When Baidu invested in Qunar in 2010 and asked about vertical search engines, Robin Li, CEO of Baidu, said he believed most users were lazy and would rather visit an all-in-one search service like Baidu for all types of information. Also he was confident that Baidu users would increasingly rely upon its service and brand. His comment on the Qunar deal was that it helped Baidu offer high-quality travel-related information to users.He said he hadn’t seen any vertical search engine that turned out to be successful in the 15 years working on search engine.
Qunar.com was launched in May 2005 as a vertical search engine for travel-related information. Now it filed with the SEC for an IPO on the NYSE. Looking at the user metrics and financials, you’d wonder whether Robin Li still doesn’t think it is or will be a successful business. Li may argue Qunar’s success must to a large extent attribute to the traffic from Baidu or the non-competition agreement reached between the two parties.
Qunar had 203.2 million users, with 39.6 million on mobile, in the 12-month period ended June 30, 2013. Qunar claims it’s the largest non-state-owned travel website in China citing a iResearch report in the prospectus – It’s hard to compete with state-owned monopolies like 12306.cn which is the only official online seller for train tickets.
The company makes revenues from performance-based paid searches and commissions, and display advertising. Of the total revenues for H1 2013, 88% is from performance-based marketing services, 7% from display advertising and the rest from other services.
Leisure travel contributes a significant portion of its total revenues, says the company. Searches for flights make up the largest portion of the total, 60%, while revenues from hotel searches, which account for 20% of the total, grew the fastest with a 130% year-over-year increase. Revenues as a percentage generated from mobile account for 10% of the total.
There were about 25 thousand travel agencies in China in 2012, according to the China National Tourism Administration. A search engine like Qunar makes prices and other information relatively transparent and offers choices for users to choose from different brands and, more important to a large portion of Chinese, prices.
Chinese government passes a new travel law that came into force on October 1st to regulate the fast growing and chaotic market. The high growth rate of leisure travels and a market that isn’t transparent in prices and services are reasons that Chinese users need travel search.
Qunar wasn’t the only one that saw the business opportunity. So did Kuxun who launched its own search service in early 2006. In October 2009, Kuxun became a business of Tripadvisor. But Qunar turned out to be the most-known brand for travel search while Kuxun is much less known.
Beyond A Search Engine
In 2010, Qunar rolled out Total Solution (TTS) which enables users to make orders and payments directly after the search results show up. It thus became more of an online travel agency, just like Ctrip and eLong.
Previously Qunar was a pure benefactor to Ctrips that brought over extra orders or customers, but now it became a competitor. The fact that Qunar’s role was both a judge and an athlete made online travel agencies unhappy. In April 2013, the new pricing terms by Qunar enraged many, including Ctrip and eLong, who suspended cooperation with the former and withdrew their offerings.
But now the traffic on Qunar was too high to ignore. Later on all the services that did so restored the removed back onto Qunar. In the past August and October, Ctrip and Qunar announced a partnership that all the offerings by the former would be integrated into the latter.
Actually, all the online travel agencies are to some extent search services, too. The only major difference is how many travel agencies or offerings that have been integrated.
The Qunar model, a search engine plus a transaction-enabled service, has been modeled by some Chinese services. Rong 360 who calls itself a financial search engine works in this way that enables users buy financial products directly after doing some searches. 58.com, a classified site, introduced Taobao’s escrow solution to have users pay for listed goods or services without leaving its site. When it comes to monetization, their revenue sources include paid searches, advertising and transaction-based commissions.