Baidu Plans $20 Billion Acquisition of Dazhong Dianping: A Mutual Need with Individual Constraints
PingWest has obtained reliable information from multiple sources, including Dazhong Dianping's investor Sequoia Capital and Huaxing Capital, which handles numerous domestic mergers and acquisitions - Dazhong Dianping has taken its place at the negotiating table with Baidu to discuss Baidu's acquisition of Dazhong Dianping. The price tag is expected to be around $20 billion.
Dazhong Dianping Once Dreamed of Becoming a Platform
In January this year, Dazhong Dianping announced that it would open up its core data, including user reviews and merchant information. However, after the release of the open documentation, it was quickly criticized by many third parties - at the time, all four APIs it opened were related to group buying, and the API for merchant reviews and data acquisition had strict restrictions, so many people referred to it as "pseudo-open." In fact, whether it was the action of "selective openness" or the final "pseudo-openness," these were both desperate moves by Dazhong Dianping:
On one hand, although it accumulated valuable user review and merchant information data, Dazhong Dianping struggled to find good monetization methods. Even group buying, which accounts for a large portion of their revenue, only yields a gross profit margin of 3%~5%, and they have yet to achieve profitability. Meanwhile, their competitor Meituan has a gross profit margin of about 7% and has already started making small profits;
On the other hand, whether it be large enterprises with absolute shares in LBS services, innovative startups, or even some online hotel service providers, all are eyeing Dazhong Dianping's territory, eager to grab a piece of the pie. Dazhong Dianping urgently needed to position itself as a platform to fend off intrusions.
The problem lies in the fact that Dazhong Dianping's core asset is data. Once this data is handed over to third parties, Dazhong Dianping's competitive edge disappears. This concern prevents it from truly achieving openness.
Caught between wanting to break through and fearing being disrupted, this contradiction has brought Dazhong Dianping's development to a bottleneck. In this situation, selling to Baidu is not a bad choice - Baidu can bring ample traffic to Dazhong Dianping's group-buying business, enhancing its monetization capabilities. At the very least, receiving $2 billion isn't a bad deal either.
Baidu Seems to Be in a Hurry
Firstly, I believe that Baidu's intention to acquire Dazhong Dianping is entirely reasonable.
In Baidu's current mobile strategy, the original search, app distribution, and LBS should be the three most important components. Search relies on "Baidu Mobile App," app distribution uses a three-pronged strategy of "Baidu Mobile Assistant +91 Mobile Assistant+Light App," and LBS hinges on Baidu Maps.
I once wrote that Baidu aims to build Baidu Maps across three dimensions: "geographic information indexing," "traffic indexing," and "people indexing," moving the real world onto the mobile internet. In other words, Baidu wants to create a local life service platform based on location-related information. However, the issue is that while Baidu Maps leads in market share, it lacks sufficient data resources, especially user review data. Currently, Baidu's main data source is still the active identification of some merchants, Baidu's own collection, and data provided by some partners. Dazhong Dianping can well fill this gap. Additionally, Dazhong Dianping's group-buying business can help Baidu quickly penetrate into a field they have long coveted and provide a market for Baidu's payment platform, "Bai Fu Bao."
However, the reason I say Baidu seems to be in a hurry is that currently, the first two businesses mentioned in my previous article regarding Baidu's three major mobile internet businesses are far from ideal - although "Baidu Mobile App" has over 100 million users, due to the diversification of mobile search entry points, Baidu has lost its monopoly position on the PC end; although the overall distribution value of Baidu's three distribution platforms is not low, as far as I know, the distribution effect of Baidu's key project "Light App" is not satisfactory. Moreover, in terms of game distribution capabilities, they lag behind Tencent, which focuses on making money, and Qihoo 360, which holds an advantage in numbers.
From another perspective, Baidu's stock price has risen back to $152, not far from its peak of $170. Based on the current situation, Baidu is likely to face a revenue bottleneck, so they need to maintain or continue to boost their stock price through business acquisitions.
Therefore, in summary, what brings Dazhong Dianping and Baidu together at the negotiating table could be said to be a strong mutual need, or it could be said that each has its own constraints. As for the path forward after the acquisition, whether it becomes increasingly clear or ends up in a dead-end due to integration issues, that will be a story for the future. Let us wait and see.