Internet Service Platforms and Tourism

Announcing a listing in Hong Kong by October '18, Meituan Dianping, 20% owned by Tencent , plans to monetize the client data base of its Internet Service platform, hoping to achieve a valuation of $ 60 bn (up from a fund raising round last year at $ 30 bn...)

Known in China for food take-outs (with 11 million meals delivered daily in 2017), Meituan Dianping has positioned its business as a services-gateway, from travel-booking to restaurant vouchers to car transport to bike sharing…

The lack – or limited availability – of travel agencies in Asia has opened the opportunity for Meituan to skip intermediaries in favor of direct sales over Internet platforms, as it does also for Ctrip International Invalid tag asset in travel services or for Alibaba  – taking advantage of strong demand for intra-region tourism

With 310 million registered users, the food take-out business of the company has been unprofitable over the past 3 years, losing $ 640m in 2017 but, according to company data, the user base has generated 205 million domestic hotel night reservations and the tourism platform contributed 80% of gross profit

While the competition between the Internet platforms is far from over, the implications for tourism service providers are dire

• In a fast growing market, hotel chains, cruise ships and even airlines will access only a constrained set of data profiling their clients acquired through Internet plaforms, making cross-selling opportunities a poor second to the Internet platforms dedicated to this business strategy
• The massive potential client base of the platforms – and the ability to direct consumers by way of direct advertising and promotional offers – will curtail the negotiating position of tourism organization traditionally focused on enhancing their brand reputation (as in hotel chains or cruise companies)

Niche markets in China, such as the short-stay ‘Joyview’ residencies, launched in early 2018 by Fosun  owned Club Med, easily accessible from major cities and targeting millennials and multi-generational families, may help counter the resulting margin pressure with ‘unique’ services

For now, the fast-growing demand and the competition between service platforms will protect pricing power in the Asian tourism industry but, taking a long view in a globalized market, major players have started considering vertical integration

Such is the case for Accor Hotel Group with the company’s tentative approach at cross-shareholding with Air France. And more is probably to come, for hotel chains, cruise companies, casinos and recreation resorts…

Even more pressing moves can be expected from the Internet platforms to protect their hold on a client base which could just as easily melt away, whatever the cost of initial build-up might have been

This risk facing Meituan but also Ctrip of China and Rakuten of Japan will be covered in a follow-up analysis