This year, the advancing O2O

From the rising momentum at the beginning of the year to the crazy money burning at the end of the year, calling 2014 the year of O2O's advance is not an exaggeration at all.

In 2014, the O2O market heated up rapidly. On one hand, the number of players in the market increased, and the services they provided almost covered all aspects of people's daily consumption, with new concepts, new models, and new technologies emerging continuously; on the other hand, the capital market also paid more attention to O2O, with both early-stage and later-stage investments being substantial, and the capital influx led some O2O companies to start openly burning money. Under the impact of this wave, more and more traditional industries are facing upgrades and transformations, either actively or passively, and the transformation of the atomic world by the digital world is being carried out on a grand scale.

1. Both large and small giants are actively laying out

O2O is a hot cake in the eyes of giants like BAT, and their battle for layout in the O2O market has spread from last year into this year. Throughout the year, BAT each made investments or upgraded their own products in the O2O field, adopting a "investment + self-research" dual approach.

In terms of investment, in March this year, Dazhong Dianping, which just received strategic investment from Tencent, successively invested in Ele.me, four catering ERP manufacturers, and commercial WIFI service providers; Tencent invested in O2O companies such as Didi Dache, eJiajie, and eDaiXi; Alibaba's ambition was shown in the full acquisition of AutoNavi and investments in Intime Group and Kuaidi; Baidu has always been relatively conservative but was generous at the end of the year, reaching strategic investment and cooperation with Uber.

In product development, BAT without exception chose the "platform building" approach and continuously opened up platform capabilities. Currently, Tencent's WeChat Official Accounts, Alibaba's Alipay Service Window, and Baidu's Zhida Number are the contenders BAT launched in the O2O market. It is evident that the giants are not only steadily laying out through capital but also building their own O2O ecosystems, aiming to form an O2O ecosystem centered on themselves.

Wanda also adopts a similar "ecosystem" approach. In August this year, Wanda, Tencent, and Baidu registered Wanda E-commerce Company in Hong Kong, which does not sell goods but only services. Therefore, the logic behind this e-commerce platform is O2O. In December, Wanda strategically acquired a 2 billion stake in Kuaiqian, completing a key link in the O2O closed loop.

Some "small giants" who have been cultivating the O2O field for many years began to dig deeper into more vertical O2O markets, shifting their focus from the information layer to the transaction layer. Companies with relatively light models in the O2O field such as 58.com, Ganji.com, Meituan, and Dazhong Dianping have chosen this path. For example, 58 Daojia and Ganji Haoche respectively target home services and used car trading services. Unlike BAT's platform approach, they cut into real business layers, which is not good news for startups in the same field. Meituan and Dazhong Dianping have also laid out in vertical fields such as movies, takeout, hotels, tourism, and weddings, hoping to expand categories while connecting the O2O service closed loop.

2. More mature O2O service fields have undergone further segmentation and verticalization

Home services generally started last year, and the model has become relatively mature. On this basis, the concept of home services has begun to generalize and gradually subdivide into multiple vertical services such as cleaning, laundry, maternity matrons, and home appliance repair. New startup teams continue to emerge in these vertical fields, and existing startup teams have also successively received financing.

In fact, due to the dominance of giants, it has become very difficult for startup teams to build large platforms. Moreover, without their own traffic entry points, they cannot support platform scale. Therefore, O2O startups with a certain user or resource base choose to seek scale effects by expanding categories and begin to focus on brand building, such as Ayi Bang, 58 Daojia, and eJiajie. Of course, O2O services that can provide home visits will be an important trend, not limited to home services but any service that can rescue "lazy users."

3. The scope of O2O business continues to expand, and new O2O markets are constantly being developed

Community retail, semi-processed fresh e-commerce, chef home visits, weddings, beauty industry, used car trading, etc., are all rapidly heating niche markets this year. Of course, not every path will succeed, and some directions still need market validation. Below is a detailed review of several vertical fields:

Community Services

The concept of community only emerged this year, and community O2O connects neighborhood owners, logistics, surrounding supermarkets, small shops, and users, serving as a new way to bring community services into every household. This includes community convenience service providers like Xiaoqu Wuyou and Dingdong Xiaoqu, as well as community retail services like Community 001, Aixiangfeng, 59store, and Lakala. In terms of capital, Dingdong Xiaoqu claimed to have received a 100 million yuan angel round, while Community 001, Aixiangfeng, and Xiaoqu Wuyou's Series A rounds also reached the scale of 100 million yuan. However, in the past month, with rumors of Dingdong Xiaoqu's funding chain breaking, community O2O services have been frequently questioned. The key to community O2O services is not only aggregating merchants and home service providers within the community but also providing them with easy-to-use efficiency tools, following up on service bookings, platform supervision, user feedback, payment, and other supporting facilities to help continuously optimize operations.

Semi-processed Fresh E-commerce

Semi-processed fresh e-commerce is one of this year's hotspots, with many startup teams emerging, such as Xinwei, Qingnian Caijun, and Shuke Peida. Among them, Xinwei and Qingnian Caijun have already received pre-Series A financing. On one hand, semi-processed fresh e-commerce has discovered previously unnoticed demands and provided people with a convenient and interesting choice in diet, indeed a new market. On the other hand, the authenticity of demand, purchase frequency, customer unit price, delivery cost, and replicability of such services have also been questioned to some extent. Therefore, whether this type of service can logically succeed still needs market validation.

Wedding Services

O2O services related to weddings have significantly increased this year. This is a highly challenging yet highly profitable market. The high profit needs no elaboration, while the difficulty lies in the numerous wedding-related segments (including wedding photography, banquet dresses, wedding celebrations, banquets, and more than a dozen other segments) and the market's lack of regulation and information transparency. At the same time, this is a service that involves critical decision-making. However, driven by high profits, more and more players are entering, including major players like Alibaba and Dianping. Among startups, some are doing well, such as Yijie.com, Juximao, and Hunliji.

Beauty Industry

It is often said that women's money is the easiest to earn, so it is natural for O2O services to extend specifically to women. On one hand, industries like hairdressing, manicure, and beauty have high gross margins, high customer acquisition costs, and serious information asymmetry, making them suitable for O2O transformation; on the other hand, in this nearly trillion-yuan market, market concentration is very low, with the industry leader holding only about 5% market share, and offline merchants are small and scattered, making them ideal for integration through online channels.

Since the end of last year until this year, O2O services related to hairdressing, manicure, beauty, and makeup have gradually increased, such as Bobo.com and Fashion Cat in the hairdressing market, Helijia and Dudu Manicure in the manicure market, Meilijia providing information platforms for B-end beauty merchants, and Gengmei in the cosmetic surgery market. Among these, on-demand manicure services have undoubtedly risen most rapidly. After Helijia completed its latest B round financing in August, its valuation reached 1 billion, and Dudu Manicure also secured a multi-million dollar A round in October. This makes sense because manicure services are relatively standardized, have higher usage frequency, and are lighter services (compared to beauty, hairdressing, massage, etc.), making them easier to be transformed by internet thinking.

Used Car Trading

Online platforms for used car trading are not new, but the C2C model is an exploration direction for used car trading services this year. Used cars themselves have strong non-standard characteristics, and the diverse needs of buyers and sellers make matching transactions between individuals quite difficult. However, this year, Renrenche has received two rounds of financing, Ganji.com plans to invest 100 million USD in Ganji Good Cars, and Haoche Wuyou also secured 20 million USD in an A round at the end of the year. Does this validate the feasibility of the C2C used car trading model? Although capital has given the market confidence, the used car C2C model is still in its infancy and needs more players to jointly educate the market.

4. The Rise of Catering O2O Services, Initial Market Pattern Emerging

Compared with other O2O vertical fields, catering has progressed relatively fast. Catering O2O services show a polarization characteristic: on one end, low-ticket, high-frequency services represented by takeout; on the other end, high-ticket, low-frequency services represented by private chefs. The latter is just budding, with platforms like Youfan, Mishi, and Yiqiche serving as private chef aggregation platforms. Even Luo Ji Si Wei has started to enter this market, but it is still in the education phase, and whether it can succeed remains to be seen.

However, takeout O2O services have been proven to be a viable path, mainly because takeout has become a certain degree of rigid demand with high usage frequency, and merchants are increasingly accepting internet-based operations. Currently, most takeout O2O platforms adopt a B2B2C business model, directly serving merchants and indirectly serving users. Specifically, they can build e-commerce front-end and back-end systems for restaurants and provide corresponding delivery services.

Interestingly, some "small and beautiful" single-category dishes are not only popular offline but have also become "blockbusters" in the takeout market. Examples include Jiao Ge Yazi, Jiao Zhi Ji, Sweetheart Salad, and No. 8 Shrimp Restaurant.

The takeout sector also saw a financing boom this year. In May, Ele.me received an 80 million USD strategic investment from Dianping; in September, Yitaoshi secured 20 million USD in a B round; in the same month, Daojia Meishihui got 50 million USD in a D round; rumors in November suggested Ele.me raised 300 million USD again; in December, Meituan raised 700 million USD, and Dianping raised 800 million USD.

Moreover, takeout has become the new "subsidy war" battlefield following ride-hailing, with Baidu, Meituan, and Ele.me clearly becoming the successors of the early-year Didi and Kuaidi battle. Furthermore, the offline promotion teams of these takeout platforms frequently clashed towards the end of the year. Next year, the competition in the takeout market will still be among these companies, with almost no chance for new entrants.

5. The Smart Mobility Service Market Has Entered the "Post-Ride-Hailing Era"

This year started with the ride-hailing battle and ended with the special car battle.

The "ride-hailing subsidy war" led by Didi and Kuaidi that began at the end of last year is considered a phenomenal event in China's internet history. This battle lasted until the end of May this year and flared up again at the end of the year. Now, ride-hailing services have formed a market with relatively stable scale and pattern. However, in this "post-ride-hailing era," other forms of mobility services are rapidly being transformed by mobile internet and sharing economy models. Smart mobility services are gradually penetrating from standardized products to non-standard ones, such as special car services, P2P car rental services, and carpooling services.

Special Car Services

Among these, the most vigorous is undoubtedly special car services. By 2014, Yidao Yongche had been cultivating this field for 4 years, but with the entry of Didi Special Car and Yihao Special Car, the expansion of AA Car Rental, and Baidu's strategic investment in Uber, the domestic special car service market suddenly became lively. There are four different model approaches: self-operation, cooperation with rental companies, integration of private car resources, and acting as an entry point. The entry of Didi and Kuaidi brought the subsidy tactics from the ride-hailing battle era into the special car market, forcing other players to follow suit. Thus, at the end of 2014, besides ride-hailing red envelopes flying around in social circles, there were also special car red envelopes.

However, while the market supply and demand relationship quickly took shape, the special car service faced gloomy policy conditions. On August 12, the Beijing Traffic Management Bureau issued a "Notice" prohibiting car rental companies from facilitating illegal operations. The "Notice" specifically mentioned "car-hailing services using the internet and mobile software," labeling "some operators" as "illegal operators." At the end of December, Shanghai even classified Didi Special Car as an illegal taxi and cracked down heavily. Facing the potential problems brought by special car services, policymakers worldwide are engaged in difficult negotiations with internet companies and taxi companies.

P2P Car Rental

Since last year, a number of domestic companies using the P2P model for car-sharing rental services have emerged one after another, such as PP Car Rental, Youyou Car Rental, Baojia Car Rental, and Aotu Car Rental. This year is their financing year. Starting from May, capital has been frequently flowing into the P2P car rental industry. In May, Baojia Car Rental launched with a $5 million angel round; in June, PP Car Rental secured a multi-million dollar Series A led by Sequoia; in September, Youyou Car Rental received a $10 million Series A from Lightspeed Anzhen and Qianfeng Huaxing; in October, Aotu Car Rental obtained nearly $10 million Series A led by Jingwei with follow-up from Source Code Capital; in December, Baojia Car Rental again raised a $30 million Series A from Ping An and Qiming.

Carpooling

Carpooling services have been lukewarm for several years without significant growth. However, in the second half of this year, 4 to 5 emerging carpool startups have contacted 36Kr and are very active. As relatively standardized markets like taxi, ride-hailing, and car rental heat up one after another, the attention of startups and capital is gradually shifting towards carpooling services. But the key is the increasingly clear market demand. On one hand, with the increase in car ownership and the rising cost of car maintenance, car owners' willingness to carpool will gradually strengthen; on the other hand, passengers are also increasing, especially after Beijing Metro ended the "2 Yuan Era," will more people embrace shared travel?

6. The Frenzy in the Capital Market

Whether early or mid-to-late stage, many O2O companies' financing scales in 2014 were jaw-dropping. The favor of capital has also intensified the money-burning war among O2O companies, which shows no signs of stopping.

Early Stage

Angel rounds exceeding tens of millions and Series A rounds exceeding hundreds of millions are no longer surprising in the O2O field. Moreover, almost every vertical within O2O has such cases. Such high early-stage financing previously appeared almost only in internet finance and online education. Here are some examples:

Dingdong Community, aiming to be the community service entry, announced a 100 million RMB angel round in May this year (later rumored to have a broken capital chain), while Community Worry-Free obtained a $20 million Series A in October.

Community retail services have been favored by capital this year: Community001 raised 100 million RMB Series A last year and reportedly completed a Series B this year reaching a valuation of 2 billion RMB; Aixiangfeng received a $20 million Series A in September; Tao Changzhou secured 150 million RMB in its first round of financing in June.

Looking at the on-demand manicure service that only heated up in the second half of this year, it is rumored that Helijia reached a valuation of 1 billion RMB after completing Series B in August, and Dudu Manicure also obtained a multi-million dollar Series A in October.

In the food delivery sector, besides the big players, some young companies have also attracted capital. For example, Big Mouth, which provides self-service ordering, received a 50 million RMB first round from Dazhong Dianping in May, while single-item delivery "Call a Chicken" got a 10 million RMB angel round.

In contrast, verticals like general housekeeping services (including cleaning, laundry, repairs) and semi-processed fresh produce appear relatively calm.

Mid-to-Late Stage

Recently, several companies have secured high-value Series D and E rounds, with valuations even higher than many listed companies.

In December, Didi Taxi first announced a new round of financing of $700 million, followed by Kuaidi Taxi reportedly securing an $800 million Series D. If true, the second season of the taxi war will be inevitable. In fact, these two have already resumed high subsidies for drivers in ride-hailing services, with single transactions reaching up to 100 RMB during peak hours. Moreover, Kuaidi's leader has stated they have prepared enough money for the ride-hailing battle, and this amount will not be less than what was spent in the previous taxi war.

Similarly to Didi and Kuaidi are Meituan and Dazhong Dianping. In December, Meituan was first rumored to have raised $700 million, and a few days later, Dazhong Dianping was said to have raised $800 million. In May this year, Meituan secured a $300 million round. These two are already the biggest competitors in the group-buying market and are expanding into third- and fourth-tier cities. Additionally, on the path of "de-group-buying," they intersect in various verticals such as hotels, movies, and tourism. Will capital push lead to a money-burning war? The probability is high.

However, the VC community remains relatively calm about these high financings and valuations. Many investors believe there is no bubble; O2O is a major trend, an acceleration of the internet transforming traditional industries, and large-scale capital inflow is inevitable.

Looking back at 2014, factors such as market size, demand, growth potential, and capital attention were all optimistic in the O2O field. So, will 2015 continue the prosperity or be a bubble? I lean towards the former.