China is the fastest growing consumption market in the world. As the economy shifts from manufacturing to the service industry, the driving force of the country's GDP will be consumption; online to offline commerce is definitely a fierce battlefield.
A recent example of this is Chinese Internet giant Tencent's acquisition of a 20-percent stake worth 400 million US dollars in Yelp-like website Dianping to further expand its online to offline (O2O) commerce.
Founded in 2003, Dianping is the largest online ratings and reviews platform in China. It provides urban guide for consumption, which includes merchant information, consumer reviews, discount, group buying, online restaurant reservations and take-out ordering services. It had more than 90 million monthly active users and more than eight million local businesses covering nearly 2,300 cities across the Chinese mainland by the fourth quarter of 2013.
Upon the acquisition, the online service platform will be integrated with Tencent's social communications platforms, in particular its instant messaging mobile applications – WeChat's online payment service, as well as Tencent's mobile map application. WeChat has gained about 600 million users by the end of 2013.
Zhang Tao, founder and CEO of Dianping, stated that Tencent's social network and traffic would boost Dianping’s growth and that he would continue to seek for an independent initial public offering for Dianping after Tencent’s investment.
As people's shopping habits have changed from offline to online, O2O commerce has become a golden goose for China's three major Internet giants – Baidu, Alibaba and Tencent, collectively known as BAT – to compete for. In the past two years, the three corporations have made some strategic moves respectively.
To establish the O2O business, the connection between online social groups and offline services through social media platforms is most crucial. Tencent made the move by integrating WeChat with online shopping platforms, such as JD.com and consumption guides such as Dianping. Baidu invested in Nuomi, a group-buying service. Alibaba merged with microblogging website Sina Weibo to expand its Alipay online payments for businesses including Meitun, China's biggest group-buying site, and Kuaidi, a taxi-hailing app, as well as Citic 21CN Co., a medicine purchase platform.
Tech manager “Yu Feng” commented on the competition between Tecent and Alibaba:
It’s a key move for Tencent to push O2O. Alipay has grown quickly because it’s been based on huge trading volume of Taobao. The growth of WeChat payments need a trading scenario……It’d be better understood when you see WeChat payments + Dianping as another Alipay + Taobao [China's biggest online shopping platform].
In the midst of fierce competition among the BAT, whether or not online e-commerce platforms can gain from the integration process remains a question. Tech Journalist “Zhao Nan100″ pointed out that Dianping has paid a large amount of “entrance fee” to Tencent in the acquisition:
Practically Dianping has not taken 400 million from Tencent, instead it’s paid Tencent 690 million in shares for a seat on WeChat’s “my bank cards” [Tencent's online payment system]. Had Dianping listed as in stock market now, it would be worth a lot more than $2 billion. The discounted part become the fee paid to Tencent. Other online business starters can see the price to buy a seat on WeChat's “my bank cards”.
Zhang Pang, a business blogger, believed that such integration will become a trend as O2O commerce continues to expand:
The trend is getting more obvious. It is more and more difficult for Chinese online businesses to remain independent and stay out of the “clans”. The giants will not only inject capital but its resources and it will affect the environment and future of the business sector. Such a trend will have serious impact on the developmental path of Internet start-ups.
However, netizen “Classmate Ji” disagreed with the technological deterministic view, writing that informative consumer information is more important than “payment connection”:
Dianping’s independent users have risen to over 80 million last year. Does it need to buy a WeChat entrance? Don’t think you can do everything by owning an entrance. Don’t forget the Koubei.com case, which had battled with Dianping using high traffic and resources from Yahoo, but ended in failure. O2O needs down-to-earth offline work rather than playing around with Internet concepts.