INTERNET: Tuniu In Turmoil, Rukuten Buys Into Fanli
Bottom line: Tuniu is likely to quickly resolve a revolt by some of its third-party travel agents, and a sell-off of its shares looks overdone, while Rakuten’s third foray into China could finally succeed thanks to its choice of a more suitable partner.
We’ll close out this week with a couple of stories buzzing through the Internet realm, led by a travel agent rebellion against online travel site Tuniu (Nasdaq: TOUR). Meantime, Japanese e-commerce giant Rakuten (Tokyo: 4755) is taking its third try at the China market through a new investment in an e-commerce company called Fanli.com, following failed previous forays with leading online travel agent Ctrip (Nasdaq: CTRP) and online search leader Baidu (Nasdaq: BIDU).
These 2 stories are mostly linked by the fact that both involve Internet companies. But in a twist that looks purely coincidental, Rakuten was also one of the earlier investors in Tuniu before the latter made its New York IPO early last year. It’s not clear if Rakuten still holds that stake in Tuniu, but if it does its shares just lost nearly 5 percent after a Thursday sell-off on reports of the merchant revolt. But Tuniu’s shares are about 75 percent above their IPO price, meaning its early investors are still doing quite well.
Let’s begin with Tuniu’s latest headaches, which are coming from a group of 17 major travel agents who have united to announce a boycott of the company’s site due to a pricing dispute. (English article; Chinese article) The boycott isn’t set to start until July 15, indicating the agents are probably using this action as a bargaining tactic to get Tuniu to change its prices before that date.
Tuniu and most of its rivals are increasingly moving towards a business model that sees them operate online platforms where third-party travel agents can sell their products and services. That model is used by Baidu-backed Qunar (Nasdaq: QUNR), and industry stalwart Ctrip has also launched its own open platform after previously using a more traditional model where it offered such products and services directly to consumers.
This kind of model is quite efficient and attractive to operators, as it creates marketplaces where consumers can easily shop for the best deal. It also allows operators to focus on building and improving the platform, rather than getting involved in time-consuming things like buying real-world products like hotel rooms and plane tickets.
The big downside is the potential for this kind of rebellion by unhappy third party merchants, which Qunar also experienced in 2013 and most other platform operators have also seen from time to time. (previous post) Given the fact that these revolts are quite common, the sell-off in Tuniu’s shares seems a bit overblown and I expect it will bounce back in the days ahead.
Meantime, online shopping rebate specialist Fanli.com announced it has just sold about 10 percent of itself to Rakuten for $100 million, valuing itself at about $1 billion. (English article) There’s not much additional detail in the reports, but the CEO of Fanli.com says the investment is meant not only to fuel its growth but also to foster future collaboration between the pair of companies.
Rakuten has been eying the China market for more than a decade, but its 2 major attempts to date both ended in disappointment. The first saw it buy 20 percent of Ctrip in 2004, only to sell the stake later after Ctrip rebuffed attempts to collaborate. Rakuten tried again when it formed a China e-commerce joint venture with Baidu in 2010. But that venture flopped and was shuttered just 2 years later.
This latest foray appears to show that Rakuten has learned its lesson and is targeting a smaller, junior partner for its China effort rather than a big, more mature company like Baidu or Ctrip. Such a smaller company is likely to be more appreciative of Rakuten’s experience, connections and also its money. Accordingly, I would give this latest venture a much better chance of success, and could even imagine Rakuten boosting its stake or acquiring Fanli.com outright if things progress smoothly.
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