Alibaba Duels With Tencent for Online Dominance in China

Alibaba Duels With Tencent for Online Dominance in China

Two of China’s richest men are intensifying their rivalry over the world’s biggest Internet market. Jack Ma’s Alibaba Group Holding Ltd., the country’s largest e-commerce company, on Aug. 1 said it blocked Tencent Holdings Ltd. (700)’s WeChat to sellers. Four days later, billionaire Pony Ma’s Tencent introduced online payment features to mainland China users of its WhatsApp-like chat software. Alibaba is headed for what may be the biggest initial share sale since Facebook Inc., while Tencent is China’s biggest Internet company, with more than 300 million users for WeChat, which started in 2011. Both have made purchases and encroached on each other’s established markets in the battle for dominance of the country’s online spending. McKinsey & Co. estimates China’s Internet retail will triple to $395 billion from 2011 to 2015.“Tencent is still in the land-grabbing phase,” said Billy Leung, an analyst at RHB Research Institute Sdn. in Hong Kong. “They’re still trying to improve their market share for the e-commerce space. On the other hand, Alibaba is trying to defend its territory.”

Tencent has surged 51 percent this year, the most on Hong Kong’s benchmark Hang Seng Index and pushing its market value to almost $90 billion. Alibaba’s valuation may be about $105 billion should it push forward with an IPO, Goldman Sachs Group Inc. (GS) estimated in a July 22 report.

Net Worth

Jack Ma, founder and chairman of the company whose Taobao Marketplace beat EBay Inc. in China, has a net worth of $3.6 billion, according to data compiled by Bloomberg. Tencent Chairman Pony Ma is worth $9.6 billion, the data show. The two men are unrelated.

Alibaba, which also owns Tmall.com, China’s top business-to-consumer website, on Aug. 1 said it disabled sellers’ access to WeChat because of security reasons. Virtual shoppers were offered the option of logging on to Alibaba’s Taobao site using their Sina Corp. (SINA) Weibo accounts, which are microblogs similar to Twitter Inc.’s social media platform.

Closely held Alibaba had in April agreed to buy a stake in Sina’s Weibo business, China’s biggest microblog.

Ma, a former English teacher, is also expanding into financial services, logistics and delivery networks and smart TV. Alipay.com Co. is offering services to fund companies in China. The electronic-payments operator reached agreements with 37 companies, with varying forms of cooperation, Florence Shih, a spokeswoman at Alibaba, said in an Aug. 5 e-mail.

Wealth Management

Tencent, meanwhile, has agreed to offer online payment services to 10 Chinese fund companies, according to a July filing with China’s securities regulator. It also tied up with Beijing-based China Asset Management Co. this month to offer wealth management services to WeChat users.

Alibaba’s Ma has made other acquisitions. The e-commerce group on May 10 announced the $294 million purchase of 28 percent of Beijing-based mapping company AutoNavi Holdings Ltd.

Alibaba hasn’t kept up with Tencent’s WeChat in mobile development, Ma said in March, even though his company started developing its mobile business three years ago.

More than 84 percent of China’s Internet users regularly access instant messaging, making it the most popular online application in the country, followed by search engines with about 80 percent, according to data compiled by Bloomberg.

Gaming Lead

About 76.5 percent of Sina Weibo’s 49.8 million daily active users in March accessed the service through mobile devices, according to an earnings call in May.

Sina Weibo also began providing special designed pages for some Alibaba sellers on Aug. 5 to promote their products on the microblog, according to a joint statement from the companies.

Tencent will probably focus on using its advantage in gaming and developing related services on mobile platforms, while Alibaba will be more focused on e-commerce, said Alex Wang, a Beijing-based analyst at Internet consulting group IResearch.

Alibaba, which started as a business-to-business marketplace, has turned into a more consumer-focused operation getting most of its growth selling to individuals across the world’s most populous nation. To improve deliveries, it joined with five companies and other partners to found Cainiao Internet Technology Ltd., aiming to help establish a network that can reach any place in China within 24 hours.

Richest People

Alibaba in May also said it partnered with Qihoo 360 Technology Co. (QIHU) for an e-commerce search engine. It will compete against Baidu (BIDU) Inc., owner of China’s largest search engine.

Baidu Chairman Robin Li, worth $9.8 billion, and Pony Ma are China’s richest people after Hangzhou Wahaha Group Co. Chairman Zong Qinghou, who has $11.4 billion, according to the Bloomberg Billionaires Index.

Tencent may find itself in direct competition with Alibaba when developing location-based services such as helping mobile users find restaurants and shops, said IResearch’s Wang.

“I think Alibaba has the greater chance of winning” in location-based e-commerce, said Wang. “Alibaba has a lot of ammunition for payment systems, marketing and user base.”

Tencent made more than half of its 44 billion yuan ($7 billion) revenue last year from gaming. In the first quarter of this year as many as 15.6 million users were online simultaneously playing its games, including “League of Legends,” a real-time strategy game developed by U.S.-based Riot Games Inc., which is majority-owned by Pony Ma’s company.

Tencent last month announced plans to buy 15.39 percent of gaming company Activision Blizzard Inc. (ATVI), owner of the hit titles “Call of Duty” and “World of Warcraft.” It bought a 13.8 percent stake of Korean messaging app company Kakao Corp.in April 2012, according to its annual report.

Tencent’s net income has surged eightfold in the five years through 2012 to 12.7 billion yuan on sales that grew 11-fold, according to data compiled by Bloomberg. The company had cash and short-term investments of 30.5 billion yuan as of March and its return on invested capital last year was 26.27 percent, compared with 27.37 percent in 2011.

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

Here’s why a war has started between Chinese Internet giants Tencent and Alibaba

By Kaylene Hong, 15 hours ago, 01:38pm

Chinese Internet giant Tencent has been on a roll recently — for a while last week, it seemed that plenty of other Chinese tech companies wanted to be friends with the firm behind WeChat, a wildly popular messaging service in the country.

However, a huge crack appeared in its veneer of popularity toward the end of the week when Chinese e-commerce giant Alibaba suddenly suspended its working relationship with WeChat, marking the start of war.

A series of collaborations and one break-off

Last week, Chinese telecom operators did a surprise turn-around after previously getting upset that WeChat was allegedly stealing users away from traditional SMS.

China Unicom officially announced the introduction of a new SIM card that includes an independent data package for WeChat. Subsequently, it was reported that China Telecom would launch a plan that includes 2GB worth of data specifically for WeChat as well as Sina Weibo — though WeChat was obviously the focus of this package.

Following that, Chinese smartphone manufacturer Xiaomi launched its latest Hongmi phone — at $130, it is the lowest-priced in Xiaomi’s range — in collaboration with Qzone, a social networking website owned by Tencent.

Tencent seemed to be riding the wave of popularity throughout last week — until all of a sudden, Alibaba announced that it was suspending all WeChat-related marketing applications from its e-commerce sites.

Alibaba cited misuse by sellers as the reason for doing so, but in the next moment, the company announced that it was launching a “Weibo-Taobao” platform to make it easier for customers on the Twitter-like microblogging platform to shop on e-commerce site Taobao. Interestingly enough, it was also revealed that Sina Weibo will provide Taobao sellers with marketing services.

This suspension of any existing working relationship is a clear indication that war has started between the two Chinese Internet giants — Tencent and Alibaba.

Unlikely rivals cross paths

It would seem that the two make unlikely rivals. The former focuses on providing service portals, while the other mainly dabbles in e-commerce.

However, Alibaba — which makes more money than eBay and Amazon combined — has been showing interest in tapping into the social market. Ittook an 18 percent stake in Sina’s Weibo in a bid to slow down Tencent’s WeChat success and also bought 28 percent of AutoNavi, China’s top mapping system, suggesting that it is focusing on maps as another prong of its social strategy.

This comes as Tencent revealed last year that it was looking to expand its business into a number of new areas as it sought to increase its already sizable online presence and appeal to advertisers — one of which was e-commerce, which would infringe on Alibaba’s presence. Subsequently, it created an e-commerce subsidiary called Tencent E-Commerce Holding Company.

Just recently, Tencent also led a $150 million investment in design-focused e-commerce service Fab.com, aimed at helping the firm learn more about global e-commerce models.

Alibaba’s fear of Tencent’s social power

Why would Alibaba be so afraid of Tencent though, given that Tencent has not yet made its big jump into e-commerce? The reason is simple:

Tencent’s dominance in the social market.

The power of social is something that every company aspires to have. Communities form opinions and can ultimately define future products and services, according to Jeremiah Owyang, an industry analyst and partner at Altimeter Group.

Right now, it is clear that even if communities haven’t entirely started defining products and services yet, they can decide which ones should get the love. This means that if you have the community on your side, you have a significant advantage.

And Tencent has the power of communities on its side, which could easily become a force to be reckoned with. QQ had close to 800 million active accounts at the end of 2012, while WeChat has nearly 400 million users in all, out of which there are 195 million monthly active users.

This means that any new initiative rolled out by Tencent, such as e-commerce, could very possibly tip the scale to its favor.

Even though Tencent has not started mapping a clear route to develop e-commerce, its dabbling into selling peripherals such as stickers and games could see it inch slowly toward rolling out more products.

Furthermore, Tencent has the payments solution in place to enable possible e-commerce. The company owns Tenpay, a PayPal-like online payments solution. Its QQ platform also has a virtual currency already, while the latest update to Weixin (what WeChat is known as in China) saw it introduce mobile in-app payments linked to a banking account which is in turn supported by TenPay.

Sina Tech report noted that by introducing payments onto WeChat, Tencent is literally declaring war on Alipay, the mobile payments company spun off by Chinese e-commerce giant Alibaba. The report cites a source close to Alipay as saying that the company had already sensed the impending threat of TenPay being integrated into WeChat, and has been developing new techniques to head off the challenge – for example, it recently announced a major update of its mobile app, Alipay Wallet.

Who will win the war?

Alibaba has shown all intentions of fighting this war to victory. Newly-installed Chief Executive Jonathan Lu has pledged to continue the e-commerce giant’s recent string of big investments as it continues focusing on improving its services for mobile. Lu wants Alibaba’s service – and in particular its two biggest e-commerce businesses: virtual ‘mall’ for brands Tmall and eBay-likeTaobao marketplace – to make better use of customer data to provide a more tailored user experience.

However, even Tencent’s rival — and Alibaba’s ally – Sina has publicly admitted that WeChat is causing its users to spend less time on the Twitter-like Sina Weibo service.

In other words, Tencent isn’t China’s biggest Internet company without a reason. By harnessing the power of social, Tencent has laid its foundation well and could easily spread its influence into a wider variety of businesses.

John Hancock once said: The greatest ability in business is to get along with others and to influence their actions.
The community that Tencent has painstakingly built up over the years will lead to much easier influence in the future, which bodes well for its business. On the other hand, Alibaba needs to brush up on its social influence in China. It is doing swimmingly well in its main businesses — which include e-commerce, financial solutions and big data — and has been tipped for a multi-billion-dollar initial public offering (between $60 billion-$70 billion), but its lack of a persuasive social strategy still sticks out like a sore thumb.

Could the tables turn though? Definitely, considering that Alibaba has already recognized this and is taking steps to beef up its social strategy. In war, victory is always possible as long as you keep fighting. Who knows, Alibaba could one day just as easily roll out a phenomenal success like WeChat.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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