Ctrip and Qunar’s marriage: Can the promised independent development be achieved?

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During April Fools' Day this year, news of the merger between Qunar and Ctrip came out. At that time, it was rumored that Baidu intended to merge with Qunar by controlling Ctrip, and the transaction was nearing completion. If the transaction was completed, it would be a large integration order of more than US$10 billion.

Maybe it was a joke, or maybe the two sides were really negotiating at the time. No matter which side it was, a sentence on April Fool's Day has now become a reality.

According to the transaction, Baidu will exchange 178,702,519 Class A common shares of Qunar.com and 11,450,000 Class B common shares of Qunar.com before the completion of this transaction for 11,488,381 additional common shares of Ctrip.com. After the transaction is completed, Baidu will own Ctrip common shares representing approximately 25% of Ctrip's total voting rights, and Ctrip will own approximately 45% of Qunar's total voting rights.

After the transaction was announced, Liang Jianzhang, chairman of Ctrip, used a short email to fully affirm Qunar's value in the OTA market and said, "In the future, Qunar will continue to operate as an independent listed company, compete with Ctrip in the online travel market, and create differentiated products and value for travelers."

The internal email from Qunar CEO Zhuang Chenchao was very long and his words revealed more reluctance, but he also emphasized that Qunar's independent development plan remains unchanged, and that it will negotiate with Ctrip on the cooperation/competition mechanism between the two companies, and each will select and strengthen its main market.

In their internal emails, both of them emphasized the issue of Qunar's independent development, and the control of Qunar has always been the core of the negotiations between the two parties.

Control has always been at the heart of the negotiations

In fact, Ctrip and Qunar have experienced many scandals before coming together. An important node in the competition between the two parties is control, even though the two parties have not yet clearly defined the ownership of control.

In the first half of this year, the two parties originally planned to trade directly, but due to the issue of who would control Qunar, the negotiations could not proceed normally. An investment banker also confirmed the above statement to Sina Technology, saying that "Zhuang Chenchao himself could not accept losing control of Qunar", and that the negotiations between the two parties in 2014 also broke down due to the issue of control after the merger.

According to information from various channels, the negotiations between Ctrip and Qunar were indeed initiated by Qunar, but the negotiations were shelved because neither side could make concessions on the issue of control. Ctrip then thought of indirectly controlling the company, which is how Baidu later joined the game.

In mid-to-late May, the two sides launched another plan: Baidu invested in Ctrip, Ctrip obtained Qunar shares from Baidu for capital operation, and after completion, Baidu stepped in to integrate the two parties to form China's largest OTA platform. However, in this round of negotiations, Ctrip was "openly repairing the plank road, secretly marching through Chencang", while negotiating with Qunar, on the other hand, it quickly promoted the acquisition of eLong.

On May 22, Ctrip announced its acquisition of eLong and became eLong's largest shareholder. Ctrip originally wanted to use its attack on the hotel business to urge Qunar to make concessions in the negotiations. However, it did not expect that in return, Qunar would directly disclose the details of the negotiations in its financial report, completely breaking up with Ctrip.

From the above process, we can see that both parties attach great importance to the right of control, so even if the two parties have reached an agreement now, there will definitely be subsequent actions on the right of control. However, at the time of announcing this operation, both parties used the wording of "independent development" to give each other enough space.

According to currently available information, four Ctrip executives, including Ctrip Chairman and CEO Liang Jianzhang and Co-President and Chief Operating Officer Jane Sun, have been appointed as directors of Qunar's board of directors.

Although the outside world has used the word "marriage" to evaluate this transaction, in essence, Ctrip and Qunar came together, all arranged by Baidu. This transaction was a stock swap between Baidu and Ctrip using its Qunar shares, so from a capital perspective, the main parties in the transaction were Baidu and Ctrip, and Qunar was just passively accepting the fact of being traded.

This is also the reason why many Ctrip executives joined the Qunar board, while no Qunar executives joined the Ctrip board. Therefore, from this perspective, the two sides do not have equal voice, and the so-called independent development is inevitably reduced to empty talk.

Too much internal business overlap

Even though the focus of the negotiations between the two parties is not on control, Qunar has been imitating Ctrip. Based on the highly overlapping businesses and models of the two parties, it is still very difficult for it to develop independently.

OTA itself has strong tool-oriented attributes and weak user stickiness. It is precisely because of this that Qunar relies on platform subsidies to gain price advantages and pry many users from Ctrip at low prices. However, because of the strong tool-oriented attributes, it is not necessary for the top two OTA companies in market share to continue to maintain their previous independent operations, which will only increase operating costs.

Before the stock swap, both parties actually obtained the same resources, whether in air tickets or hotel business. For the suppliers, the same things were just placed on different platforms. In the competitive situation, both parties must use subsidies to attract users, and then use the number of users to force suppliers to give the platform lower prices.

However, after the stock swap, both parties will inevitably reduce the operating costs caused by the previous vicious competition. For highly overlapping businesses, one party's business and product operations will inevitably lose independence and become an accessory to this capital operation.

Judging from the previous merger cases of Internet companies, they all make corresponding adjustments in business. For example, in the merger of 58 and Ganji, the business models of both parties are quite similar. After the merger, most of the business was mainly operated by 58, while Ganji focused on real estate. Before the merger, Youku and Tudou were both video websites. After the merger, Tudou focused on UGC business.

More efforts should be devoted to external

As the two giants have been integrated together through capital operations, it also shows that the industry concentration and maturity of the online travel market are increasing. In the context of a capital winter, the purpose of the merger is to keep each other warm.

In the next six months, the online travel landscape will become "Ctrip World", and the next step will be to see the good show in the vacation sector. The rise of Meituan in the hotel sector and its merger with Dianping will bring more challenges to Ctrip and Qunar.

Moreover, in the offline layout of tourism O2O, Ctrip and Qunar do not have much advantage. Ctrip's local entertainment and Qunar's local people are not very successful, so their impact on the leisure and vacation sector is limited.

On the other hand, Tuniu has already started its layout in financial innovation, relying on the financial and traffic support from JD.com and its deep cultivation in outbound travel. Tongcheng and Lvmama still have opportunities to deepen their cultivation in nearby travel and domestic medium and long-term travel, and they are supported by capital such as Jinjiang and Wanda.

In response to the above market problems, after completing the capital operation with Qunar, Ctrip will inevitably use Qunar's advantages in air tickets and wireless terminals, combined with eLong's hotel resources, to basically form a relative monopoly on the air ticket and hotel market to cope with possible market threats in the future. Therefore, from the perspective of the external market, Ctrip and Qunar have little chance to develop independently.

Considering the control that this transaction brings to Qunar and how the two parties will integrate their overlapping businesses, the future direction of Qunar seems to be confusing. Where will Qunar go in the future? I am afraid that only in the future can we find the answer.