Friday, January 22, 2016

China’s online arms race shows no sign of cooling

China’s online arms race shows no sign of cooling

 
January 20, 2016


The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
The online arms race in China continues. Local-deals specialist Meituan-Dianping has just raised more than $3.3 billion. That’s a huge sum for a startup, eclipsing the $2.1 billion that Uber, the world’s most valuable venture capital-backed outfit, is reportedly seeking. Meituan-Dianping was created from a merger that was meant to curb brutal competition. But this new warchest, and the huge resources of rivals, suggests subsidies will keep flowing.
The new funding round values the provider of group-buy deals, takeaways, and reviews at $18 billion. It makes Meituan-Dianping the fifth-most valuable private tech company in the world, according to CB Insights, ahead of U.S. messaging app Snapchat and India’s Flipkart.
Sales are booming on Meituan-Dianping’s platforms, which offer web users discounts on everything from movie tickets to travel. Transactions topped 170 billion yuan ($25.6 billion) last year. But transaction volume is no guarantee of profitability, and in China, the battle for market share is highly expensive. Sites are gorging on subsidies to undercut rivals and win users. For example, Uber China is now valued at $8 billion but admits it remains unprofitable due to intense competition.
The merger that created Meituan-Dianping, once bitter rivals, was meant to herald a truce. Instead, more competition emerged for the platform, which is backed by gaming giant Tencent. Alibaba, another of China’s three internet titans, invested $1.3 billion last year in rival Ele.me, according to Chinese business weekly Caixin. Search engine operator Baidu, the third huge player, also owns a leading group-buy site.
All signs point to a prolonged spending contest. For investors, profits still look elusive.