Alibaba, Tencent spend billions in race to be China’s one-stop online shop
BEIJING/SHANGHAI (Reuters) – Alibaba and Tencent spent more than $8 billion last year alone backing often strikingly similar ventures, as the Chinese Internet giants race to create online one-stop-shops to win the digital loyalty of a tenth of the world’s population.
Before China became the biggest smartphone market, there was little overlap between the businesses of e-commerce leader Alibaba Group Holding Ltd, social networking firm Tencent Holdings Ltd and search engine provider Baidu Inc.
Now, as more and more Chinese use their phones for everything from shopping to booking restaurants, the three companies are increasingly stepping over each other – and investing in the same services – to attract the same users.
“What keeps people up at night is the fact that they might miss a certain trend or a certain hot company that really is going to bring all the attention and the users in,” said Duncan Clark, managing director of Beijing-based consultancy BDA.
“The fight to stay essential, to stay relevant, to stay on top of the home screen, it’s what it’s all about.”
In little over a month, taxi-hailing apps Didi Dache, supported by Tencent, and Alibaba-funded Kuaidi Dache raised over half a billion dollars each, while U.S. taxi app Uber attracted an undisclosed sum from Baidu.
The next arena looks set to be group-buying services, where customers agree to buy a certain item or service at the same time to gain discounts. Baidu bought out Nuomi last year and Alibaba-backed Meituan on Monday said it raised $700 million, valuing the company at $7 billion.
Group-buying site Dianping plans to raise a similar amount, people familiar with the matter told Reuters, declining to be named as they were not authorised to speak to the media. A Dianping spokeswoman declined to comment on the fundraising.
Fuelling the investment frenzy is the realisation that the platform with the most users will have by far the biggest returns, according to Taipei-based tech commentator Ben Thompson, who writes at stratechery.com.
“Alibaba, Tencent and Baidu… don’t want to miss out – or finish a distant second, which is just as bad – so they’re investing heavily,” he said.
Asked about its investments, an Alibaba spokeswoman said its strategy is focused on increasing users and expanding its products and services. Tencent did not respond to several requests for comment and Baidu declined to comment.
Alibaba founder Jack Ma and Tencent chief Pony Ma (no relation) have a history of one-upmanship in sectors ranging from gaming to microblogs. That rivalry aside, all online firms are looking over each other’s shoulders to ensure they don’t miss out on the next big thing.
“They have hundreds of people scouring the startup universe in China, India, the United States,” said Gary Rieschel, managing partner at Chinese investment firm Qiming Venture Partners.
A lot of the money major companies invest in Chinese startups is spent on building up user numbers via promotions and marketing. In the first quarter of 2014, Tencent said marketing costs jumped 93 percent to 1.9 billion yuan ($306 million), in large part because of subsidies for Didi Dache.
Investing big in a service, however, doesn’t guarantee it will succeed. “It’s right to question what are the limits of this,” said BDA’s Clark. “Not all these people can win.”
($1 = 6.2190 yuan)
(Editing by Christopher Cushing)