Two of China’s “unicorns,” Dianping.com and Meituan, have agreed to merge creating a 17 billion USD “decacorn,” Chinese media report.
To use an American analogy, it would be like Yelp and Groupon joining hands, except that Dianping, the Chinese equivalent of Yelp, also features deals of the day, and therefore has been at war with Meituan, the Chinese Groupon, for years.
An insider close to the deal revealed, on condition of anonymity, that the merger may be made public as soon as Thursday, and that Meituan’s shareholders will retain a 60% stake in the new company.
According to market research firm Analysys International, as of June 2015, China’s flash deal/group buying market is worth 12.1 billion dollars. Meituan dominates 51.9% of the market, with Dianping and Baidu’s Nuomi accounting for 29.5% and 13.6% respectively.
It doesn’t take much number crunching to figure out that the Meituan-Dianping combination will absolutely dominate. Nuomi, a similar service in which Baidu invested 3.2 billion USD and has a 59% stake, will undoubtedly bear the brunt of the coalition between Tencent-backed Dianping and Alibaba-backed Meituan.
But instead of cheering for the newly formed alliance, many analysts claim the move a last-ditch effort at “cuddling for warmth” in the face of the upcoming winter.
Both companies have been aggressively raising funds to make up for heavy losses. Dianping raised 850 million USD in April and is valued at four billion USD. Meituan, with a valuation of seven billion USD, received 700 million USD in January. But in order to lure merchants and users over, both companies are burning through investor money by hiring an army of errand boys and offering subsidies.
Growing concern from investors over the cost-effectiveness of a money-burning strategy and caution following the Chinese stock market crash between June and August, have spelled trouble for tech companies that lack proof of profitability and rely solely on venture capital funding. “The winter is coming,” observers of the Chinese market warn.
By burying the hatchet and joining forces, the two can recalibrate their spending and zero in on their competitor – Baidu’s Nuomi. This may also further tip the tripartite balance of China’s largest Internet companies – Baidu, Tencent and Alibaba, collectively known as BAT, pushing Baidu into an increasingly disadvantaged position.
On Valentine’s Day in 2015, months after Baidu announced its 600 million USD investment in Uber’s China division, the country’s top two homegrown ride-hailing apps, Didi and Kuaidi – backed respectively by Tencent and Alibaba, caught everyone off guard with a shotgun marriage. The new ride-sharing service, called Didi Chuxing, commands 80% of the market, compared to Uber China’s 18%.
However, not everyone inside Meituan or Dianping is happy about the union. Meituan hires at least 15,000 people, including about 10,000 outside sales representatives, whereas Dianping employs 7,500 people. With a combined staff size this large, job cuts are inevitable, a commentary by tech blog Huxiu writes.
（Top photo from Baidu image)