INTERNET: Baidu Builds Up O2O with Take-Out Dining Investment
Bottom line: Baidu’s new $200 million investment in its take-out dining service is likely to be followed by a sale of the platform to its Nuomi group buying unit, as part of its effort to build up an O2O company to compete with Dianping.
Online search leader Baidu (Nasdaq: BIDU) continues to play catch-up to leading group buying sites Meituan and Dianping, with word that it’s investing a fresh $200 million in its young Internet-based take-out dining service. The move comes just weeks after e-commerce leader Alibaba (NYSE: BABA) announced a similar move to boost its own take-out delivery service, and as Tencent-backed (HKEx: 700) Dianping boosts its own early lead in the space through its Ele.me take-out delivery unit.
All of these companies are scrambling to build up their online-to-offline (O2O) businesses, which bring together Internet-based platforms for services like ordering food and merchandise, with real-world retailers like restaurants and department stores. Tencent is clearly placing its O2O bets with Dianping, which began life as a restaurant ratings site but has moved into a growing number of related areas like group buying and take-out delivery.
Baidu now appears to be taking a similar approach, building up its O2O business around its Nuomi group buying site that it acquired for $200 million last year. Just a week after disclosing it would spend 20 billion yuan ($3.2 billion) to build up Nuomi over the next few years (previous post), Baidu is now reportedly preparing to pump the new $200 million into its own take-out dining delivery service, valuing the unit at about $800 million. (Chinese article)
It’s unclear if the new $200 million investment would be part of the previously announced 20 billion yuan Nuomi commitment, or if it’s a separate investment. I suspect the answer is the latter, since Baidu has so much cash right now that another $200 million is really a trivial amount for the company.
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Unlike Nuomi, which was already relatively large when Baidu acquired it, its take-out dining business appears to be its own creation. Media reports say the site started out as an open platform for third-party food delivery companies, but more recently has become a site where Baidu offers its own services directly. The reports add that Baidu plans to spin off the service around the same time as it makes the new investment.
I wouldn’t be surprised if Baidu ends up selling the delivery service to Nuomi, which would use the asset to pose a direct challenge to the similar suite of dining-related services being assembled by Dianping. Those 2 services would also compete with Alibaba’s Koubei, which is also getting a major makeover as Alibaba also tries to build up a presence in the space.
Baidu’s strategy with Nuomi is part of the company’s recent diversification drive, which has seen it acquire other relatively large businesses and then provide them with access to its own cash to fuel their growth. The 2 other major cases of such a strategy include Baidu’s online travel services site Qunar (Nasdaq: BIDU), which made a New York IPO in 2013, and its iQiyi online video site, which is also reportedly eying a separate public listing.
This latest move with Baidu’s take-out delivery platform looks like an attempt to take a homegrown asset that is probably a mediocre performer, and spin it off to one of its better-performing acquired assets, Nuomi. As part of the “marrying off” process, Baidu is giving the take-out dining unit a dowry of $200 million that Nuomi will be able to use to grow the business.
I wasn’t a big fan of Baidu in the past because of its inability to expand outside its core search business, but I’m slowing getting more excited about the company with its newer strategy. The likely spin off of its take-out dining unit to Nuomi looks like an extension of that strategy, and I do expect the unit could see a significant boost in performance under the more dynamic management at Nuomi.
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