Stirring up the hornet’s nest, travel startup Mafengwo accused of copying reviews from rivals

Chinese travel website faces public scrutiny in the lead up to an imminent fundraising.

Source: Unsplash.

Mafengwo (马蜂窝, meaning hornet’s nest), a Chinese travel tech unicorn, recently got stung by a large swarm of negative coverage accusing of its practice of stealing and faking reviews from some of its rivals, including Ctrip, eLong, Meituan, etc.

The scandal was first uncovered by a WeChat-based self-media reportage (link in Chinese), citing an analysis conducted by 3rd-party data analytics company Hooray Data, claiming that, more than 18 million out of Mafengwo’s 21 million reviews, or, over 85% of its total reviews, regarding travels, restaurants, and hotels, might have been shoplifted from competitors’ sites through either ‘water army’ or spiderbots.

Founded in more than a decade ago in 2006, Mafengwo started as a knockoff of Tripadvisor, providing an online platform to let travellers share user-generated content, including reviews of destinations, hotels, attractions, and local activities to help self-guided travellers in China plan their trips wisely. Hence the counts of reviews on its website are critical to the company’s business, and the current scandal is somewhat detrimental to the company’s valuation and a forthcoming funding round.

Denial and admission

In response to the negative media coverage, Mafengwo had initially denied the report, and then, under pressure, admitted that at least part of the content on its site has been stolen from other platforms. Though it insisted that the scale of the plagiarism was greatly exaggerated.

Mafengwo had subsequently sued the company that provided the data analysis and the author of the original report over defamation.

The company’s reported “plagiarism” practice could be, in part, due to the impulse to sustain the startup’s valuation that’s largely backed by online traffic and conversion rates, especially when the firm was said to raise a new round as well as in preparation for an IPO in few years.

Yu Zhuo, a vice president at Mafengwo, told media while attending an event in Macau that the company’s business was unaffected by the incident, and the company still looks to list in the U.S. in two or three years.

Some of the backers for Mafengwo include Singaporean state investor Temasek Holdings, Yuantai Investment, Hopu Investments, Qiming Venture, and Hillhouse Capital Group amongst others.

A dangerous game

Mafengwo generates revenue mainly from brand ads and hotel booking commission fees. All of these are very dependent on the traffic and conversions Mafengwo can generate. Since the more the traffic, the higher the conversion rate.  These lead to more revenue, therefore a higher valuation. And under pressure to sustain a ballooning valuation, this could be spun into a dangerous game of fabricating reviews for traffic and conversion rate.

Beijing-based Mafengwo has raised a total of US$153 million in four rounds, per Crunchbase. Its latest Series D round of $133 million was invested by General Atlantic, Ocean Link, Temasek, Capital Today, Qiming Venture Partners, and Yuntai, etc.

Mafengwo, since this August, has been in talks with Chinese tech behemoth Tencent on a new financing round that would value the company at US$2 billion, according to Chinese biztech media 36kr (link in Chinese), our parent company, citing multiple sources. An employee from an FA advising on the round, speaking on condition of anonymity, told 36Kr that the round “takes a long time due to the long due diligence procedure, coupled by the participating dollar funds dissatisfaction over its monetization capability.”

Another people close to the deal told 36kr that the current scandal would not have a significant impact on its valuation, as for a startup raising a post-D round, revenue would be prioritized over other metrics such as reviews and traffic when it comes to measuring valuation.

The company claimed its grand merchandise value (GMV) for 2017 was RMB 10 billion (US$1.4 billion), with only RMB 250 million (US$36 million) coming from brand ads while the remaining lion’s share generated through hotel and travel packages booking. For 2018, 36kr citing sources said that the GMV would be reaching RMB 15 billion (US$2.1 billion), a 50% yoy growth.

Editor: Ben Jiang