Can Alibaba Taxi App Be a Growth Driver? In App Race With Archrival Tencent, Cabbies Are Lavished With Beer

Can Alibaba Taxi App Be a Growth Driver?

In App Race With Archrival Tencent, Cabbies Are Lavished With Beer

PAUL MOZUR And JURO OSAWA 

Updated March 16, 2014 5:05 p.m. ET

BEIJING—Alibaba Group Holding Ltd. said on Sunday that it plans to start the process of listing on a U.S. stock exchange. At home, meanwhile, China’s biggest e-commerce company is trying to get Beijing taxi drivers to use its cab-hailing application.

The taxi-app struggle is one of many aimed at the next frontier in China’s quickly evolving Internet-services market, as competitors try to win over the country’s 500 million smartphone-wielding consumers and tap the massive revenue they control. It involves millions of dollars in handouts, marketing offices at cabby hangouts and free cases of Snow beer to drivers who encourage colleagues to use the app.

Signing up users has been hard, especially because Alibaba archrival Tencent HoldingsLtd. TCEHY -2.85% has been spending tens of millions of dollars on discounts to passengers and tips for drivers to promote a competing taxi app.

A government order last week temporarily curtailing the main method that both apps use for the taxi payments could also make things more difficult.

“The beer giveaway has attracted a lot of drivers,” said Wang Ping, a manager from Kuaidi Dache, the developer of Alibaba’s taxi app, standing near a ceiling-high stack of undistributed Snow Beer boxes inside her office in northwest Beijing, last month.

Alibaba’s taxi app lets smartphone users access Kauidi’s taxi-hailing service by selecting it from a menu in Alipay Wallet, the mobile version of its electronic-payments service. Passengers pay for rides by scanning a QR code on a driver’s handset, and then the amount is automatically deducted from the riders’ Alipay accounts.

The fight over taxi apps illustrates one of Alibaba’s biggest challenges, as it searches for ways to continue its torrid growth of the past decade.

Formed in 1999 as a website to connect Chinese suppliers with foreign buyers, Alibaba has grown into China’s No. 1 online-shopping company, with hundreds of millions of merchants and consumers using its online marketplaces Taobao and Tmall. Last year, $240 billion of merchandise was traded on Alibaba’s e-commerce sites, according to a person with knowledge of the figures—more transactions than at Amazon.com Inc.AMZN +0.60% and eBay Inc. EBAY +0.07% combined.

That growth has been crucial as the company prepares to go public, in a deal that people familiar with the matter say could raise more than $15 billion, rivaling or surpassingFacebook Inc. FB -1.61% ‘s $16 billion market debut in 2012. Alibaba has decided to hireCredit Suisse Group AG CSGN.VX -2.89% , Deutsche Bank AG DBK.XE -1.52% ,Goldman Sachs Group Inc., GS -0.81% J.P. Morgan Chase JPM -1.08% & Co., Morgan Stanley MS -1.08% and Citigroup Inc. C -0.95% for the IPO, another person familiar with Alibaba’s plans said. Alibaba hasn’t yet set a date for its IPO filing, or decided which exchange to list on, the person added.

Over the past few years, however, Chinese Internet users have migrated to smartphones from computers, Alibaba’s traditional area of strength.

Alibaba has moved quickly to adapt. Alipay Wallet now has more than 100 million users. That kept Alibaba in front in China’s 1.3 trillion yuan ($211 billion) market for mobile payments last year, with 70% of transactions by value, according to research firm Analysys International.

Taobao’s mobile app also has more shopping orders than others.

But homegrown rivals are coming up fast, in particular Tencent, China’s largest games and social-media company, whose WeChat mobile-messaging and social-networking application has attracted more than 270 million users. WeChat’s mobile-payment function, added to the app last year, now has tens of millions of users, according to a person familiar with the matter.

Both Alibaba and Tencent are pouring money into an assortment of investments. Tencent has spent more than $800 million to bolster its services, including $215 million earlier this month for a 15% stake in China’s second-largest online-shopping company, JD.com. In just the past month, Alibaba has taken a stake in a television-production company and made a $1.3 billion bid for an online-mapping company. Last year, it took an 18% stake inSina Corp.’s SINA -1.69% Weibo business, China’s equivalent of Twitter.

Alibaba is promoting its own messaging app, named Laiwang. It called on its more than 20,000 employees to each recruit 100 friends, and gave public accounts to more than 30,000 female models. Still, in November Alibaba said Laiwang had more than 10 million users, far fewer than WeChat.

One wild card for both companies is the Chinese government, whose central bank last week temporarily suspended the use of QR codes—complex patterns that can be scanned by smartphones—for online payments, citing security risks.

China’s state-run CCTV ran a report about Alibaba’s payment platform during the country’s annual March 15 consumer-protection day, alleging a number of security holes that could give smartphone thieves access to funds stored by users on Alibaba’s service.

Alibaba defended its payments service. “Alipay has a robust security and risk-management system that operates and monitors payments and transactions closely 24 hours a day, and a double-password system that requires multiple authenticating steps,” Alibaba said.

On Beijing’s streets, Kuaidi’s Ms. Wang says one of her biggest challenges in winning over taxi drivers has been educating those who aren’t tech-savvy.

At an office set up in April 2013 near a spot taxi drivers congregate during shift changes, the 25-year-old manager said she has helped register and teach hundreds of cab drivers how to use the app. The beer campaign has prompted 200 sets of drivers to form groups on the app, where they can chat about traffic and road conditions and hopefully use it to take on passengers.

Still, many drivers complain about ease of use. Cabbie Xing Guihua said he signed up for the app to get a case of beer. To his disappointment, he didn’t get one, because he hadn’t encouraged others to sign up as well.

Even after getting a lesson from Ms. Wang about the app in his car, Mr. Xing said he wasn’t won over. “I’m kind of stupid,” he said, laughing. “So, it’s still not really clear how to use it.”