(Chinese Version)

In the evening of October 26th, Chinese online traveling service provider Ctrip finally merged with Qunar, a relatively newcomer compared to Ctrip. As a matter of fact, it took Baidu a lot of efforts to make this merger happen. The plan was simple: Baidu used its share in Qunar to exchange for Ctrip’s share. After the deal is completed, the share in Ctrip that Baidu holds would account for 25% of Ctrip’s total voting right, making Baidu the biggest shareholder of Ctrip. In the meantime, Ctrip would be holding 45% of Qunar’s total voting right.

In the merger of Ctrip and Qunar, Baidu had been the decisive factor. On the surface, it appears that Baidu now owns Ctrip, and Ctrip has ownership in Qunar. But in a greater perspective, this merger has a profound impact on China’s online tourism sector, hotel businesses, and even the whole O2O sector.

This is a typical win-win deal for three parties.

So far the outcome shows that Baidu is the biggest winner in this deal. To put it in perspective, Ctrip accounts for 40% of the market share while Qunar has 30%, meaning their partnership will form the largest O2O body in China, and they are on Baidu’s side. Baidu finally made a good move this time when competing with Alibaba and Tencent in the O2O sector this time. Sacrificing Qunar to gain share of Ctrip not only wins Baidu more space and resources to grow, it also makes Baidu become the dominating power in the OTA sector. It’s apparent that Baidu will certainly dominate this particular sector for a period. In some way, this partnership has more strategic meaning than the short-term return it could bring.

Ctrip as the leading force is actually gaining momentum still. Ctrip first acquired eLong and then invested in Tuniu and Tongcheng. After integrating Qunar into its system, Ctrip’s market share of the OTA sector has jumped to more than 71.5%. Nowadays, 10% of travel businesses is conducted online, which means Ctrip and Qunar, the two largest OTA giants, will build a defense system together to counter challenges that are ready to explode in the industry. Even Qunar that might be weaken in the future will still be a significant power for its advantages in advanced technology and user base. The core value of the travel industry is to provide users with different services in different price.

Additionally, this partnership will also affect another alliance formed by an equally significant merger, the Meituan-Dazhongdianping. Ctrip and Qunar will together dethrone the current dominating O2O giant Meiduan & Dazhongdianping, and will certainly do a lot of damage to Meituan’s most lucrative business, the hotel business.

Ctrip and Qunar’s integration brings huge pressure on Meituan

In July this year, Meituan opened its hotel travel business line, which aims to build a travel platform where users can find designed travel routes. In August, Meituan completed acquiring Kuxun and further strengthen its position in the fast-growing and relatively matured hotel travel sector. However, if we look more closely at the industry layout we will find that Meituan still has little saying in this market.

According to the 2015 Chinese OTA Annual Market Report released by Analysys in October, Ctrip and Qunar ranked the top two in term of market share in China, accounting for 38.65% and 30.1% respectively. If we take eLong and Tongcheng, which are under the same system like Ctrip and Qunar do, then together they hold 70.9% of the total market share in China.

Without a doubt, Ctrip & Qunar will become the dominating joint force in China and it will stay that way for a long time. The only emerging company that might have the chance of changing the layout is Alitrip, backed by Ant Financial. The competition brought by Ctrip and Qunar is definitely putting more pressure on Meituan than ever. Dazhongdianping, Meituan’s current comrade, has little to offer to support Meituan in this area. That being said, Ctrip and Qunar are greatly boosted by their partnership while Meituan and Dazhongdianping stay still where they are. When the market becomes more intensive, the forerunners in this industry will transform from competing viciously to integrating their resources, leaving little space for other companies to grow and literally squeezing the competitions out of the picture.

Low-end hotel business lacks traction

Baidu’s plan for the hotel booking business is actually quite different from Ctrip and Qunar. And that’s one of the reasons why Meituan can still grow in this business sector and attract investors.

Simply put, Ctrip focuses on medium and high and mid-end hotel business while Qunar focuses on the low and mid-end sector. As for Meituan, the company solely focuses on the low-end sector. But as this sector saturates gradually, Meituan is in fact walking toward a dead end blocked by its two giant competitors.

However, such good news is disappearing. On the one hand, as people’s income increases and demands for outbound travel and high-end travel grow, the low-end hotel business is actually becoming less relevant. The once appealing low-budge traveling can no longer satisfy consumers. Consumers now have a higher standard for the hotels they are going to stay in and higher expectation for their trip. On the other hand, after the integration, Ctrip and Qunar won’t fight each other anymore and will instead explore new markets and dominate the integrate current markets instead together as an unstoppable joint force. This is no doubt a devastating blow to the low-end hotel business, which will kill the little space left for Meituan to grow.

Meituan’s advantage has always been the price and the company further enhances this strength by burning money endlessly. However, Ctrip has the upper hand all along in the offline hotel sector. As for Qunar, the company’s competitiveness lies in the online OTA sector. In this case, Ctrip and Qunar’s partnership is actually a fix to each other’s shortcomings, which ultimately creates a greater threat to Meituan. It’s fair to say that Ctrip and Qunar, which are the two dominating powers in their respective area, will have the absolute say in the industry in the future as a whole. It can also be foreseen that to Meituan the cost of cooperating with the hotel industry will increase greatly. The mid and high-end hotel sector will also be mostly controlled by the dominating power, making traditional promotion methods, such as subsidizing, lose their edge due to the high cost.

Investors are becoming more cautious

Although the tourism market has great potential, it still lacks a mature business model and adequate infrastructures when compared to other O2O sectors. Therefore, Meituan’s hotel business is now losing the space and opportunities to grow big as its pressure on its shoulders, brought by other giants, grows heavier.

Additionally, Baidu’s system will give Ctrip and Qunar powerful support in resources. Baidu’s search service and mobile map service are both of great resources that can help Ctrip and Qunar win over the OTA sector and dominate it. When the time has come for the OTA industry to grow bigger and transform, Baidu, Ctrip, and Qunar will subsequently have higher status, meaning more say, to explore new areas. What’s more, Baidu obviously has a clear strategy for this market. All in O2O is based on Baidu Nuomi, the core, and has streams such as takeout service, cab-hailing service, Internet medical service, OTA, and fresh produce service etc. We have never seen such comprehensive strategy come out of Baidu before.

The worst part for Meituan is, the company has become a common enemy in the field of O2O now. The situation for Meituan even worsens after the merger with Dazhongdianping. Even though both parties had reached a merger deal long ago, allegedly it would still take at least nine months for these two companies to finish integration. Besides that, Meituan and Dazhongdianping’s businesses highly overlap and the corporate cultures are quite different. It’s said that the staff of both companies are now having problems with their share option and facing layoff. All these factors make it even harder for Meituan and Dazhongdianping to actually work together, let alone act as one. After the whole Ctrip merging with Qunar event, some staff of the Meituan Hotel Business Division started to complain, saying that they had only been in this company for a very short time and now they were confused about the direction the company’s heading to. The inconvenient truth is that besides the OTA sector, Meituan also faces great competitions in other O2O areas such as the takeout sector, movie ticket booking sector, hotel booking sector etc., with tens of threatening rivals waiting for the chance to assault. Meituan as the targeted common enemy in the field is apparently struggling under the immense competition.

Capital follows interest. Investors won’t endlessly pour in cash and allow Meituan and Dazhongdianping to continue to burn money as efforts to fight Ctrip and Qunar. Instead, investors want Meituan and Dazhongdianping to redirect their focus to the catering sector and movie booking sector.

At last I want to mention that Ctrip and Qunar’s partnership is the forth merger in which the top two companies in a specific sector chose to merge with each other. Compared to Meiduan and Dazhongdianping that are enslaved by the capital, Ctrip and Qunar’s merger is well-received by others.

The capital market is a relatively objective judge. On October 27th, which was the day the merger became official, three companies all jumped highly on the American stock market and the peak increase rate was 34.52%, 26.52%, and 11.04%. Ctrip’s stock price jumped 22.11% on that very day while Qunar and Baidu roared 7.92% and 5.53% respectively. Simply put, three companies’ market value soared by several billion dollars on that very day.

[The article is published and edited with authorization from the author @BoldPig, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at ECHO), working for TMTpost.