The $15-billion merger of two Chinese web start-ups is the latest sign that the country's Internet investors are suffering from funding fatigue. The tie-up between group-buying sites Meituan and Dianping comes just months after the country's top taxi apps joined forces.
The companies, which are similar to US groups such as Groupon and Yelp, are leading 'online-to-offline' services in China. Meituan, which is backed by e-commerce giant Alibaba, offers discounted deals on services from travel to karaoke rooms. Dianping, whose investors include gaming group Tencent and which started as a restaurant review site, has branched out into group-buying deals related to food and other services as well.
Sales are soaring: group-buy transactions hit 77 billion yuan ($12 billion) in the first half of this year, more than double the same period last year, according to Tuan800, which tracks local deals. Search engine operator Baidu, which plans to invest 20 billion yuan in 'online-to-offline' deals, reported that transactions involving local services more than doubled to 40.5 billion yuan in the second quarter this year.
Yet the fight for market share is hugely expensive as sites reach into their own pockets to attract customers. For example, Meituan users can buy movie tickets at almost 80 per cent less than the box office price. Now investors appear to be weary of a strategy that involves selling products for less than they cost.
Meituan and Dianping aren't planning a conventional merger: the businesses will operate independently and both CEOs will share the title at the combined company. But by no longer competing head-on they should be able to save cash, and have a better chance of attracting scarce funds in the future. This is similar to the taxi apps, Didi and Kuaidi, which called a truce in February after a heated subsidy battle.
But Didi and Kuaidi also show that consolidation is no guarantee of profitability. The combined company, whose backers also include Alibaba and Tencent, is now battling with the local unit of U.S. car-hailing service Uber. The combination of Meituan and Dianping looks like another challenge for Baidu, which has teamed up with Uber. For investors, the subsidy battle looks far from over.
The companies, which are similar to US groups such as Groupon and Yelp, are leading 'online-to-offline' services in China. Meituan, which is backed by e-commerce giant Alibaba, offers discounted deals on services from travel to karaoke rooms. Dianping, whose investors include gaming group Tencent and which started as a restaurant review site, has branched out into group-buying deals related to food and other services as well.
Sales are soaring: group-buy transactions hit 77 billion yuan ($12 billion) in the first half of this year, more than double the same period last year, according to Tuan800, which tracks local deals. Search engine operator Baidu, which plans to invest 20 billion yuan in 'online-to-offline' deals, reported that transactions involving local services more than doubled to 40.5 billion yuan in the second quarter this year.
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Meituan and Dianping aren't planning a conventional merger: the businesses will operate independently and both CEOs will share the title at the combined company. But by no longer competing head-on they should be able to save cash, and have a better chance of attracting scarce funds in the future. This is similar to the taxi apps, Didi and Kuaidi, which called a truce in February after a heated subsidy battle.
But Didi and Kuaidi also show that consolidation is no guarantee of profitability. The combined company, whose backers also include Alibaba and Tencent, is now battling with the local unit of U.S. car-hailing service Uber. The combination of Meituan and Dianping looks like another challenge for Baidu, which has teamed up with Uber. For investors, the subsidy battle looks far from over.