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When competitors partner

I recently learned about an interesting deal: Booking.com, the major hotel OTA owned by Priceline, just partnered with Ctrip.com, the big gorilla OTA in China, to make Booking.com’s hotel inventory available to Ctrip. In this cooperation, the two companies provide hotel reservation services to domestic Chinese consumers, covering more than 242,000 hotels in more than 170 countries. While Ctrip.com will be able to develop its international resources, Booking.com will be accessible to more potential Chinese tourists and expand its market presence in China.  

The significance, which has clear advantages on both sides but also clear implications, is very interesting.

First, Booking.com, which is part of Priceline — together with Agoda.com, another major hotel OTA in Asia — has a presence in China. So it is effectively competing with Ctrip … well, if anybody can really compete with Ctrip in China.

Second, Ctrip could have obviously developed its own international hotel inventory, which would have increased profit margins. As the China outbound tourism market grows, hotels all over the world are interested in being marketed to Chinese consumers.

So why does the deal actually make sense?

Well, for one, Ctrip saves time in building a solid inventory of international hotels — something that takes time, and requires resources. Receiving a revenue share from Booking.com earned of the commission might be the easier and better solution — at least for the short term.

For Booking.com, it obviously means having its inventory distributed by one (if not the most) trusted name in travel in China — something that a foreign OTA could probably never achieve. Even Expedia-owned Elong.com does not come close compared to Ctrip. And Elong’s current strategy is winning via price, while Ctrip focuses on service. So for Booking.com, this deal should most probably translate into nice revenue streams without having to do much at all.

The bigger question is if this deal is sustainable in the long term, and what the possibly bigger strategic implications might be.

For Ctrip, the major short-term benefit is being positioned to Chinese consumers as having the most complete international hotel inventory in China, and therefore being positioned better (or at least just as good) as international OTA competitors, including Booking.com, that are already in the market or are planning to enter the Chinese market. Everything being equal, Chinese consumers would trust a Chinese distributor over a foreign one; this is different from trusting a foreign consumer brand over a Chinese one. Obviously the Chinese consumer would never know that the international hotel inventory is actually from Booking.com. But on the other hand, the hotel would not know that the booking would actually come from Ctrip.com. So Ctrip could over time build on its trust level, and develop its own international hotel inventory.

For Booking.com, the benefit of the deal is obviously to drive solid revenue streams via the Ctrip reseller agreement that could finance the development of a consumer awareness strategy in China. Once achieved, Booking.com could better compete in China and drive more sales via its own Chinese Booking.com website. But there is another great benefit for Booking.com. Due to the fact, as mentioned earlier, that the hotels would not know that booking actually was generated from Ctrip.com, Booking.com’s dominance in the global hotel OTA market is likely to increase — just considering the volumes of bookings that Ctrip.com might be able to generate.

The bottom line is that this seems to be a smart and opportunistic deal for both parties. If Booking.com is looking to further increase its leadership in the global hotel OTA market, recognizing that Booking.com will never be a consumer travel brand in China, and knowing that most bookings come from Europe and North America, this is truly a brilliant deal for Booking.com.

And if Ctrip is looking to become the top travel brand in China and the go-to company for Chinese travelers, this is also a great partnership for Ctrip.com.

And if both parties win and have complementary strategies and goals, a partnership between competitors can truly be mutually beneficial and enhance shareholder value.

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