Tencent, Asia’s largest Internet company, is poised to buy a 16-percent stake in China’s leading online retailer JD.com, according to Chinese media reports, a big move in China’s e-commerce market. The official announcement is expected next week.
The move is widely viewed as a strategic collaboration to shore up the two parties against their common competitor Alibaba, China’s largest e-commerce company.
Tencent is best known for its WeChat messaging service, which has more than 272 million monthly active users, mainly in China. It had appointed Barclays bank to advise it on a potential purchase of JD.com shares, the Wall Street Journal reported last month.
The company could merge its less popular e-commerce services Buy.qq.com and Yixun.com with JD.com, China’s second-largest online retailer, in return for the latter’s stock. JD.com would benefit from Tencent’s huge social network traffic, especially through WeChat, to help it compete with Alibaba. JD.com’s founder Richard Liu would still hold over half of the voting rights.
JD.com is currently preparing for a 1.5 billion dollar U.S. listing, ahead of a much anticipated listing by bigger rival Alibaba Group Holding.
An operational tie-up between Tencent and JD.com could create a strong competitor to Alibaba, which has thus far dominated China's e-commerce market.
JD.com’s presence in e-commerce is small compared with rival Alibaba, but an alliance with Tencent could create a bigger player. JD.com, like Amazon.com, is a direct seller of goods, while Alibaba runs eBay-like online marketplaces where many merchants sell items directly to customers. Analysts say Tencent could turn WeChat's vast user base into a platform for offering other services such as mobile shopping, and a partnership with JD.com could provide Tencent with more resources in running e-commerce operations.
JD.com wants to take advantage of Tencent’s overwhelming online presence, especially in the mobile area, while Tencent wants to put its online payment system into better use by working together with JD.com’s well-established e-commerce sector.
Tencent could sell its e-commerce assets, tiny compared to JD.com, at a good price and focus on core business of social networking and promising financial business.
An e-commerce consulting company CEO “Lu Zhengwang” was optimistic about the deal:
After packaging Paipai.com and Yixun.com to JD.com and building a solid online shopping payment entry, WeChat would have more opportunities to construct mobile shopping platform. A small mobile shopping ecosystem would pop up after WeChat payments are opened, stepping up competition with Taobao mobile. JD.com would be more confident in its coming IPO with Tencent’s investment and traffic resources from PC and mobile devices. The situation will become that Paipai.com + JD.com versus Taobao + Tmall
A netizen “About Yao Zhonglin” said the potential merge signaled that China’s Internet is entering into an oligopoly:
What’s more interesting is that two giants are starting to contact nearly all Internet companies, negotiate about potential investments or acquisitions. China’s Internet industry has started a ‘take sides’ game. Even such small companies like JD.com and 360 have been reported to receive investments from Tencent and Alibaba respectively. Nearly all valuable Internet firms will be asked to choose a side. It signals that China’s Internet is headed toward twin oligopolies.
Chinese netizens responded on tech social media Huxiu.com with a variety of opinions to the report of Tencent and JD.com’s potential collaboration:
“Floating over desert”: Richard Liu would “marry” Tencent only after Tencent sent its e-commerce sector to JD.com. This is likely to happen. JD.com would end up just one of many sites without Tencent; Tencent’s e-commerce sector would be unable to achieve bigger success without an e-commerce giant like JD.com. For Tencent, time is worth more than money in the mobile Internet era. It’s likely that the situation has settled, whether to transfer Yixun to JD.com would just be a chip on negotiating table.
I don’t want Tencent to buy a stake in JD.com. For us common consumers, the more e-commerce companies there are, the fiercer the competitions becomes, the more benefits we’ll gain. We’re going to lose if there is just oligopoly in market.
Laughing and cursing to survive: Tencent has become more like an investment bank. It may have realized that its own e-commerce business would hardly grow into a giant, so now is the time to sell. It could focus on core businesses like social networking and promising Internet finance. Facebook’s acquisition of WhatsApp has proven the potential value of social networking. Along this trend, Tencent could sell its flat video sector. Tencent’s e-commerce sector like Yixun.com seems not very valuable for JD.com, but may improve JD’s listing story and add to its valuation. The merger could also help JD get Tencent’s social network traffic.