Online Travel in China

iResearch estimates that China’s mobile Internet market grew 155% over the year and 39% sequentially to 10.83 billion by the third quarter of last year. Researcher Analysys International estimates that mobile Internet users will surpass computer-based Internet users by 2012 and account for more than 500 million users by 2012. Mobile phone app downloads are also increasing. They crossed 863 million downloads in 2010 and are expected to surpass 20 billion by 2013.

Qunar’s Financials
Chinese travel search giant Qunar.com was founded in 2005 by entrepreneurs Fritz Demopoulos, Douglas Khoo, and CC Zhuang. The Beijing-based search firm has developed their own proprietary multilanguage price comparison search engine. With more than 60 million monthly visitors, they are the leading travel search portal in China with over 42% market share.

Qunar’s consumers are able to compare real-time positions of air tickets, hotels, car rentals, and tour packages. Their inventory covers 150,000 hotels and 15,000 domestic and international flight routes. They also provide more than 700 travel deals in more than 100 Chinese cities.

Qunar’s financials are still unknown to the public. However, market estimates reveal that nearly 80% of their revenues come from pay-per-click ads and an additional 15% from display ads. The company is said to have been profitable since last year with margins doubling each year. As of early 2011, Qunar had received $25 million in funding with investors, including Lehman Brothers, GSR Ventures Management, Mayfield Fund, Tenaya Capital, and GGV Capital.

However, their biggest funding round came in recently when China’s Internet player, Baidu, invested $305 million. This was not only Baidu’s largest investment ever, but was also the largest investment in China’s online travel market. Despite the investment, Baidu’s management believes that Qunar will continue to operate independently and will continue to evaluate the possibility of an IPO in the next few years.

Qunar’s Mobile Leadership
Qunar already has made significant strides in China’s mobile app segment. Their mobile app is a full-feature app that lets users transact on flights, hotels, train tickets, packages, and group-buying deals and supports product search, payment, and booking services. Search volume using their mobile app has grown more than 100% each month and has crossed 10% of PC search volume. Their app is available across multiple mobile platforms including iOS, Windows, Android, and Symbian. The recently released 2011 iTunes Rewind also listed Qunar’s mobile app as the best Chinese original travel app of 2011.

Qunar’s Expansion Plans
Despite high growth in mobile use, research estimates that only 8% of people book travel online in China compared, with 35%-50% in the U.S. To tap this market, Qunar plans to use Baidu’s funds to invest in technical talent and improve hotel search and mobile services and acquisitions. They will expand their cooperation with Baidu Zhidao, Baidu’s Wikipedia-like information service, and Baidu Maps.

What’s Next for Qunar
In the U.S., Google has entered the online travel sector to plug its gap in vertical search. Leading independent provider Kayak was a significant pain in Google’s side before Google went ahead and acquired ITA Software to launch its own service. Baidu seems to have avoided such risks and  invested in Qunar early on.

China’s online travel business is on a high-growth path. iResearch estimates that in 2010, online travel revenues grew 58% over the year to cross 100 billion RMB (~$15.69 billion). Qunar is counting on this growth to take them to the next level and dominate the sector.