Business Model that work for Travel Biz Online

[Dennis Ng]

26 Jun 2011

http://finance.fortune.cnn.com/2011/06/ ... ith-baidu/

Chinese search giant Baidu (BIDU) is making a major push into the travel market, today agreeing to acquire a majority stake in privately-held Qunar for $306 million.

At a macro level, travel is an extremely interesting space. Online companies like Expedia (EXPE), Priceline (PCLN) and even CTrip (CTRP) are primarily offline agency models that went online without fundamentally changing how they approach the business. I think Qunar has the opportunity to dramatically affect the dynamic of how online travel is researched and consumed in China, and partnering with Baidu in this way makes it more likely. It enhances our chances of becoming more successful faster.

How does Qunar differ from those companies you mentioned?

The existing offline business model for travel agency was basically to broker the sale or airline tickets or hotel reservations on behalf of the principals. In exchange, the travel agent would receive, on average, approximately 15% of the top-line.

The online travel agencies consolidated and reached scale in a way that the dispersed offline businesses couldn't, but it was still basically the same process. This of course led to certain airline and hotel operators realizing it would be faster and cheaper to offer their best deals via their own websites, because they could avoid the broker fee. But, for consumers, this made it difficult to find the best deals.

Qunar lets users look at all the deals on all of those individual sites, and makes money on display advertising and cost-per-click, instead of on commission. It's kind of like what Kayak is doing in the U.S., but on a much larger scale. For example, Qunar currently is responsible for around 30% of all airline tickets booked in China.