Two of China’s largest O2O players combine forces to take on Baidu

Dianping and Meituan, two of China’s largest forces in the online-to-offline (O2O) space — and backed by the likes of ecommerce giant Alibaba and social networking powerhouse Tencent (owner of WeChat) — said on Thursday that they have formed a strategic cooperation.

“Both Dianping and Meituan will retain their respective brands and management structure, and will independently operate their businesses,” the companies said in a joint statement. Meanwhile, Dianping’s chief executive, Zhang Tao, said that although both companies compete in many areas, they nonetheless work towards “the same goal of helping 10 million merchants to better serve one billion consumers in China, and in this regard, our commonalities far outweigh our differences.”

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The partnership will see the two companies jointly set up a new company. Dianping focuses on customer reviews, group-buying offers (think Groupon), payment solutions, urban and lifestyle services, online restaurant reservations, food delivery, and e-coupons. Meituan, meanwhile, has three core business units based around online shopping, hotel tourism, and food delivery services. It also offers cinema bookings.

China’s O2O space is predicted to grow to about $1.13 trillion by 2017, according data from IResearch cited by Bloomberg. The other juggernaut in the space is China’s Internet search giant Baidu, who told VentureBeat in an emailed statement that they see the merger as “an extreme measure that shows just how seriously Meituan and Dianping view the threat from Baidu Nuomi.”

“It will be tempting to think of this merger as similar to that between Didi and Kuaidi,” Baidu spokesman, Kaiser Kuo, said in reference to the merger between China’s two largest car-hailing companies earlier this year. “But in that case, the murderous subsidy spending was primarily in a contest between the two of them, and confined to the very narrow space of taxi hailing.”

“This was a different situation, as a three-way fight in a much broader space. How will this merger end or reduce subsidies? They still need to compete with Baidu. We announced that we’re spending $3.2 billion over the next three years on Nuomi. Given that, we just don’t see subsidy spend significantly reduced on their end,” he concluded.