Posted on Friday, Sep 11th 2015
It is not just in the US where local business review sites such as Care.com and Angie’s List have gained lofty valuations from VC funding while relying on a faulty business model. The phenomenon has spread internationally where companies are counting on crowdsourced local reviews to drive advertising and subscription revenues across their platform. One such company is China’s Billion Dollar Unicorn club member Dianping. But Dianping appears to be taking good measures to rework this business model into one that actually may work.
Dianping is often referred to as the Yelp of China, dubious distinction. Shanghai-based Dianping was founded in 2003 by Tao Zhang. After completing his MBA from University of Pennsylvania’s Wharton School, Tao soon returned to China to set up Dianping. Back in those days, online reviews weren’t very well known and people relied on word of mouth for reviews about local restaurants and Tao had to ask his family members and friends to contribute to the online review database. But as the Internet adoption in the country improved, Dianping expanded to several other services besides restaurant reviews.
Today, Dianping has transformed itself into a mixture of Yelp and Groupon. Their restaurant review site has diversified to providing reviews for other services including local shops and other service providers. They have also significantly expanded their review portfolio by allowing people to post their favorite dishes in a restaurant – an important feature when considering the expansive menus that Chinese restaurants offer. Additionally, they have added other useful services such as online restaurant reservation, take-out service, e-coupon promotions, local marketing for business owners, and other such services. The Groupon side of the business relies on being able to offer consumers discounts on goods and services through their group buying capabilities.
The service has more than 190 million monthly active users a database of 60 million reviews covering over 12 million local businesses spread across 2,300 cities in China. Their mobile penetration is also impressive considering that more than 75% of their traffic comes from mobile devices. They have helped drive mobile by integrating themselves with Tencent’s WeChat smartphone messaging app.
Dianping does not disclose their detailed financials. Their revenue is split almost equally between advertising and promotion fees for businesses and group buying services. Revenues are expected to have more than doubled in 2012 to “hundreds of millions of dollars”. The company was looking to turn profitable by 2014, but details are not known.
Dianping has been venture funded so far with $1 billion in investments from FountainVest Partners, Temasek Holdings, Capital Today, Sequoia Capital, Lightspeed Venture Partners, QiMing Venture Partners, and Google. Their last round of funding was held in March this year when they raised $850 million from FountainVest Partners and Temasek Holdings at a valuation of $4.05 billion. Analysts expect Dianping to file for an IPO soon. The funding round was the second largest round for a Chinese technology company so far after Xiaomi’s $1.1 billion round of investment in December last year.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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