Baidu's Qunar deal a boost for
innovation By Sherman So
HONG KONG - Baidu's US$306 million
acquisition last month of Qunar, China's leading
travel search engine, may mark the start of a new
trend in how the country's largest Internet
companies seek growth, with industry insiders
suggesting more acquisitions could be on the way
as established businesses switch form building
their own services.
Beijing-based Qunar,
founded in 2005 by Fritz Demopoulos, Chenchao
Zhuang and Douglas Koo, offers real-time searches
for air and train tickets, hotels and tour
packages. It also provides travel-related
resources such as group-buying deals and user
discussion forums. Qunar ranked number one among
travel websites in China as measured by daily
visitors in March 2011, according to
Shanghai-based iResearch. It also has the widest
coverage of any travel search engine in China,
with more than
11,000 air routes and 102,000
hotels worldwide.
"Travel has long been
one of the top categories on Baidu, and the number
of travelers in China has been growing very
rapidly, so this is a market of obvious strategic
importance to us," said Jennifer Li, chief
financial officer of Baidu, the country's biggest
Internet search engine. "Our investment in Qunar
will create an even better search experience for
users planning trips."
The deal seems to
be great for Qunar. The company will maintain its
independence, and will remain independent, and it
can also seek an initial public offering (IPO) of
its own - which will also give Baidu, whose share
price has doubled in the past year, an opportunity
to recoup some of its outlay for Qunar.
"After the acquisition, Qunar will remain
independent, but there will be more cooperation
with Baidu," said Kaiser Kuo, director of
international communications for Baidu. For
example, more Qunar's information will be
integrated into Baidu’s search results and there
will be more travel-related data, content and
applications on Baidu.
As to a share
offering to the public, "Qunar will be going for
an IPO on its own. Maybe next year or in two to
three years," said Demopoulos, who has stepped
down as the company's chief executive officer,
making way for co-founder Zhuang.
Qunar,
ranked 128th in popularity in China by tracking
service Alexa, easily outranks its closest rival,
Kuxun, was founded in 2006 and bought two years
ago by Nasdaq-listed Expedia's travel review site
TripAdvisor Media Network. It also outpaces the
country's two top online travel agents, Ctrip (at
138) and eLong (372).
Until recently,
major Chinese Internet companies tended to prefer
building their own services; when a young startup
became successful, larger outfits would try to
copy its idea, rather than buying it. Such copying
"is very bad for the young startups and it kills
innovation in the industry", said an industry
insider.
When online video-sharing sites
Tudou and Youku became popular in 2007, Sina, Sohu
and Tencent came up with similar services to
compete. Sina and Sohu are two of China's leading
online portals and Tencent operates the most
popular instant messaging service, QQ.
Baidu has also done its fair bit of
cloning others' ideas. It recently launched "Baidu
Side", which is very similar to Dianping.com, a
Shanghai-based 2003 start-up that allows users to
write reviews about restaurants and shops. It has
more than 20 million ratings and reviews on such
businesses and 30 million users visit it every
month.
However, cloning might not produce
the desired results.
Even if big companies
do the copying, "their services might not as good
as the original start-ups, especially when
successful start-ups in China have no trouble in
finding venture capital willing to back them,"
said the industry insider. Dianping in April
raised $100 million from venture capital firms
Trust Bridge Partners, Sequoia Capital, QiMing
Ventures and Lightspeed Venture Partners.
A factor behind Internet companies buying
rather than building their own new service is the
time it takes to get the idea to the market.
"If they insist on building their own
service, they might be too late to market," said
Dick Wei, China Internet analyst of JP Morgan.
As new Internet services proliferate,
leading Chinese companies start to recognize their
limitations and understand they cannot do
everything themselves. With more and more capital
in their hands, acquisition is a far easier and
surer way to expand into new areas. As of the end
of March, Baidu had 8.5 billion yuan (US$1.3
billion) in cash on hand, up from 7.8 billion yuan
a year earlier. Tencent had 10.9 billion yuan, up
from 6.8 billion yuan 12 months previously.
Wei, Kuo and Demopoulos all forecast that
China's top Internet companies would be making
more acquisitions.
"We will see more
exceptional and innovated startups in China being
acquired by the major Chinese Internet companies,"
said Kuo.
Which is "good news for the
young startups" said Demopoulos. "In the past,
their only exit was to go for an IPO on their own.
Now, there is one more exit - be acquired."
"This is good for the industry as it
encourage innovations," said Wei, "And it is good
for the end users, too, as more new services will
be available to them."
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
