Priceline’s planned investment in Ctrip is a smart move for both companies, though not as unexpected as some might believe.
Many employees and partners of both companies have had suspicions since they first announced a partnership in 2012 to offer hotel rooms to each other’s customers.
Expedia, coming off a strong second quarter, will need to act more aggressively if it wants to tap into the world’s largest outbound travel market now that the top players in and out of China have joined forces in a vested way.
Further, the investment makes it that much more unlikely for Ctrip to do a deal with players not affiliated with Priceline.
Aside from the obvious implication for Expedia, here are five other players who could be affected by this deal:
1. Hotels in China
For these hoteliers distributing inventory on Ctrip, expect the commission structure to increase and become comparable to that of Priceline’s breadwinner, Booking.com.
2. All hotels
With Booking.com’s meteoric rise in Asia (as well as Priceline's other brand, Agoda) and its existing dominance in Europe, both companies could further increase their commission rates as more hoteliers depend on the two companies to deliver both Chinese and non-Chinese travelers.
3. Offline travel agencies in China
According to WSJ, only 15% of Chinese travelers book online today, so the two juggernauts are set to remake the remaining 85% of the market. On their side – an already e-commerce friendly consumer base is led by Alibaba.
Ctrip is already the king of hotel reviews within China. Given Chinese travelers’ penchant to read and write reviews on Ctrip, international hotels distributed on the site will gain better exposure and more sharing among the local China traveler audience.
This could spell trouble for TripAdvisor and its Chinese site, DaoDao.
Ctrip isn’t just a travel agency; it has an award-winning call center, logistics, and offline distribution capabilities that are critical to success within Mainland China.
Priceline’s expansion into destination services (Rentalcars and OpenTable) may benefit from further tie-in with Ctrip’s unique sales model within China.
Either way, travelers can expect more local and long tail options – Chinese travelers when booking abroad, and international travelers when booking within China.
Of course partnerships turning into investments don’t always work, but the value created by the Priceline-Ctrip deal already looks to be much better than the Yahoo-Alibaba deal.
Having the largest inventory of hotels and services to choose from is good for consumers, and being listed in the biggest travel sites in and out of China is good for suppliers.
As long as Priceline and Ctrip can continue to create value, each should have no problems maintaining their lead in their respective markets.
Finally, other travel brands should take a page out of this playbook. For example, there are a number of services similar to Airbnb in China (for example: Mayi, Tujia, Xiaozhu).
Rather than building a global presence, it makes a lot of sense for Airbnb to partner up with the best local player – with the intent to invest or outright buy – so it can expand quickly across China.
Asked for her thoughts on the announcement, Siv Forlie, VP of Revenue Management for Shangri-La Hotels & Resorts said, "This has been a year of consolidation in travel distribution. I’m not surprised, and we expect more to come."
NB:Partnership image via Shutterstock.