- Global Voices - https://globalvoices.org -

China Internet Giant Tencent's New Acquisition Follows Online2Offline Trend

Categories: East Asia, China, Economics & Business, Technology

China is the fastest growing consumption market [1] 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 [2]-like website Dianping [3] 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 [4] 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 [5] 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 [6] the competition between Tecent and Alibaba:

对腾讯来说这绝对是O2O的胜负手,支付宝能做起来,因为背靠着淘宝巨大的交易额,微信的支付需要交易场景的加持才能真正发展起来……你可以把微信支付+大众点评,理解为另一个支付宝+淘宝的组合,就容易看懂了。

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 [7] that Dianping has paid a large amount of “entrance fee” to Tencent in the acquisition:

为了在微信“我的银行卡”占个座,大众点评实际上不仅没从腾讯拿4亿美元,反而是给了腾讯6.9亿美元,只不过这部分钱是以出让股份的形式表现的。要知道,如果现在IPO,大众点评怎么可能只值20亿美元,折价的部分实际上就是给腾讯的钱。其它创业者们,看到微信“我的银行卡”买一个位置的花费。

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 [8] such integration will become a trend as O2O commerce continues to expand:

其实现有一个势头正在越来越明显,那就是在中国互联网产业内的创业公司想要“不站队”,保持独立发展,将会越来越艰难,巨头通过注入自身资源而不仅仅是资金,将会迅速影响创业公司在某个领域的竞争环境和前景。这个趋势,将对未来一段时间创业企业的发展路径带来深远的影响。

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 [9] that informative consumer information is more important than “payment connection”:

大众点评APP独立用户数去年就已经超8000万,都是来自于真实口碑用户,用得着去买微信入口?别以为有个入口就能翻云覆雨,当年口碑网挟雅虎巨大流量和资源冲击大众点评,结果怎样,现在还有人知道么。O2O不是互联网人玩概念玩出来的,那是踏踏实实沉下心来做线下做出来的。

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.