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Is OYO Becoming A Pawn In The Turf War Between DiDi and Meituan Dianping?

Sep 6, 2018 by The Passage Team
Is OYO Becoming A Pawn In The Turf War Between DiDi and Meituan Dianping?

The battle between China's tech giants Didi Chuxing (滴滴出行) and Meituan Dianping (美团点评) have escalated to a new level on its home turf in China. Both the companies are entering new segments in quick succession to capture the user base in the world's largest internet economy.

Both, Meituan and Didi which are estimated to be valued at USD 55 billion each, offer internet-based services like taxi booking, food delivery, travel and other on-demand services, and they aim to become a one-stop platform for the Chinese internet users.

To compete with Meituan's hotel booking platform which it started in 2012, Didi is reportedly in talks with OYO, India’s leading internet hospitality brand, which recently entered China. OYO is likely to raise about USD 800 million to USD 1 billion from Didi. The development was reported first by The Times of India. The investment will reportedly be used to support OYO’s expansion in China.

OYO had entered China last November but made the official announcement only in June this year. It had attracted an investment of USD10 million from China Lodging Group in September last year.

Analysts say that it makes sense for the hotel brand to muscle up its capital power in China as it needs a local support to compete with the likes of Meituan-Dianping, Ctrip, Qunar, Tongcheng-Elong, Figgy amongst others.

When The Passage reached out to OYO and Didi, neither companies denied the media reports about the potential investment. They, however, refused to comment on the development.

It may be noted that Oyo did a joint promotion with Didi at the time of its launch in China.

The China’s taxi-hailing app had flashed a promotion saying, “Ride comfortably with Didi, stay comfortably with OYO”.

OYO’s China spokesperson, however, said that the marketing campaign had nothing to do with the reported joint venture.

Both Didi and Meituan are backed by Chinese conglomerate Tencent Holdings (腾讯). Tencent holds 11.4% stakes in Didi, and 20% in Meituan.

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While Didi Chuxing has a 90% share in the taxi booking market, Meituan's strength lies in the food-delivery sector where its commands a 70% market share.

The taxi market in the largest internet economy is estimated to be around USD 30 billion and the food delivery market is estimated at around USD 37 billion.

Meituan debuted with its ride-hailing service in Nanjing in 2017 and then started its national expansion across China in March 2018 luring customers with heavy discounts. In response, Didi recently started its food delivery service and offered deep discounts and even free meals.

Also, in the eastern city of Wuxi, which is Meituan’s main business region, Didi launched a bike-rental platform by acquiring a small bike-sharing startup called Bluegogo early this year. To beat this, Meituan bought Tencent-backed bike-rental startup Mobike for USD 2.7 billion in April this year.

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While Meituan is going for an IPO later this month, media reports indicate that Didi Chuxing too is looking to take the IPO route by the year-end. But with the Chinese government cracking down on Didi after the recent murder case in which one of its drivers was involved, the market confidence on the company has taken a beating and it may cast shadow on its IPO.

For Meituan, 60% of its total revenue comes from the food delivery business, the rest comes from its hotel, travel and ticketing platforms.

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*China bets big with its India investments *

While Meituan has invested in Swiggy, a leading Indian food delivery platform, Didi's potential investment in OYO will be its second bet in India. In the past, Didi had invested in the cab-hailing company Ola, which also owns food delivery platform FoodPanda’s India business.

With wide internet userbase in the country, analysts say that all Chinese biggies are going to look at India as the next big market, after China, to compete with the US giants.

Started in 2011 by Ritesh Agarwal, then 17, OYO has so far raised a total of USD 450 million. The reported funding round from Didi will apparently be double its total funding raised so far. It currently operates about 8,500 hotels across 230 cities.

OYO had started its operations as Oravel.com and pivoted its business in 2012 from an AirBnB-alike hospitality company to a platform for searching short-stay rooms and apartments in India. Users at that time could list their properties like service apartments, boutique properties and villas on the platform and travellers could book these properties from the site.

Later OYO shifted its focusing on budget hotel aggregation and then diversified with their own properties, luxury hotels and also wedding services. The company is now expanding internationally.

OYO’s funding rounds and international foray

In September 2017, OYO raised USD 250 million in a Series D round led by existing investor SoftBank. This followed another USD 10 million investment from China Lodging.

Prior to this, it had raised USD 100 million in Series C round led by SoftBank group, Greenoaks Capital, Sequoia Capital and Lightspeed Ventures. According to the company’s documents with the Indian Ministry of Corporate Affairs (MCA), Munish Varma, Softbank’s senior executive based in London has joined OYO as one of its board members. This appointment could help the company’s expansion plans in UK and European markets. OYO is now present in six markets outside India—UK, China, Malaysia, Thailand, Dubai and Nepal.

-With inputs from Ruiyao Luo.

(Rashi Varshney is a Delhi-based tech reporter. She focuses on emerging Indian startups and unicorns. She can be reached at rashi.varshney@thepassage.cc)

(Ruiyao Luo is a Beijing-based tech reporter. She focuses on emerging startups and tracks the trends in the startup industry in India and China. She can be reached at Ruiyaoluo@thepassage.cc)

The Passage Team

The Passage is committed to creating in-depth content over technology industry across Asia with a focus on emerging startups in the technology, healthcare, education, food, tech, travel & mobility segments.

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