Baidu takes off with Qunar

"Together [with Baidu], we can enhance the user experience of hundreds of millions of Chinese travelers, whether they're searching with their computers or their mobile devices," Qunar CEO Zhuang Chenchao said in a statement, "We believe that Baidu's strategic investment in us will allow both companies to better capture exciting growth opportunities in our industry."

A source close to Qunar tells AVCJ that the company appealed to Baidu because it positions itself as a spot for customers to research, plan, compare and share information on prices. In this respect, Qunar functions differently from peers like Ctrip and Elong: Rather than serve purely as a vendor, it searches for the best flight, hotel and package deals from a variety of sites and then aggregates the most competitive prices. Qunar's services currently cover more than 11,000 air routes and 102,000 hotels worldwide.

"Qunar's data will be super valuable for us," says Kaiser Kuo, director of international media relations at Baidu. "At a technical level, the synergy is fairly obvious as Qunar is a leading metasearch in an area we're very interested in."

The source close to Qunar added that, in addition to mobile devices, websites offering home exchange and vacation-home rentals are both likely to graduate from nascent to mainstream elements of the online travel story. Both complement the Qunar aggregator model.

Indepedence retained

Despite Baidu's involvement - the size of its stake has not been disclosed - Qunar will continue to operate as an independent company. The capital will be used to add staff and technical-knowhow in order to enhance product development and strengthen marketing platforms. As part of the deal, Zhuang has taken over as CEO from his co-founder Fritz Demopoulos.

Of the venture capital firms that have reportedly sunk $27 million into the company since its 2005 launch - GSR Ventures, Mayfield Fund, Tenaya Capital and GGV Capital - GSR says it has no plans to exit. The possibility of an IPO in the future remains a powerful draw, as do the strong fundamentals of China's online travel market.

According to iResearch, the country's online travel industry, valued at $454.8 million in 2008, will be worth $1.4 billion by the end of this year. That figure is expected to reach $3.8 billion by 2014, in line with China's growing internet use and rising disposable incomes. Internet penetration stands less than 32% yet the country already claims nearly 460 million internet users - approximately double the amount in the US. A report released by CNNIC in January noted that only 7.9% of China's internet users are familiar with online travel booking services, compared to 66% in the US.

A handful of players dominate the market. Ctrip, which listed on NASDAQ in 2003, had a 51.6% share as of October 2010, with Expedia -controlled Elong a distant second on 8.7%, followed by BestTone and Mango.

The industry is popular among private equity investors. Current and former Ctrip backers include IDG Ventures, Morningside Technologies, Orchid Asia, Tiger Global Management and Softbank China Venture, while Elong has taken capital from Blue Ridge and Tiger Global. Outside the venture space, CSV Capital Partners and Carlyle have invested in iTour, and Capital Today invested in Shanghai UZAI Travel Service.

Most recently in April, Tuniu.com raised $50 million in a Series C funding from the likes of Sequoia Capital, DCM and Highland Capital, as well as Japanese e-commerce major Rakuten Group.

Traditionally, Chinese travel websites are supported by call centers that handle much of the traffic. Although Ctrip remains tied to this model as it seeks to evolve from a booking service into a more of a travel management business, most of its rivals are planning for a future that is more click than brick. The arrival of Baidu, Alibaba and Tencent in the market should be seen in this context.

Competitive advantage

Each of the internet giants hopes to leverage its existing strengths in the travel business. Alibaba Group, which last year began vending air tickets through a dedicated channel on auction website Taobao, can rely on the popularity of Alipay, its online payment service. Tencent only entered the industry last month, paying $84.4 million for a 16% stake in Elong, but it boasts direct access to millions of consumers via its QQ instant messaging and gaming platform.

Baidu's competitive advantage is simple: a 75.8% share of China's online search market as of the first quarter of 2011. The company has already begun to use this as a platform from which to diversify into areas such as e-commerce and online video. It plans to incorporate Qunar listings into the search engine's main search-results and also into its mapping services, making it easier for users to find up-to-the-minute ticketing information.

"A lot of people have talked about the propensity of the large Chinese internet companies to replicate or build their own versions of websites instead of acquiring existing companies," Kuo says.

"We're hoping to send the message that big Chinese internet companies are not just about cloning rather than acquiring, and we hope to show that we can offer entrepreneurs an attractive exit that isn't necessarily via an IPO. With Qunar, we're in it for the long haul, and the plan hasn't changed."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Consumer
• Media
• Buyouts
• GSR Ventures
• Mayfield
• GGV Capital