Alibaba and Tencent have embarked on an offline “acquisition war”, even outside China. But the two conglomerates have different investment strategies
Alibaba and Tencent are investing in global retailers. According to Bloomberg, both Chinese tech giants revealed to be considering bids to acquire a 10% stake of Watson Group. Moreover, Shenzhen based company was one of the parties interesting in investing in the Chinese branch of Metro, the German wholesale giant. But reports stated how Alibaba was in talks with Metro last month too. The question is, Alibaba or Tencent, who’s the better suitor for retailers?
As large retailers that have yet picked a side in the Alibaba-Tencent divide, Watsons and Metro China are rarities in Greater China. For the past few years, Alibaba and Tencent have embarked on an offline “acquisition war”, pouring money into major Chinese shopping malls, convenience stores, supermarkets, and the like.
But the companies’ investment modalities are totally different between them, with Alibaba dropping serious money for large ownership positions, and Tencent opting mostly for smaller – and diversificate – ‘cash injections’ in exchange for minority stakes.
For Alibaba, the push into retail is part of its empire-building and ambition to shape the future of commerce on its own terms. Plus, the latest investment underscores Alibaba’s ongoing drive to expand New Retail – a business model that integrates brick-and-mortar and online shopping to create a seamless experience for consumers – to various sectors.
Each investment into a offline retailer, and each partnership with newer retail projects, allows Hangzhou based company to reach deeper into Chinese consumption desires and deploy its suite of solutions, including AliCloud, Alipay, Taobao Tmall, and supply chain services.
But a new problem is coming out. Retailers seem wary and worried of Alibaba’s hold over their sector. So, retailers may start to seek for alternative benefactors instead of Alibaba, and Tencent’s philosophy of applying a lighter touch could be particularly attractive. Tencent entered in Chinese retail in 2014 when it poured US$215 million into PRC second biggest e-commerce platform JD for a 15% stake, that was increased to 20% during JD’s IPO.
The main goal of Tencent’s investments into offline retail players was at the beginning of constraining and counteracting Alibaba’s dominance, rather than being driven strictly by the promise of financial returns.
Following this logic, Shenzhen based hi-tech company strategy can be seen as tit-for-tat, mirroring Alibaba’s acquisitions: JD to Suning, Yonghui to Hema, Carrefour to RT Mart and more. Recently, Tencent has had a bruising 2018, and now the company is trying to change model of business. focusing on developing its B2B competencies—the traditional stronghold of Alibaba.
Today, Tencent “clutches” sprawled into all sorts of areas. From online lending (WeBank) and insurance (WeSure) to offline medical clinics (Tencent Doctorwork).Even entertainment (Tencent Video) But the company still derives large part of its revenue from online gaming. And here is the problem.
The new direction shone through in 2018 when Tencent announced restructuring and established its Cloud and Smart Industry Business Group (CSIG), whose mission is to develop and deploy information technology solutions across conventional industries, such as retail.
In this field Tencent has a main challenger: Alibaba. Hangzhou based e-commerce giant has a strong lead in this arena. Last year Jack Ma took 45% of China’s fledgling cloud-computing market, with $10billion of incomes, compared with 10% for Tencent. Nevertheless this gap, last year Tencent doubled revenue in cloud services.
At the core of CSIG is Tencent Cloud, on which Tencent has packaged a suite of tools for merchants, including Enterprise WeChat, mini-programmes, as well as solutions for payments, analytics, and business intelligence. Anyway, it may take time before merchants adopt Tencent’s offerings. First, migrating from cloud services is costly, second Alibaba is still a ‘save port’ in terms of revenue for retailers, thus convincing merchants to adopt a new and unproven solution will be challenging.
While investing into more and different retailers gives Tencent an added opportunity to convince partners using its services, the smaller stakes don’t have the same leverage as Alibaba to compel portfolio companies into using those tools.