Marriage between rivals: Meituan & Dianping merged
First Uber competitors Didi Dache and Kuaidi Dache came together, and now two biggest online-to-offline (O2O) service providers merged to create a $ 15 billion provider of local services. Meituan, a Groupon-like website part-owned by e-commerce powerhouse Alibaba, and Tencent-backed Dianping, a restaurant review smartphone app, would be combined to be the largest local services platform in China. The two companies would retain their brands and management structure and operate their businesses independently, but they would work together to boost each other’s business and share.
Like Didi Dache and Kuaidi Dache, Meituan and Dianping were burning cash to offer price cuts, favorable retail rates and anything to attract both consumers buying and merchants selling. The combination would save the two from an expensive cash war and allow them to more easily outrun competitors, such as $3 billion startup Ele.me and Baidu, which plans to invest $3.2 billion over next three years into its own local services venture Nuomi.
Indeed, the cash war has been prevailing recently in Chinese O2O market and companies are often hoping the discounted/subsidized orders would bring more and hopefully loyal customers. However, the common situation is people just use the platform with discount and easily switch to any other ones offering better deals. Companies, on the other hand, may be aware of the situation, but they would rather lose money to gain more orders. The logic behind is simple – they need a good-looking number of orders to attract next round of funding. Therefore, this war is not going anywhere but losses for everyone; even consumers would only get monetary benefit in the short term instead of better product or service in the future. As a result, investors are now desperate about increasing valuation, frequent funding and little likelihood of IPO and thus eager to end the cash-burning war. Capital winter is coming. The only way to be the winner in the O2O market is not by burning cash but building industry barrier. As users are easily switching due to the subsidies, merchants are probably the key. Since investors are getting more concerned about the intense and often unprofitable competition between leading companies in China’s Internet sector, it is speculated that more mergers like Meituan and Dianping might follow.