This week, Technode’s translation column takes on a deep dive into the content-profits disconnect, looking at travel site Mafengwo with a translation carried by courtesy of Rencaijing. This article was co-authored by Jordan Schneider.

The first time I heard about Mafengwo (literally “hornets’ nest”) was in 2013, when it was only a website for travel guides and photo essays. Over the years, it’s been trying to monetize from user-generated content, first through mobile translation apps and later adopting the TripAdvisor model, integrating hotel and tour booking features onto the platform. Unlike TripAdvisor they don’t rely on a dominant search player for traffic, but Tencent, an investor, has not yet committed to giving them the traffic they need to really take off. Ctrip accounts for 36.6 percent of the total market share, vis-a-vis Qunar’s 16.5 percent, Fliggy’s 14.3 percent, Tongcheng-Elong’s 5.3 percent, and Tuniu and Meituan-Dianping’s tied share of 3.4 percent.

Facing heavy competition, Mafengwo today only charges two percent commission. Users too frequently find destinations on its travel content and end up buying on other platforms. Now it’s planning for a public listing in the midst of restructuring and layoffs. 

Su Qi at Rancaijing outlines the hurdles Mafengwo still needs to overcome to confront juggernauts like CTrip, Qunar, and Alibaba’s Fliggy. 

On the road to IPO, who stirred up the hornets’ nest?

By Su Qi, Rancaijing Jan. 4, 2020

Edited by Wei Jia

* Zhao Ping, Xiao Ya, and Meng Fei in the article are pseudonyms.

Not long ago, Mafengwo went viral on Maimai for rumors that it was laying off up to 40 percent of its employees. This wasn’t Mafengwo’s first reported layoff—in April 2019, it already had a 10 percent layoff.

Prior to this, Mafengwo had already been under spotlight for incidents ranging from hotel booking mismanagement to data fraud to controversial World Cup advertisements. Nevertheless, Mafengwo raised $250 million in a financing round led by Tencent in May 2019 and announced a plan to IPO within the next year or two. 

Former employees told Rancaijing that the recent round of layoffs targeted content and transaction centers, while the workforce optimization in April had cut the company’s travel guide and destination departments—Mafengwo’s core teams—to the chagrin of its employees.

Whether it is for the company’s development or to meet the expectations of investors, an IPO is imminent. Mafengwo needs to come up with a clear profit model, but its large investment in commercialization has resulted in a low input-output ratio. It needs to shrink the team.

Originally a boutique-y online travel community, Mafengwo isn’t unlike other “from community to transaction” apps like Zhihu, RED, and Douban, all of which are now caught between commercialization and nostalgia, struggling to move forward. All these companies face the same problem—while users browse and read about products on their sites, transactions often take place somewhere else.

Little Red Book shows big user numbers don’t mean big profits

Changing its strategies may offend loyal, long-time users; but failing to do so would lead to stagnation. Of course, Mafengwo is now facing a new problem—under the yoke of capital, Mafengwo is running too fast. What if it trips and falls?

 An uneasy year for Mafengwo

2019 was an uneasy year for Mafengwo.

 Many employees recall a working atmosphere that had once been lively, friendly, and avant-garde—and sometimes a little lazy. But things changed at the 2018 annual meeting, when CEO Chen Yi proposed that the company should enter a combat state in 2019. The company also began to promote “wolf culture,” encouraging overtime. 

At the beginning of 2019, Mafengwo restructured the previously fragmented business units into four major “business centers”—a content center (travel guides and tips), a transaction center (e-commerce, ticketing, air travel, and hotels), a data center, and a user growth center. With a data-driven core, Mafengwo adopted the strategy of “content + transaction.”

Changes in personnel accompanied the restructuring. While the importance of content and transaction centers is self-evident, former employees told Rancaijing that these two departments were the worst-hit areas in terms of layoffs and resignations. 

According to former employee Zhao Ping, the company recruited a new head of HR in 2019. In the April optimization, some of Mafengwo’s core departments—including the entire travel guide and destination departments—were axed, along with many senior employees who had been at the company for seven or eight years.

“The whole atmosphere wasn’t right. The colleagues in the travel guide department generally produce high-quality content. Though their productivity may not be very high, they are indeed the soul of Mafengwo, and their work is important in retaining longtime fans and users,” said Zhao. “Many users now say that Mafengwo’s content update isn’t as timely as it was before, and they don’t like to use it anymore. When these colleagues were laid off, we were disappointed and upset.” After restructuring, Zhao’s team was broken up—along with many others. 

“Mafengwo’s working environment can probably be rated four stars among Beijing companies. The company used to pay attention to the sense of community among employees. There used to be year-end team photos, and now, looking back, it’s obvious that so many colleagues have left. It’s very sad,” Zhao said. 

Is listing a good way out?

Established in 2006 by Chen Ye and Lu Gang (translator: Mafengwo’s Lu Gang is not related to the founder of TechNode, whose name is also spelled Lu Gang in English), Mafengwo was originally a travel guide website. It entered e-commerce in 2015, expanding its business to cover flight and hotel booking, tickets, and car rentals. 

Since 2018, Mafengwo had already been under the spotlight for incidents ranging from hotel booking mismanagement to data fraud to controversial World Cup advertisements [a massive ad blitz during the 2018 World Cup was undercut by accusations that the firm was faking much of their user generated content] . Nevertheless, Mafengwo secured a $250 million financing round led by Tencent in May 2019 and announced its plan to IPO within the next year or two.

As a travel guide community, Mafengwo has an obvious advantage—its content. As of May 2018, Mafengwo users contributed over 130,000 travel posts every month; the total number of reviews had exceeded 180 million; the number of independent users had reached 120 million; MAU was over 80 million. “Mafengwo’s DAU by the end of 2018 should be about 1.2 million, and it may reach 2 million during the holiday season,” former employee Xiao Ya told Rancaijing. 

But turning high-quality content into money is difficult. “This is also the reason behind Mafengwo’s layoffs. The commercialization investment was too large, and the input-output ratio wasn’t enough. It had to shrink the team,” an investor told Rancaijing.

As Gobi Partners’ Don Jiang sees it, Mafengwo has encountered two major challenges: First, Mafengwo wanted to switch from travel guides to reviews, especially hotel reviews, but the quality of its hotel reviews was not as high as Ctrip’s. Second, the link between content and commercialization isn’t close enough. 

 Mafengwo once said that it would become China’s TripAdvisor. When it first started, TripAdvisor focused on hotel reviews and then expanded into a hotel booking site. It went IPO in December 2011 and has a current market value of $4.2 billion. However, compared with foreigners, Chinese users do not trust reviews so much. Coupled with the prevalence of fake reviews in China and unexpectedly low volume of hotel bookings on the platform, hotel reviews weren’t helpful to Mafengwo’s growth.

For a long time, Mafengwo did not consider making profits. In June 2012, after Mafengwo began to experiment with content commercialization, brand advertising fees and transaction commissions became its main sources of revenue. Jiang told Rancaijing that its commission ratio is about 3 percent, which is much lower than other online travel agencies. In the early stage, it is reasonable to use low commissions so to attract merchants, but if transaction volume does not rise in the later stage, it will become a loss-making proposition.

Sources close to Mafengwo said that on its platform, the commission share for high-end customized travel is relatively high, while it only charges two percent for commission on tickets.

The reason that Mafengwo has vigorously developed hotel bookings is also related to its high valuation. “The latest valuation of Mafengwo has reached $2 billion,” Jiang said. “If it continues to only focus on the travel sector, the gross profit would be too low to support such a high valuation.” Jiang said that a listing is imminent, and Mafengwo has to come up with a clear profit model.

“The value of Mafengwo is definitely worthy of recognition, but the valuation does not match its current performance. Income isn’t high, and growth is stagnant. This is a big challenge,” Jiang said.

Meng Fei, an entrepreneur in the tourism industry, believes that Ctrip is an inevitable rival in the sector. Meituan has seemingly done well in hotel booking, but it’s mainly focused on low-end hotels. Ctrip has strong control over the core supply chain of air tickets and high-end hotels. Resources have become monopolized by titans—it’s difficult to change that.

For travelers, it doesn’t matter where they book hotel rooms—only the price counts. “For its core users, Mafengwo is still a travel guide platform. The demand is inconsistent, the supply chain is difficult, and there are too many challenges.”

Now that Mafengwo wants to go public, it needs a continuous flow growth curve to tell a good story. Jiang said that as Ctrip’s growth has begun to slow down, Mafengwo must continue to tamp up its path toward commercialization, and at least achieve an average commission rate of five percent.

Data show that Ctrip’s GMV (excluding Skyscanner) for the whole year of 2018 increased by about 30 percent, while Mafengwo has achieved an annual GMV growth of more than 100 percent for four consecutive years. However, while Mafengwo’s 2018 GMV is expected to exceed RMB 15 billion (about $2.1 billion), the platform will only get around RMB 450 million from commissions based on a three percent commission rate. By contrast, Ctrip’s 2018 accommodation booking revenue was RMB 11.6 billion, accounting for 37 percent of total revenue; its vacation business revenue was RMB 3.8 billion, accounting for 12 percent of total revenue. Tuniu’s revenue from travel combo products in 2018 also reached RMB 1.8 billion.

  “In terms of Mafengwo’s business growth, I am still not very optimistic about its listing. But everyone had thought Taobao was invincible until Pinduoduo joined the battle,” Meng said. 

Where is Mafengwo’s edge?

 In the mobile internet era, Mafengwo has met two major competitors—RED and Douyin. The two companies could theoretically expand to include tourism content. Mafengwo is also aware of this: it has identified RED as a competitor, while providing a short video content platform to rival Douyin. Meanwhile, its user interface now reminds one of Dianping. 

A Boston-based freelance writer on Chinese tech and culture, and an independent researcher on US-China relations. Previously, he lived in Beijing, where he worked closely with China’s tech startup community.

Jordan Schneider is a freelancer based in Beijing and the host of the ChinaEconTalk podcast.

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