Baidu the biggest winner in the Ctrip and Qunar’s tie-up

Chinese largest online travel company Ctrip.com International Ltd announced a 45% tie-up with its competition Qunar Cayman Islands Ltd to create an absolute dominant position for China’s fiercely competitive online travel market.

Baidu, the dominant search engine in China, as the biggest shareholder of Ctrip also announced a share swap with Ctrip and Qunar. Under the scope of the deal, Baidu will own 25% of Ctrip and Ctrip will have a 45% voting interest in Qunar. After the merger, Ctrip and Qunar will combine products and services and control 70 percent to 80 percent of the hotel and air ticket markets. Thus the new ‘monopoly’ has formed.

China’s travel boom has been driven by the middle class of China jetting abroad, and will end up tripling in size to more than $200 billion by 2020. With the increasing demand, tougher price competition on airline ticket and hotels could hurt profit margins for both Qunar and Ctrip, however the merger might make up for it. It also presents a good growth opportunity for the struggling Baidu Wallet to increase its market share in payments.

Recently China’s technology sector has witnessed a spate of tie-ups, as big players buy into smaller ones, on one hand to consolidate the market, on the other to eliminate competition. Local O2O service Meituan announced its combination with Dianping. Alibaba buying out Youku / Tudou.  Earlier this year, Chinese ride-hailing app Didi Dache merged with Kuaidi Dache to create the biggest ride-calling platform.

All these mergers will shape the O2O sector which leaves smaller-scale firms challenged to be able to survive in the market. Baidu also seems to have found its new niche by bringing together what could be a compelling services O2O platform.