mao beijing
1152 days ago
 

Unhappy Fourth of July – Why summer 2011 is a big moment in Chinese online travel

The investment by Chinese search leader Baidu into local metasearch company Qunar can be proclaimed a data point on the timeline of China becoming the largest economy in the world.

America dominates all global economic indicators – absolute GDP, GDP per capita and foreign direct investment (nice comparison with China, India and Pakistan and nice infographic).

But they are now second in the world in the number of people wired and accessing the intertubes.

China has 477 million connected people compared to the USA’s 277 million. June 2009 marked the date that China crossed the US in the number of people online.

August 2010 signified when China passed Japan as the second largest economy in the world. Two very important dates and points on the inevitable march to the day in which the economy supporting 1.3 billion people in China passes the 300 million-strong US economy.

mao beijing

I believe we can add June 2011, the day Chinese search leader Baidu took a majority stake in Chinese metasearch company Qunar, to the timeline that history will use to mark China’s rise to global economic supremacy

The publically available terms of the deal are that has bought a majority state in Qunar for $306 million. Previous funding rounds from Lehman Brothers, GSR Ventures Management, Mayfield Fund, and Tenaya Capita raised $25 million.

The deal will see founder and CEO of Qunar Fritz Demopoulos step down to be replaced by current chief operating officer Chen Chao Zhuang.

It is not the size of the deal that makes it substantive and a marker of historical significance.

There have been bigger deals and fundraising activities inside and outside China. And it is not the industry (search and travel) that makes this significant. There have been telecoms, manufacturing and industrial deals of greater significance.

This deal is a marker for two related reasons related to what it says about internet business in China.

Firstly, it is deal between two large search businesses born, grown and raised domestically.

They may have copied business models that were developed in America (Google in the case of Baidu, Kayak/Sidestep for Qunar) but through their growth, adaptation to local needs and ultimately this deal they have shown that the accusation of copycat is unimportant and irrelevant in describing the Chinese economy.

For every web, infrastructure or manufacturing market leader there is in the US, there are a dozen or more companies in China racing for that space. This deal shows that it is a waste of words and analysis to accuse China of being a copycat economy.  A critical marker in the history books for China.

The second reason is that this deal finally proves that acquisition by a US company is not the natural exit for a Chinese Internet company.

The noughties/2000s was the period when US companies pushed into China and it seemed inevitable that US companies would buy their way into leadership while making scores of Chinese entrepreneurs very wealthy.

Expedia bought into eLong in 2004. In the same year Cendant (precursor to Travelport) launched a JV with local travel giant CYTS. In 2006 Travelocity bought out all of its airline co-shareholders to take 100% ownership of Zuji.

The theory was that locals would build it, Americans would buy it and the US would extend its dominance of the internet into the Chinese market. This deal (and others) kills this theory and is therefore an important marker in the part to Chinese economic leadership.

Congrats to Demopoulos and the rest at Qunar.  This deal – though small in terms of a $6.4 trillion dollar economy – will resonate as an important moment in travel and online retail in China.

 
 
Tim Hughes

About the Writer :: Tim Hughes

Tim Hughes is an online travel industry executive who has been blogging since June 2006 at the Business of Online Travel (the BOOT).

The BOOT covers analysis of online travel industry trends, consumer and company behaviour and broader online/web activity of interest to online travel companies (with a bias towards Tim’s home markets of Asia and Australasia and with the odd post on consuming and loving travel thrown in).

In late-2010 the BOOT clocked its 1,000th post, 200,000th visitor and 300,000th page view.In his work life he is the CEO of Getaway Lounge - a premium travel deal site based in Australia.

Tim has worked for both Orbtitz and Expedia. Prior to the travel industry Tim was a commercial lawyer and venture capitalist. Tim’s views are his alone and not necessarily the views of Getaway Lounge or any of its investors.

 

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  4. Tim

    @Chinatravelgo – it is the domestic nature of it that marks it as so interesting. It signals once and for all to any outsiders that China’s Internet business stands alone.That it is not dependent on any US halo effect or investment.

     
  5. Tim

    @Chinatravelgo – it is the domestic nature of it that marks it as so interesting. It signals once and for all to any outsiders that China’s Internet business stands alone.That it is not dependent on any US halo effect or investment.

     
  6. Chinatravelgo

    I may have missed the point because I don’t understand how this is a mile stone. Both sites are for the domestic market. Both sites are now under Chinese ownership and control.

    The threat they pose in the online market is irrelevant to foreign sites in the same niche. Ok, so China is now independent with its own google and its own Kayak. They will take compete with foreign sites. So what?

    I’m missing something here?

     
  7. Tim

    @Kelly I agree with you completely. The title of the post was not written by me

     
  8. Kelly Brough

    Tim, what an important milestone and transition. Your insights are outstanding. I have to object to unhappy, however. Yes, the western world can all see the economic potential and want to take a piece of it. But, did we want the Chinese or any other lesser economy tapping into our first world wealth in past decades? This is a happy time for China and despite how frustrating it can be from the outside, they are being very smart about how their economy develops.

    It is only a matter of time before it opens up to a point where there are greater market freedoms which create opportunities for foreign investment.

     
    • Kevin May

      Kevin May

      @kelly – I agree completely, too. Unhappy for the soon-to-be not so dominant economic powerhouse of the US, thus the headline.

       
  9. Claude

    @Tim, Other key points are Chinese social media landscape and mobile landscape that is huge and vibrant compare other countries.
    SYD not so fare from PEK / HKG :)
    From my side, Paris / Nice a little bit longer, but Chineses love France too :)

     
 
 

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