TripAdvisor’s acquisition of Kuxun, China’s No.2 travel search engine, kicked off its ambitious investment plan of US$50 million in China’s burgeoning tourism market over the next two years.

Kuxun will join many other Expedia-owned online travel companies in challenging China’s number one online travel company, Ctrip, whose market share is five times bigger than that of its nearest rival.

These include eLong (China’s number two online travel agency, acquired by Expedia in 2004), Daodao (the recently launched Chinese travel-review website, owned by TripAdvisor), and Egencia China (the travel management unit).

Kuxun means “cool information” in Chinese.

The company started as a train ticket search engine in the fourth quarter of 2005 and was becoming extremely popular before the Chinese new year of 2006 as hundreds of millions Chinese people were going online and looking for the very scarce train tickets back to home.

Kuxun added the search functionality for second-hand housing information in 2006 and flight and hotel search in 2007.

In June 2008, the company decided to focus its core business on flight and hotel search and rebranded itself as “the largest Chinese travel search engine”.

However this strategy shift never really helped the company to grow its revenue to a very larger scale.

The two founders and then president were forced to leave the company in 2008 and 2009 respectively.

Qunar.com, Kuxun’s rival, pioneered the travel meta search model in China from 2005. Both are becoming very popular among the Chinese travelers and each attracts amazing online traffic with over 30 million monthly unique visitors.

But this popularity never translates into the positive revenue growth for both Qunar and Kuxun.

The restructuring of Chinese airline industry has left the Big Three (Air China, China Southern and China Eastern) at the dominant position on the domestic travel market with the combined market share exceed 70%.

The monopoly of airline suppliers never means good news for companies like Qunar and Kuxun.

Both only secured Air China, the low cost carrierSpring Airlines and other few small carriers as the paid airline advertisers.

Carriers like China Southern and China Eastern do not pay a single dollar, but their products are still displayed at the very top position of the result page.

As airline suppliers, their websites always have the best and most competitive deals.

If the search engines do not include the content of these carriers in the search results, this makes their offerings less competitive comparing to that of their competitors since the travelers are always looking for the best deals.

The risk? They are going to lose users to their competitors.

This dilemma has prohibited Qunar and Kuxun from making a nice profit from the deep-pocket airline suppliers and the many small and medium-sized travel intermediaries (except Ctrip and eLong) are contributing the significant part to the top line of the search engines.

Regarding hotel search, there is a similar story.

The commission model which has been widely adopted by the market leaders Ctrip and eLong has forced everyone (including the hotel’s own websites) to charge the same room rate to the travelers.

The only difference is coming from the override part depending on the booking volume generated by certain intermediaries.

Product differentiation is not sth that the search engines really like and it diminishes the value offered to the travelers.

Yes, it also diminishes the value that search engines bring to hotel advertisers.

When we come to the benefits that the combination of Daodao+Kuxun brings to Chinese travelers, Daodao’s hotel review content complements Kuxun’s trip planning functionality perfectly and it will improve the user experience for both parties.

[I believe Daodao will integrate Kuxun’s meta search into its platform and Kuxun will also integrate Daodao’s hotel review into its search results]

But regarding to the revenue growth potential, this combination is not going to change the pricing paradigm in the meta search segments by generating the incremental revenue source.

As previously mentioned in this article, the supplier domination in the air distribution and product differentiation in the hotel distribution side have prohibited both Qunar and Kuxun from making meaningful breakthrough in their revenue growth potential.

The big three carriers are becoming even bigger and bigger after the merger of China Eastern and Shanghai Airlines.

They are dominating over 80% of market share for the trunk routes originating from Beijing, Shanghai, Guangzhou and Shenzhen, the top 4 Chinese airports measured by number of passengers handled.

As several private-owned carriers are going bankruptcies or being acquired by the state-owned companies this year, there is almost no room for new entrants to start in this market.

With less supplier advertisers, I do not see there is a chance that both Qunar and Kuxun could significantly increase their advertising revenue in the next few years if even they bring more value to the travelers.

Let us come to the hotel content side. Ctrip is still the pioneer and dominant player with over 800,000 hotel reviews published on their site, comparing to Daodao’s 200,000 hotel reviews in Chinese.

The scheme that Ctrip users are allowed to submit the hotel reviews only after they book and stay at certain hotels ensures its user reviews much trust-worthy than what any other players are offering on this market.

Daodao still has a long way to challenge Ctrip’s dominant position in the hotel review and travel planning segment and making the good revenue from the hotel advertisers.

In recent years, Expedia has demonstrated the synergy inherent in its multi brand strategy and has built unparalleled competitive advantage over its competitors in US and European market.

But it will take a long time to prove the combination of eLong+Kuxun+Daodao+Egencia is working well in China given the different marketing environment and supplier relationship.