I think I might as well call it China month here are the BOOT. I have another interesting piece for you to read about the Online market in China. This one is from McKinsey and covers online China in general (not just travel). Called "China's Internet Obsession" this article comes from the McKinsey Quarterly (registration required for full article but no cost to register). Couple of highlights from the article:
China is world's largest internet market in terms of people - 384mm online. 50% increase since 2008;
One in five consumers between the ages of 18 and 44 won’t purchase a product or service without first researching it on the Internet; and
Online advertising has been growing at between 20 and 30 percent a year—twice the print media’s growth rate—and the market was around $3 billion (20 billion renminbi) in size last year.
This week I came across another interesting post for China watches to read. Rick Munarriz over at the Motley Fool site published a post titled "Panoramic View of Chinese Travel Plays" In the story Muarriz discusses the performance of online travel company eLong (Nasdaq: LONG) , budget hotel chain Home Inn (Nasdaq: HMIN) (interesting side bar - Home Inn was founded by CTRIP founder) as well as Ctrip (Nasdaq: CTRP) itself and even Priceline (Nasdaq: PCLN) and AirMedia (Nasdaq: AMCN).
Good comparison on performance of eLong and Ctrip. Worth a read. Interesting note on eLong. Though it is profitable, more than half its market cap is explained by the $139mm in cash in the bank.
Day for a Ctrip double post. A few movements ago a link to a Tom Botts post from a presentation by Ctrip CFO Jane Jie Sun. Now I have just spotted a Reuters/Yahoo! Finance news story that Ctrip are planning to place 5.7mm American Depositary Shares (currently priced at around $36). In non-finance English this means they are looking to raise somewhere around $200mm in capital. What do they plan to do with it? The Reuters story says they plan to use the money to buy or invest in "complementary businesses and assets" and for general corporate purposes. In non-finance English "complementary businesses and assets"means buying some one. Ctrip plus $200mm equals consolidation. Speculation time....who do you think they are most likely to buy?
Shanda Literature, a subsidiary of Shanda Interactive Entertainment known for its online games, is an online publishing company based in Shanghai, with a very interesting business model.
More than 800 000 amateur authors have been providing around 50 million Chinese characters daily, to Shanda’s literature portals with around 500 million page views daily. Any writer can register with Shanda and post their works on any of its sites. Content is made available as Internet literature, mobile literature, traditional print, and Shanda has also its own E-Reader in development. Most known portals are Qidian, Jinjiang and Hongxiu, targeting different groups of readers with different types of content. Shanda Literature’s original online literature site Qidian has released more than 600 000 online novels.
Revenues are generated from micro transactions, advertising and for non-professional writers copyrights are acquired and licensed to other publishers, mobile, gaming, TV and film industries, with the great majority being from micro transactions. Readers can read the first half of a book for free and then, if they like the book, pay about 2-3 cents per 1000 characters, for the rest of the book. The total cost is about one-tenth of the paperback price to read a book online.
Revenues from micro transactions are shared 50/50 with the authors “that’s why writers in China can make a fortune” says Zhou Hongli, Chief Copyright Officer in the first video below.
The company that was founded in 2007 controls over 90% of China’s online-reading market, and generated $15 million in 2008 from a total readership of 25 million, and is still growing at 10 million new readers per year. It has received awards such as “China’s most promising enterprise”, “One of the ten best Internet brand names of China” and “China’s cutting edge media by Forbes”.
See the last 2 minutes in the video below:
Interview with Hou Xiaoquiang, CEO Shanda Literature. (noisy)
Expedia's TripAdvisor is to buy Chinese meta-search company Kuxun (at least I think it is a meta-search company) (according to Dow Jones via Hotelmarketing.com). TripAdvior CEO Steve Kaufer would not give away how much was paid but is quoted in the article as saying he has US$50mm to invest in China in 2010 and 2011 but this includes setting up the local version of TripAdvisor Daodao.com. Also said he plans to double the number of staff in China from 80 to 160. My guess (no basis just a hunch) is Kuxun will be used as the tech behind Daodao with Kuxun's brand to disappear soon after the deal.
In case you are wondering about meanings. I am reliably informed that Kuxun means Cool Information or Smart Information and Daodao means To Reach, To Arrive.
Her is my updated list of TripAdvisor Acquisitions in the last few years:
I always close these stories with the reminder that Expedia owns TripAdvisor as you'd be surprised how much search traffic I get asking the question "who owns TripAdvisor"
In a (clearly) unrelated move, news out today that Ctrip is suing Qunar. In a story that looks like the recent battles between RyanAir and the meta-search players, the fight is over Ctrip's allegation that Qunar is screen scraping Ctrip and that such a thing is illegal.
Very few details out their in Web land about this legal action. My guess is (with no knowledge of the Chinese legal market) is that RMB 1,000 is the nominal damages amount in Chinese courts. Really what Ctrip is looking for is an injunction to stop Qunar from scraping to either force Qunar pay for access or to hurt the Qunar business and shut down a competitor.
Thanks to Martin from Wego who was first to send me the story (Siew Hoon at Transit Cafe was just seconds behind Martin)
At the WebInTravel conference last week Siew Hoon hosted a panel with ctrip Director of Biz Dev Alfred Chang and meta-search company Qunar's CEO Fritz Demopoulos.
Chang of ctrip dropped some very impressive numbers into his presentation including:
8,000 employees (4,000 in call centres)
28,000 hotels in 134 countries
6,000 hotels direct contracted (90% of volume)
1mm room nights monthly, 1mm air reservations monthly, 30,000 passenger trips in packages monthly; and
(most impressively) 54% market share of online in China (see pie chart below copied from his slide
But (and this is a comment I have made before), online in the China market does not have the same definition as we would use elsewhere. Online should mean "no touch". Where the transaction is completed without the interaction between the customer and the intermediary at a people level. In the case of ctrip - 80% of there transactions are conducted purely through the call centre. This is not even web referred (ie search online but complete by phone). This pure offline call centre stuff - where the consumer dials ctrip and completes the whole transaction via the phone. There is nothing wrong with this, ctrip is a highly profitable and growing company. It is just important to know what it means to be online in China.
Next to ctrip's Chang was Fritz Demopoulos of Qunar. They are Chinese largest travel meta-search and content company- claiming more than 20 million montly users. The qustion I posed and we dont have a clear answer for is "if Qunar is 100% online and ctrip is only 20% online, then doesn't that make Qunar the largest online travel player in China?". We don't have an answer because clearly ctrip is a bigger company and Qunar is in the less mature business of online media. But it again highlights the interesting nature of the online/offline travel market in China. The bigger website (Qunar) is the smaller business.
If you have not seen it yet pop over to Adfreak.com to see the shot of the Beijing restaurant that clearly relied on a website to translate the cafe's name from simplified Chinese into English. The result - the cafe is now called "Translate server error".
Just spotted over at the New Times website - an interview with Ctrip CFO Jane Jie Sun. Another indication of Ctrip's strong desire to expand their customer base outside of China. Claims 50% of the online market and tha tthe online market is 1-2% of the overall travel market. In addition they have another 2-3 % of the overall travel market through call centres. Claim total Chinese travel market is $150billion (Chinese domestic plus foreign inbound). That would put the online travel market at $1.5-3 billion confirming other numbers we have seen.
Hotel franchise networks have been expanding through China and India at frenetic pace. I understand the desire to access markets that include 2 billion plus people and are expanding rapidly. [see a recent post on the Indian market here]. But I am confused by some of the brand choices that chains and franchise groups are making. For example the Wyndham hotels owned Days Inn is a well know old school highway motel. The brand has all you would expect from a solid 2.5-3 star motel. Clean rooms, robotic staff, vending machines, plastic cups in little paper bags. Traditional but thoroughly acceptable motel accommodations. The Days Inn mantra is "Friendly. Courteous service. Clean". Brand message is clear and delivery is consistent across the US.
But Days Inn have been in China for a few years now and have adopted a completely different model.
Here is a photo of a typical US Days Inn from Nowheresville Washington State. Everything about this says motel, and certainly says "Friendly. Courteous service. Clean"
But here is a photo of the Beijing Days Inn (and you can find more here). The first line in the hotel amenities for this property is "5 Star Rating". Here we have a brand synonymous in Hospitality for cheap but reliable and yet the emerging market launch is all about luxury, quality and amenities. I don't understand. Either all things American are viewed as inherently better in China (which I do not thing is true for one minute) or there is a mistaken belief that you can run a global brand with vastly different DNA in two different markets. I just think it is a mistake. Inbound business travellers are not going to look favourably about staying at a Days Inn in China and Chinese travellers to the US are certain to be disappointed and surprised if they are expecting the quality of the Chinese product out of the domestic US properties.
March 18 in the evening a rumour hits the wire that Priceline (Europe's biggest online hotel company) is looking for local help to launch a Chinese hotel booking site.
March 19 in the morning a news story hits the wire that Ctrip (China's biggest online hotel company) is looking for an overseas partner to develop services for travellers to China.
Maybe each should set up a facebook profile and put the status to "random play"
A little bit off the online track but I enjoyed reading a recent Wharton Article called "Turbulence in the Skies: The Ongoing Saga of China Eastern Airline, Air China and Singapore Airlines". Very quickly - SIA was going to buy 24% of China Eastern for HK$7.16 billion (US$918 million). Everything was announced and ready to go. But at the last minute the deal is off (see update below). Air China and a related company (China National Aviation Corporation or CNAC) swooped in and took the deal away from SIA.
What I particularly found interesting about the story was that it is a parable for a lot of online travel and investment activities in China.
Expedia jumped into China and jumped up and down about its investment in the permanently Ctrip chasing eLong. Fours CEOs (include one interim), untold number of secondees from Seattle and a lot of red ink later and this business is still losing ground to Ctrip. I am sure descendants of that deal wish they could pull out also.
China is tough. Culture and developing market issues aside. Online in China is more offline than online with more than 70% of the so called online volume going through enormous call centres. Regulatory environments mean it almost requires a different ticketing licence from each regional governments. Not to mention the security issues around famil trips.
The Data Center of the China Internet (DCCI) released its 2008 China Internet Survey including the following commentary on online travel.
Revenue of China's online travel and hotel reservation services climbed 65.4 percent year-on-year to RMB 2.25 billion ($309.1 million). Revenue of the sector is expected to hit RMB 3.84 billion ($527.5 million) in 2008 and RMB 7.32 billion ($1 billion) in 2009, driven by the Olympics and the further opening of China's tourism market.
Ctrip remains the leader in China's online travel and hotel reservation market, followed by Elong, Auyou and MangoCity.
Business blog Seeking Alpha's Shane Farley is convinced that the hiring of Chinese born Guangufu Cui as the new CEO is just what eLong need to reinvigorate its campaign to take on Ctrip and to bolster its comparatively flagging share price. Farely provides some interesting financial analysis of eLong particularly pointing out that while eLong has not been matching Ctrip's profitability growth it is sitting on a cash pile of $156mm and no debt. That plus a new boss, Farely argues, should be enough to help be competitive again. More of the article here.
Yododo, mipang, tuniu and cn0km.com are some of the leaders in Travel 2.0 services in China according to the China Web2.0 Review blog. Yododo is a travel planner and info site. Mipang is a social network. Tuniu is a travel portal with Digg style voting features. Cn0km is a destination wiki/info site.
This is one of those nice web moments where I have not been able to look into sites like these because of my language inadequacies so can simply point you all to someone who has done all the hard work.
Japanese online powerhouse Rakuten Travel has announced that it is selling its 20.3% stake in Chinese powerhouse Ctrip for $575mm - pocketing more than $470mm in profits in three years (Reuters). Good deal. Rakuten was the largest single shareholder. Profit is not the only motive. Rakuten has been pushing its own brand in China for a at least three years. The natural expansion plans for Rakuten given its inventory and regional location has been into Korea and China. It was only a matter of time before that Chinese expansion saw Rakuten (the brand) battling head to head with Ctrip. The challenge of course in China is the one I discuss often - the fact that "online travel" really means "call centre travel" meaning that it is not a clean and easy expansion of the current Rakuten model. Not a simple matter of more hotels in China and more translated pages. But with $470mm in profits in the bank you can buy a lot of seats in a Chinese call centre.
Picked up some news from the Hotel Marketing blog that Chinese market leader Ctrip.com intends to launch a physical shop front in its number one market - Beijing. Might sound strange to the casual observer that an online travel company with more than US$100mm in revenues, 50% year on year growth, stock up 50% in 6 months and years of operation would turn to offline for growth. Well the reason is buried in the definition of "online travel" in China.
In truth Ctrip has always been an offline business as defined in other markets. The online travel business in China is all about call centre sales. According to Investor's Business Daily - Ctrip has 2,000 plus people in their call centre processing customer requests and bookings at hotels and nearly 70% of all customers make a reservation by phone. This does not mean that Ctrip are a bunch of technology Luddites, in fact the contrary. They have some of the best call centre technology and customer phone tracking systems that they are. Doing all they can to build up relationships with customers to make repeat bookings easy and to track the hell out of the activities of the sales staff to make them as efficient as possible. This is not a criticism as this is what is best for growth and sales in China. But it does mean that while we can get excited about the growth of Ctrip and the potential for online travel, we have to always note that the transaction engine is drive by people and calls, not bits and boxes with flashing lights.
UPDATE - Hotelmarketing is reporting that ctrip has announced plans to open an enormous call centre (reportedly the largest in Asia) - with more than 2,400 seats (capacity of up to 5,000).
I think I might as well call it China month here are the BOOT. I have another interesting piece for you to read about the Online market in China. This one is from McKinsey and covers online China in general (not just travel). Called "China's Internet Obsession" this article comes from the McKinsey Quarterly (registration required for full article but no cost to register). Couple of highlights from the article:
