Shuang Shan

Meituan.com and Dianping Holdings Ltd, two of China’s largest online local service platforms, have agreed to set up a new company—creating the largest Online to Offline (O2O) business in China.

The merger, one of the largest deals ever in the Chinese Internet industry, is estimated to be worth as much as $20 billion according to the Financial Times. The yet-to-be-named company will combine Meituan’s 52 percent Chinese Internet market share with Dianping’s 30 percent to create the largest group buying platform in China’s trillion dollar O2O market.

Meituan, partly owned by Alibaba Group Holding Ltd, is similar to Groupon Inc., offering local group deals for restaurants, movie theaters, hotels, and more. Dianping, backed by Alibaba-rival Tencent Holdings Ltd, is a platform for consumer-generated reviews similar to Yelp Inc., but also offers discounts for a group of buyers, e-coupons, food delivery, and restaurant reservations.

This deal marks the second cooperation this year between Alibaba and Tencent, following the creation of Didi Kuadi Joint Co. through the merging of two taxi hailing apps.

Historically, companies have relied on subsidizing merchants to compete in China’s O2O market. Analysts say that the merger will save the two businesses from using its capital for subsidies; instead, the new company can focus on how to ‘better leverage respective advantages’. This partnership would challenge Baidu Inc.’s $3 billion investment its own local service platform, Nuomi. Nuomi is currently the third largest group buying business in China after Meituan and Dianping, according to Analysys International.

(Photo by L1mey via Flickr)