Alibaba vs Tencent: Trench warefare
Alibaba Group and Tencent Holdings have different approaches to M&A but the same objective of achieving pre-eminence in China's internet industry. Other companies are obliged to take sides
“Big showrooms and lots, that process was designed decades ago. It forces you to spend a lot of time going from one dealer to another. Well… Alibaba is working to redesign the experience, bringing many brands of cars to the consumers to try, without the sales pressure. Behold, the auto vending machine.”
The corporate video released by Alibaba – as a means of explaining its ‘new retail’ concept that seeks to combine the best of the online and offline worlds – goes on to describe how the auto vending machine works: users browse car models on their smart phones, arrange a test drive with a few swipes of the finger, and then get in touch with a salesperson if they enjoy the experience.
The integrated network of car dealers that underpins a system like this sounds like the one Souche is trying to create. The company already has nearly 100,000 used car dealers, new car dealers and auto parts shops on its platform. This week it acquired Cheyipai with a view to boosting its presence in online used car auctions. Souche has received over $600 million in private funding, with Alibaba and Ali Financial leading rounds in the last 12 months. Is it a future acquisition target?
The observation is a valid one, especially in the light of recent M&A moves that both underline the dominance of Alibaba and Tencent Holdings and emphasize their strategic differences. To put it very crudely, while Tencent builds alliances, Alibaba just buys businesses.
The new retail juggernaut promises to digitize convenience stores, allowing mom and pop owners to study consumer analytics and order supplies through a single app, overhaul the shopping mall experience using virtual shelves, and make supermarket runs about the smart phone instead of the shopping cart. It is an offline experience, with online convenience, plus home delivery.
Digital-first supermarket chain Hema is a greenfield play, but Alibaba took a majority stake in department store chain Intime Retail – where it is experimenting with augmented reality shopping – and last week assumed control of food delivery platform Ele.me at a valuation of $9.5 billion. It was previously an investor in Meituan-Dianping, an online-to-offline services provider that also offers food delivery but sold its shares in response to Tencent’s growing involvement in the business.
Investors might well be thinking about the prospects for SenseTime, a local pioneer in artificial intelligence-driven image recognition technology that could prove integral to the next stage of the new retail project. Alibaba recently led a $600 million Series C round for the company.
This also invites the question of whether it is possible to take money from Alibaba and not be forced to take sides in the multi-faceted rivalry with Tencent. Ride-hailing platform Didi Chuxing counts both as investors but this came about through a merger of convenience, and following the latest developments in the transportation segment, industry participants say the company is now more aligned with Alibaba.
Specifically, Tencent indirectly changed the competitive dynamic in the bike-sharing segment as Meituan-Dianping acquired Mobike. Both companies are Tencent investees. Mobike’s direct rival is Ofo, which has received backing from Alibaba and Didi. Adding layers to the intrigue, Meituan-Dianping recently entered the ride-sharing space and Didi bought a bike-sharing business.
The move is classic Tencent: furnishing partners with financial and strategic support in areas that are not essential to its core business but could feasibly add more functionality to social networking platform WeChat or bring more customers to WeChat Pay. And the merits and demerits of this approach versus that of Alibaba is of relevance to VC investors and start-ups seeking to map out the future.
Souche noted that the acquisition of Cheyipai catapulted it into the elite of China’s used car trading platforms – and into direct competition with Guazi, which last month received an $818 million Series C round led by none other than Tencent. This suggests the battle lines are being drawn in yet another internet industry vertical.
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