Another huge tech deal in China as O2O startups backed by Alibaba and Tencent merge

Today’s merger brings together two startups at a time when local, on-demand web services are booming in China (Photo by Stavos)

China today saw a huge tech merger with the official confirmation of a deal to bring together daily deals and food delivery startups Dianping and Meituan. Dianping is backed by Tencent, while Meituan has received funding from Alibaba. The financial details of the merger are not disclosed.

“This strategic cooperation is strongly supported by shareholders of both companies including Alibaba, Tencent, and Sequoia Capital,” said a joint statement issued this afternoon. Both startups and their respective sites and apps will continue to run independently under the new parent company.

The involvement of Alibaba and Tencent makes today’s deal reminiscent of February’s union of China’s top two taxi-hailing apps, Didi Dache and Kuaidi Dache, which created a nearly monopoly in web-connected taxi rides as well as a stronger rival to Uber in terms of on-demand private car rides.

Food, food, food

Meituan started out doing Groupon-style deals before the startup evolved to include local food deliveries. Likewise, Dianping began with Yelp-style listings before it adopted daily deals as well as meal deliveries from nearby restaurants.

“Over the years, although the two companies were competing and had different focuses, we enjoyed the same goal of helping 10 million merchants to better serve one billion consumers in China, and in this regard, our commonalities far outweigh our differences,” said Zhang Tao, CEO of Dianping. “We both recognize the enormous potential of China’s O2O [online-to-offline] industry, and therefore this strategic cooperation was a shared, and almost inevitable, decision.”

Today’s deal comes amid a boom in O2O local services in China, which covers everything from a car mechanic coming to your house to service your car, to an expert masseuse dropping by to give you a soothing massage.

The merged company “is expected to run the leading online to offline, or O2O, platform in China,” said the statement.

Local food takeout is the most obvious O2O niche, which is why Meituan and Dianping shifted into that area as they saw smaller startups strike gold. However, the two companies made the leap rather late, allowing dedicated apps like Ele.me to steal the lead in that segment. Ele.me is one of China’s newest billion-dollar startups, focusing exclusively on food deliveries. Both Tencent and Dianping have invested in Ele.me.

It’s a sign that China’s tech giants, rather than cloning and crushing local startups, are exerting more and more influence over startups by investing in them – and even steering them towards convenient mergers.

See: China’s tech titans are no longer startup steamrollers

The Dianping-Meituan marriage also serves as a warning shot from Alibaba and Tencent to China’s top search engine, Baidu, which recently vowed to plough over US$3 billion into O2O services with its Nuomi site coupled with Baidu Takeout Delivery. (UPDATE less than one hour after publishing: Baidu’s international spokesperson Kaiser Kuo says that the merger is “an extreme measure that shows just how seriously Meituan and Dianping view the threat from Baidu Nuomi.” He goes on to claim that Nuomi is gaining market share in the deals sector while Meituan is losing share. “It’s abundantly clear that the difficulties our competitors have had in fundraising, and the rapid erosion of their position in the market as Baidu Nuomi surges, have driven them to this.”)