Expedia’s Painful Lessons in Money Wars and Other China Tactics. Plus Morgan Stanley.


I’ve written quite a few articles on companies that have struggled in China. However, in many cases, they later came back and won, often spectacularly. It’s a fun subject. For example:

  • In Part 1, I detailed how Carlsberg beer and Danone both initially struggled in China. But Carlsberg later came back with an impressive success in the far West.
  • In Part 2, I detailed how Ford and Fiat both also initially struggled. But in the past several years, Ford has been showing impressive sales across China.

In this article, I look at Expedia, which really got worked in China. It’s a good example of T5: Money Wars and Last Man Standing. Plus, some Morgan Stanley stuff in China, which is inspiring.

Recall Level 6: Tactics

Tactics is a grab bag of short-term moves between competitors. It can be between start-ups fighting to claim a new market. It can be between rivals in an existing market. And it is often about new entrants trying to break in against incumbents.

When people talk about how the speed of business is increasing in digital, they are usually talking about tactics. It’s just so much cheaper to develop and deploy digital goods.

  • You can change marketing, promotions and prices in real time.
  • You can launch new products every day.
  • You can launch 20 different versions of the same product.
  • We frequently see money used as a weapon, especially when companies are betting it all on getting network effects.
  • We often see lots of economically irrational behavior, like Luckin subsidizing coffee in China.
  • And we definitely see lots of dirty tricks, which can be surprisingly effective.

In Asia, this type of competition is particularly brutal. Chinese companies are the kings of short-term moves and tactics. When people talk about companies operating at “China speed,” they are usually talking about tactics. To survive as a digital business in China, you have to fight off literally hundreds of competitors. You have to be incredibly fast. You have to be incredibly responsive to market and competitor changes. And you have to be tough. If competition in the USA is soccer, competition in China is rugby. You are going to take elbows to the face.

That’s something to keep in mind when you look at people like Alibaba founder Jack Ma, Tencent founder Pony Ma and especially Meituan founder Wang Xing. You are looking at some of the world’s toughest tech CEOs. You are looking at the last gladiators standing in an arena full of dead bodies. They beat off hundreds, if not thousands, of competitors. They know every move and countermove. And they know every dirty trick.

The graphic below is what I think of when I think of tactics and short-term moves, but especially in digital China. It’s a battle royale.

Tactics are the bottom level. Ongoing and innovative short-term moves are a crucial part of operating performance for digital businesses. But it is also where survival is hardest. You have to be good at this. But you don’t want to live in the melee; you want to move upwards to where you can survive and maybe thrive long-term.

That means moving from Tactics up to Digital Operating Basics. Companies that don’t do this usually rise and fall quickly. Life is too hard at the bottom. And the rewards are small and transient.

Tactics are pretty specific to each business. But so much of the digital strategy discussion is usually just about tactics. Commonly cited phenomena like virality, first mover advantage, counter-positioning and growth hacking are just short-term moves. These are important, especially in the early stages of companies and as an attacker.

I have listed some of the tactics we often see in digital.

T5: Money Wars and Last Man Standing

If hypergrowth is mostly about going for growth and maybe opening up a market, money wars are mostly about killing a competitor.

You use your financial resources to steal customers. You out-build competitors in terms of capacity and then drop your prices. This is not about out investing competitors in key capabilities like technology or infrastructure. This is about using money as a weapon to knock down a competitor. And ideally to drive them out of the market.

For example, Uber vs. Didi in China was mostly a money war. Both companies were raising and spending money mostly to steal from each other. That is why they had to keep matching each other in capital raising. They were both discounting fares to consumers and offering bonuses to drivers. In contrast, Uber and Didi have largely (not entirely) avoided this situation in Brazil and Mexico. Both companies are there and are spending money. But they are mostly spending to try to grow an underdeveloped mobility market. They have (thus far) resisted the temptation to turn their guns on each other and start a money war.

We actually see money wars all the time in China/Asia. It’s not just a digital tactic. We usually call it Last Man Standing. It goes like this. A market leader (or the most well-capitalized company) ramps up its spending on marketing and/or capacity. It then lowers its prices to where it is below operating break-even. So the company starts to bleed cash. But because it is larger and/or better capitalized than its competitors, they all bleed more. The company keeps this up until everyone else dies or leaves the market. Then they get the market. Hence the name last man standing.

We have seen this in solar, wind and other manufacturing in China. We see it in steel factories. We see this against foreign companies, with the US companies frequently complaining about dumping into US markets. We even saw it in the travel apps.

Expedia Got Worked in China

US company Expedia was actually very successful in online travel in the early days of digital China. They entered China in 2005 with the purchase of a 55% controlling stake in the Chinese travel site eLong. Expedia basically did everything right from a strategy perspective – including:

  • They got to the market early and had an early mover advantage. Back in 2005, the Chinese Internet was still in its infancy. This was 5+ years before Chinese consumers would really start traveling and spending.
  • They captured some big Chinese secular trends: rising consumers, increasing travel (both domestic and international) and e-commerce.
  • They got to scale in a business with strong network effects. The online marketplace for hotels (not plane flights) quickly collapsed to a handful of dominant giants. And Expedia, via eLong, was one of the big winners. Qunar and Ctrip were the others.
  • In 2011, they purchased an additional 8% of eLong from Renren for $72M. This took them to 62% ownership.

It all looked pretty good. So why in 2015 did they sell their entire eLong stake for $671M and exit?

Because Ctrip and Qunar are very good at tactics. And they are much tougher street fighters.

There had been a money war in online travel for over a decade. Yes, the market had consolidated to three leading players. But they were still fighting. Even after ten years as one of the dominant players, eLong and Expedia were still losing money year after year. And this was impacting Expedia’s overall returns. In the most recent quarters before Expedia’s exit, eLong was still losing around $20M per quarter.

It’s a good example of last man standing in digital. Expedia won big in China and became one of the three major players. But they were still losing cash after ten years of work, and it appears they eventually had enough. And that is the point of last man standing: to make the other party bleed so much that they eventually walk away. After Expedia sold its stake in eLong, most of it was purchased by Ctrip. Ctrip also later bought a large stake in Qunar. And Ctrip became nicely profitable.


That’s the key lesson for today. I always think of Expedia when I think of Money Wars and Last Man Standing.

However, here’s one other fun story.

Another China Story: Morgan Stanley and CICC

CICC (China International Capital Corp) was launched in 1995 as a joint venture between Morgan Stanley and China Construction Bank (i.e., People’s Construction Bank of China). For Morgan Stanley, this was their single largest investment in an emerging market to date ($35M for 34.3% ownership). And it was their primary strategy for becoming a player in China’s domestic capital market.

The joint venture was very successful. CICC has gone from the 40 employees at launch to over 4,200 employees today. Revenues in 2015 were over 9B RMB.

However, Morgan Stanley sold its stake in CICC in 2011 – and had been trying to sell as early as 2008. There are various reasons for this, including the financial crisis and dealing with limits on how many banks / JVs a foreign company can have in this sector in China. But underneath this was also the fact that CICC was no longer an operational vehicle for Morgan Stanley in China. It had become mostly a passive investment.

So what happened?

My standard question for any company in China is “what is your advantage or value-add to your partner?”. Good answers to this can be technology, foreign customers, a well-known brand, and cross-border operations. But my follow-up question is always “and how long will this advantage or value add last?”. This is the question that usually catches companies.

A lot of the joint venture stories you hear are after one partner’s capital, expertise or technology has already been transferred. A declining value-add by a partner (on either side) can easily lead a break-up or to one party getting pushed aside. Your ongoing value-add is what really keeps you in the relationship.

For Morgan Stanley and CICC, this happened quite quickly. The first group of investment bankers were trained. The importance of foreign capital declined. Morgan Stanley had added a lot of initial value but then more or less stopped having a significant operational role and became more of a passive shareholder.

This type of result would have been fine if they were a venture capital firm (they made a very good return on their $35M). But this was not their primary goal as an MNC looking at the China market long-term.

Post Break-Up, Morgan Stanley Keeps Rolling.

However, this situation did not really slow Morgan Stanley down. Investment bankers are pretty clever.

  • In 2006, Morgan Stanley became the first foreign bank to receive a wholly-owned commercial banking license in China.
  • In 2008, they created a trust joint venture, Hangzhou Industrial and Commercial Trust. They also partnered with Huaxin Securities to form a fund management company, Morgan Stanley Huaxin Fund Management Company.
  • In 2011, they established a RMB private equity investment management firm.They also partnered with Huaxin Securities to create Morgan Stanley Huaxin Securities.

And all of this was done under some fairly strict limits on what foreign banks can do in China.


The bad news is, yes, China is a difficult and often brutal market. Struggle is, in fact, very common. The good news is that the market is so big and dynamic that you can almost always try again. So keep trying. Don’t give up. But wear a cup.

Thanks for reading. Cheers, – jeff


I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

Photo by Chris Griffith, Creative Commons license with link here.


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