Summary of Key Points
On June 29th, Tongcheng acquired Dida. Essentially, this was a strategic alliance between two companies that were both considered the “number two players” in their respective industries: Tongcheng, as the second-largest online travel platform (OTA), needed to complete its “door-to-door” travel service ecosystem to ward off competition; Dida, despite struggling with growth, had a healthy financial situation and was seeking a partner to sustain its operations. Behind this move lies the dire plight of mid-sized platforms—users are increasingly drawn to apps like Douyin and REDnote for travel decisions, and the service providers (hotels, airlines) are competing directly with OTAs for traffic. As a result, these mid-sized companies have no choice but to either merge or integrate into larger ecosystems to survive.
Detailed Analysis
1. Tongcheng’s Acquisition of Dida: Not Expansion, but Defense
Tongcheng’s core business includes airline tickets, hotel bookings, and train tickets in lower-tier markets, but its fortunes have recently taken a turn for the worse:
- Meituan’s Expansion: Meituan, originally a food delivery service, has now expanded into selling train tickets and booking hotels, targeting precisely the same cities where Tongcheng operates.
- WeChat Traffic Decline: 80% of Tongcheng’s users come from WeChat Mini-programs, but the growth of new WeChat users has slowed down (indicating the end of its traffic dividend).
- Lack of “Last Mile” Services: After users book flights and hotels, they need transportation to the airport or train station, which Tongcheng previously couldn’t provide; users had to switch to apps like Didi or Gaode.
With the acquisition of Dida, Tongcheng will finally be able to offer a seamless service from home to the airport/hotel, preventing users from leaving its platform to use Meituan or Ctrip. This is not about expanding into new businesses but about protecting its existing customer base.
2. Dida: Small and Profitable, but with Limited Future
Dida’s main business is carpooling services, characterized by:
- Narrow Market: Carpooling only accounts for a small portion of the overall travel market (less than 5%) and does not create new demand; it merely fills existing travel slots.
- Weak Growth: Dida’s revenue is expected to decrease by 36% by 2025, with no increase in total transaction volume or a significant rise in orders.
- Healthy Finances: However, Dida has a high net profit margin of 27% and holds 900 million yuan in cash, with only less than 10 million yuan in debt—making it a “small but profitable” company with limited room for growth.
Dida’s competitors include giants like Didi or companies backed by larger investors (such as Gaode and T3). On its own, Dida would gradually be marginalized. Tongcheng’s offer was attractive, so Dida agreed to the merger to secure a new partner.
3. The Dilemma of Mid-sized Platforms
This alliance between Tongcheng and Dida reflects the challenging situation faced by mid-sized platforms:
- Pressure from Upstream Players: Users now rely on apps like Douyin and REDnote for travel plans, often making decisions before even checking with OTAs.
- Pressure from Downstream Players: Service providers (hotels, airlines) are developing their own apps to sell directly, avoiding OTAs’ commissions.
- Strategic Position: Large platforms (Ctrip, Meituan) have the power to dominate the market, leaving mid-sized companies with no choice but to either fail or be acquired. Mid-sized platforms like Tongcheng must either expand into these markets or integrate into larger ecosystems.
Tongcheng’s acquisition of Dida is a crucial step towards expanding its reach into the “downstream service providers” segment; otherwise, it would be gradually squeezed out of the market.
4. A Win-Win Situation for Both Parties
- What Does Tongcheng Gain?
1. Complete its travel ecosystem: Users can now book all their travel needs through Tongcheng.
2. Access to High-Frequency Traffic: Carpooling services are used more frequently than flights and hotels, potentially increasing user engagement with the app.
3. A Less Burdensome Business Partner: Dida’s healthy financial condition will not impose additional pressure on Tongcheng’s finances.
- What Does Dida Gain?
1. Increased Traffic: Tongcheng’s 253 million paid users can generate more orders for Dida.
2. Resource Support: By integrating with a larger platform, Dida can gain access to additional resources and customer bases.
3. A Strategic Exit: Dida’s stock price plummeted from HK$6 after its IPO to just over HK$1 before the acquisition; Tongcheng’s investment represents a good opportunity for Dida to recover.
This merger may not seem glamorous, but it reflects the harsh reality of the industry. Both companies need each other to survive in a market dominated by giants. This is likely the fate of many mid-sized platforms in the future: they will either be acquired or gradually marginalized.