First Uber competitors Didi Dache and Didi Kuaidi came together, now China’s tech industry is getting another merger between billion dollar rivals this year after group buying sites Meituan and Dianping confirmed plans to become one. The deal is unconfirmed, but state-run Xinhua speculated it could be worth $15 billion.
The news, first reported by the Wall Street Journal earlier this week, will create the largest online-to-offline company in China. That’s hugely significant since online-to-offline, or the process of enabling physical retailers to reach new customers via the internet (and in particular the mobile), is one of China’s most prominent technology trends.
From The Ashes Of Cloning Groupon
First let’s step back for a second. China’s group buying industry grew out of the success of Groupon, to the point that there were something like 5,000 sites as recently as four years ago. Winter inevitably came, and Meituan and Dianping were the strongest survivors.
Five-year-old Meituan, which is probably the closest to a ‘Groupon for China’, claims 20 million daily mobile users across more than 1,000 cities in China. It expanded from group discounts, its original focus, and is now a marketplace for local merchants, like hotels restaurants or entertainment venues. To date, Meituan has raised over $1 billion from investors, including its most recent $700 million raise this past January, which valued the company at $7 billion.
Dianping was an early arrival, having opened shop in 2003. It focuses on restaurant reviews, like Yelp, as well as group deals. The company claims over 130 million annual active purchasers, and it has a presence in more than 1,100 cities across China. Dianping also raised fresh funding this year, closing an $850 million round in April which valued the company at $4 billion.
Together Is Better
Like Didi Dache and Kuaidi Dache, Meituan and Dianping were at war, offering price cuts, favorable retail rates and anything to gain the attention of both consumers buying and merchants selling. As was the case with the taxi app companies, they also rivals with deep pockets. Uber is the obviously foe in the ride-hailing world, but Baidu — which recently plunged over $3 million into its online-to-offline service — and $3 billion startup Ele.me are the rivals that have helped bring Meituan and Dianping together.
Online-to-offline is still in its early stages in China, but it has vast potential given that the country’s is the world’s largest smartphone market.
In a statement, Zhang Tao — CEO of Dianping — effectively said pulling together is better than fighting:
We both recognize the enormous potential of China’s O2O industry, and therefore this strategic cooperation was a shared, and almost inevitable, decision. In addition, it also allows both companies to better leverage our respective advantages in order to accelerate product innovation, deepen service offerings, and speed up industry expansion. It will create more value for our consumers and merchants, foster a better O2O ecosystem, and facilitate broader industry development.
Wang Xing, CEO of Meituan, added that the merger would enable both companies to “focus on better serving our consumers and merchants, and allows us to concentrate on developing new businesses and driving product innovation.”
Like the taxi-hailing merger, this deal will see Dianping and Meituan retain their respective brands and stay as separate services, but they work together to boost each other’s business and share. Tao and Xing will both be co-chairmen and co-CEOs of the new company.
Interestingly, this deal once again sees foes Alibaba and Tencent hold investment in the same company. Alibaba backed Meituan (and Didi Kuaidi) while Tencent previously put money into Dianping (and Didi Dache).
Rivals merging seems odd, but there have actually been three so far in China this year. The other occurred back in April, when classified site 58.com bought Ganji.