China’s attractive e-commerce sector portrays a fierce clash of titans between Alibaba and Tencent, according to a recent equity research report by investment bank Barclays.
While it seems that more players, such as JD.com and Pinduoduo are also competing for China’s online shoppers, Barclays research points out that the country’s e-commerce sector is a matter of two.
Barclays reasons that both JD and Pinduoduo are backed by investment and user traffic resources from Tencent. The company, also the owner of the dominant social platform WeChat app and QQ instant messaging software service, has been blocking Alibaba’s content within its network, giving room for JD.com, and especially Pinduoduo to grow. In addition, JD.com and Tencent also co-invested in online discount e-commerce site Vipshop.
The report further states that Tencent and Alibaba have been racing head to head in almost all vertical industries, except for gaming, where Tencent is currently the largest gaming company in the world by revenues.
Let’s have a look at the main battlefields where these two behemoths have been in.
Instant messaging
Tencent is widely known for its WeChat and QQ, taking up much of China’s social time. WeChat, with more than 1.1 billion users in 2018, is by far the largest social network in China.
Alibaba broke the blockage by inventing Dingtalk, a workplace collaboration, and interaction tool.
Dingtalk’s CEO Chen Hang revealed on a forum that 200 million users from more than 10 million companies have been using this tool by the end of June, 36Kr reported on Thursday.
Video
Alibaba bought Youku Tudou, which was a merge of video hosting sites Youku and Tudou, for about USD 3.7 billion, Reuters reported in November 2015.
Tencent has instead its own video streaming service, Tencent Video, which went online in April 2011.
Fan Luyuan, president of Youku, now a subsidiary of Alibaba, acknowledged in April that Youku would take at least two more years of content development to fairly compete with Baidu’s iQiyi and Tencent Video.
Social media
WeChat comes again in the rescue of Tencent with the ‘WeChat Moment’, the platform function that allows its users to share content, videos, and photos. Qzone, a space for QQ users, is another network dedicated to sharing content, blog, and photos.
On the other side, Alibaba invested USD 585.8 million in April 2013 to take 18% of total outstanding shares of the Twitter-like Weibo platform, according to Weibo’s 2018 financial report.
This report also shows that Alibaba, which continues as an investor in Weibo, generated USD 117.7 million in advertising and marketing services revenues for Weibo, becoming its largest customer in 2018 and accounting for 7% of its entire revenue.
Local services
Alibaba fully acquired the food delivery company Ele.me in a USD 9.5 billion deal in April 2018, according to South China Morning Post, which added that Ele.me was later merged with Alibaba’s user-generated review platform Koubei, to better compete with Meituan Dianping.
Meituan drew Tencent as a cornerstone investor for its planned USD 4 billion initial public offering in Hong Kong, Global Times reported in August 2018.
Meituan announced it made RMB 22.7 billion in total revenue in the second quarter of this year, up 50.6% year-on-year, benefiting from strong revenue growth across all major business segments.
In a breakdown, Meituan made RMB 12.8 billion in revenues from its food delivery business in the second quarter, up 44.2% year-on-year. In-store, hotel and travel business contributed RMB 5.2 billion in revenues, up 42.8% year-on-year, while new initiatives and others, including bike-sharing and ride-sharing, generated 4.6 billion in revenues, up 85.1% year-on-year.
Alibaba said in a press release that its revenue from local consumer services, which primarily represents services provided by Ele.me, was RMB 6.2 billion (USD 900 million) in the quarter ended June 30, 2019, up by 137% year-on-year.
Payment & Financial Services
Alibaba has a long-term contractual relationship with third-party payment platform Alipay, and has agreed to acquire a 33% equity interest in Ant Financial, which owns Alipay, according to Alibaba’s 2018 annual report. Alipay provides payment services to Alibaba’s Tmall and Taobao.
Tencent competes with its WeChat Pay service, a digital wallet service within WeChat, which has a larger penetration of 86.4% users, mostly due to the high usage of WeChat.
Both platforms have together a 93.3% penetration of all the mobile payment population.
Cloud services
Alibaba’s cloud computing business grew 66% year-over-year to RMB 7.8 billion (USD 1.1billion) between April and June, primarily driven by an increase in average revenue per customer. Alibaba’s cloud business gained a market share of 7.7% worldwide in 2018, only lagging behind Amazon and Microsoft, Chinese media outlet Leiphone.com reported, citing market research firm Garter’s data.
Tencent reported its fintech and business services, including cloud computing as one segment, generated RMB 22.9 billion (USD 3.2 billion) in revenue in the second quarter, up 37% year-on-year.
Overseas e-commerce
Alibaba said it would invest an extra $2 billion in Southeast Asian e-commerce firm Lazada, after already having an 83% stake in the company, reported Reuters in March 2018.
Alibaba also put in USD 45 million in Paytm, an e-commerce site in India, Reuters reported in April 2018, adding that before this the Chinese e-commerce giant already held a stake.
Tencent, meanwhile, holds a 5% stake in India’s e-commerce site Flipkart and has “the first right to purchase” any shares in the event that any stakeholder of the online retailer will plan to sell stakes to Alibaba, according to the country’s local media outlet Indian Times.
Tencent is also an investor for Southeast Asian e-commerce Shopee. Shopee is part of New York Stock Exchange-listed Sea Ltd. 72.4% voting power of Sea’s ordinary shares is jointly held by its founder Forrest Li and Tencent, according to a public offering prospectus the company filed in March.
Offline retails
Alibaba acquired the department store chain Intime for around $2.6 billion and invested HKD 22.4 billion (USD 2.9 billion) to gain a 36% stake in Sun Art Retail, the largest supermarket operator in China, according to Forbes.
Tencent is a backer for supermarket chain Yonghui, and invested RMB 4.2 billion yuan (USD 636 million) in a 5 percent stake in this company, Reuters reported in December 2017.
Tencent spent RMB 2.5 billion yuan (USD397 million) to acquire a 5.31% stake in Heilan Home, a menswear seller in China, according to Nikkei Asian Review.
Logistics
Alibaba has an advantage over Tencent in this sector which underpins China’s fast-growing e-commerce sector. Alibaba has its own Cainiao Network, which offers warehousing solutions for cross-border e-commerce participants, and sets up parcel picking sites in communities and campuses. It is also an investor for Chinese couriers including STO and YTO.
Tencent-backed JD.com’s logistics arm, which once only handled parcels for JD’s online marketplace, is now offering delivery services for enterprises and individuals, competing with couriers such as STO and YTO.
We can see that Alibaba and Tencent will continue its race to reign China’s digital economy, while both companies are also seeking to expand their presence in other connected sectors and business.
36Kr is KrASIA’s parent company
