleroom (containing costs for furniture and electrical appliances) are often more than 100,000yuan, close to the cost of a four-star hotel room. It takes at least three years for Ziroom tocover the costs with rental income. Xiong explained:

“The total investment is considerable. Ziroom is still developing its business andacquiring new properties. We have to increase investment on a continuous basis.”

Xiong pondered over the future development of Ziroom, which could be affected by thechanges in rent, real estate purchase restrictions, and the increase of Ziroom properties. Ifmarket rent rises sharply in the future, the owners' willingness to renew contracts with Ziroommay be reduced. If market rent stops rising or declines, the annual increase of rent payable tothe owners may reduce Ziroom's profitability. Ziroom incurs high maintenance costs, withrepair and cleaning costs accounting for about 50% of total revenue. In addition, strongsystem management capabilities are needed to manage more than 20,000 properties anddeal with over 100,000 Ziroomers. If the number of rentable properties on the marketincreases, or if Ziroomers' ability to pay rent rises slowly in the future, Ziroom's rent incomewill grow at a lower rate.

Also, Xiong analyzed the development of Ziroom apartments:

“Renting an entire building is too costly, and it is difficult to find suitable buildings.Economy hotels and hospitals can offer rent to the building owner higher than what wecan afford. Our model is not an easy way. We need to further explore more profit-making models.”

It is foreseeable that young people born after the 1990s will become the dominant group ofZiroomers within two years. Different from the Ziroomers born in the 1980s, most of the 90ershave no plan to acquire a property. Instead, renting a property long term is a more acceptablechoice for them. They are also in need of more social activities. The atmosphere is usuallyvery hot in these activities, such as the first Ziroomer party, and they are fond of chatting inZiroomer's WeiXin group.

As a part of the customer loyalty programme, Ziroomers can use credits to deduct rent, buygoods, or exchange rooms for free. According to Xiong's plan, when the number of Ziroomersreaches 300,000 to 1 million, credits and social activities will become part of Ziroom's higher-level services, tying Ziroom with Ziroomer even closer.

At the same time, another real estate company—5i5j—is also trying to break down thesecond-hand housing market. It has, based on its original housing trust service, launched“Golden Housekeeper” services to high-end customers, “Friendly Roommate” shared leasingservice to low-income young people, as well as short rental service for people staying for ashort-to-medium period in a city. Xiong said:



“Except for the hundreds of properties made available for renting to the market by5i5j, there are no other similar intermediary companies currently in Beijing. I hope thatwith Ziroom as the leader, more intermediary companies will join the undertaking toimprove products and services at a quick speed, making the entire rental market morehealthy.”

In addition, the real estate rental industry needs more normalized and unified standards.Xiong said sentimentally:

“I hope that the relevant authorities and more people can support this undertaking,enabling a wider group of young people to have more options in enjoying high-qualityrental services. Authorities should allow and encourage more property companies toengage professional organizations to manage vacant properties and public rentalproperties and make them available to young people. In addition, I hope authoritiescan promote the normalized development of shared rental business through, forexample, issuing more stringent standards.”

Notes and References

The authors are grateful to Professor F. Warren McFarlan of Harvard Business School for hisgenerous help in completing the case study.

1. Ziroomer: tenants leasing properties from Ziroom for living are known as Ziroomers.

2. B2C: Business to Customer, a mode of e-commerce allowing enterprises to sell productsand services directly to consumers via the Internet and supporting online shopping andpayment. This mode saves the time and space of consumers and businesses, greatlyimproving the efficiency of transactions.

3. O2O namely Online to Offline, refers to the combination of offline business organizationsand the Internet in which the Internet serves a reception of offline transactions. This conceptand the Internet in which the Internet serves a reception of offline transactions. This conceptis widely used in industry chains, provided that they are either related to online and offlinebusinesses.

4. Search Engine Marketing: a marketing tool aiming to achieve a higher ranking in searchengine result pages through search engine optimization, search engine ranking and researchon keyword prevalence and relevance. Search engine optimization is essential for websiteranking. When customers search relevant products or services in the search engines,websites that have been optimized through professional search engines can usually get ahigher rank.

5. The Baidu network alliance promotion campaign: with 600,000 high-quality network alliancesites as platforms for promotion, through analysis of the natural properties (geographic,gender), long-term interests and specific short-term behavior (search and browse) of Internetusers, and backed up by Baidu's specific audience-targeting technology, this campaign helpsbusiness owners to find the target population, and presents the enterprises' promotionalinformation in fix column, patch, suspension and other forms to the target audience whobrowse Baidu's network alliance sites.

6. The price of an economy hotel room is about 200 yuan/day.



http://dx.doi.org/10.4135/9781473970212

http://dx.doi.org/10.4135/9781473970212



http://dx.doi.org/10.4135/9781473970212

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Ziroom: Creating Quality Rental Living