Tencent and Alibaba battle for internet dominance in China

Jack Ma and Pony Ma Jack Ma (left) and Huateng "Pony" Ma founded Alibaba and Tencent, respectively, within months of each other

Related Stories

It's been called "the most expensive competition in online history" - but it's one you might not have heard about.

More than 15 years ago, two firms launched in China within months of each other, looking to take advantage of the growing numbers of internet users in the country.

Alibaba, founded at the start of 1999 by former school teacher Jack Ma, was a platform created to help businesses sell products to each other.

It quickly grew into a marketplace where not only firms did business, but consumers as well.

In 2003 Alibaba launched Taobao, essentially China's eBay. This was followed a year later by Alipay, a Paypal clone.

But the internet, of course, is not just about selling things, it is about people connecting with each other via social media.

Biggest internet companies

Google logo

The top five biggest publicly traded internet companies by revenue are:

  • Amazon
  • Google
  • eBay
  • Facebook
  • Tencent

Huateng Ma - known as "Pony" - founded Tencent just a few months before Alibaba in 1998 as a place to connect the growing number of young users on the web.

QQ - the company's instant messenger platform - quickly became the world's largest, with more than a billion accounts. The company then launched a variety of social platforms before going public in 2004, and quickly becoming the fifth largest internet company in the world - currently valued at over $140bn (£84.1bn).

So far, so fine.

But as China's internet usage has grown - the country has 618 million internet customers - so have the two firms.

And now, as the Western saying goes, this town - or this country - isn't big enough for the both of them.

No challengers

"Alibaba is the largest e-commerce company in China - it's been the market leader for the past 10 years, and nobody has been able to challenge that position," explains Forrester Research's Bryan Wang.

Phone with whatsapp laiwang and wechat Alibaba launched Laiwang, a competitor to Tencent's WeChat and Facebook's WhatsApp, in 2013

Alibaba is essentially Amazon, eBay and Paypal in one. It had an estimated 1.1 trillion yuan (£107bn; $178bn) of sales in 2012, more than eBay and Amazon combined, and it accounts for 60% of all parcels delivered in China.

Start Quote

I think Alibaba is running scared - Jack Ma looks desperate right now”

End Quote Shaun Rein China Market Research Group

The firm just announced plans for an initial share flotation in the US, which many analysts believe could be the largest ever for an internet firm.

But recently, something has shifted - of the 618 million internet users in China, more than 500 million of them access the internet via their mobile phone, according to China Internet Network Information Centre, a Chinese government agency.

"Around 85% of Chinese are now interested in buying goods and services through their mobile phone - three or four years ago, it was 30%," says Andrew Pitcher, a senior vice-president with SAP Asia Pacific Japan, a software firm.

"It's moving very quickly."

Alibaba's shopping list

Woman in Alibaba office

Here's a list of the firms Alibaba has bought or invested in during the past year:

  • Sina Weibo (China's Twitter) - $586m for 18% stake
  • Retail website Shoprunner -$206m investment
  • Cloud storage firm Kanbox - acquired (price not known)
  • Search engine Quixey - $50m investment
  • Map firm AutoNavi - $1.6bn to buy (still to be confirmed); follows $294m investment for 28% stake
  • Financial management firm Tianhong -$193m for 51% stake
  • Pinterest-type site Mogujie - $200m acquisition
  • Luxury e-commerce site 1stdibs -$15m investment
  • TV and movie studio ChinaVision -$800m for 60% stake
  • Travel provider ByeCity - $20m investment
Surprise contender

That quick shift to mobile has benefited Tencent, China's largest internet firm, the most.

That's because Tencent's WeChat - a mobile messaging service estimated to be worth $64bn, three times the price Facebook paid for similar product WhatsApp - has more than 270 million users who use the platform to do everything from book a table at a restaurant to order a taxi.

Crucially, those users have linked up their debit and credit cards as well as bank accounts in order to make these transactions.

This year, when Tencent launched a mobile payment service during Chinese New Year to allow users to send and receive traditional "red packets" of money, more than 200 million users signed up for the service in 15 days.

"That was more than what Alibaba has tried to do - and it was a clear sign that Tencent has the foundation because of its user base, so it's actually able to challenge Alibaba's leadership in China," says Mr Wang.

He adds that in China, being able to see what others have bought - in essence, a mix of social and e-commerce - is very valuable.

"China purchasers are very likely to seek advice from their friends and peers - in that sense, Tencent has an edge."

'Looks desperate'

Needless to say, Tencent's ascendance hasn't been a welcome distraction to Alibaba's share sale plans.

In an effort to stave off competition, Alibaba has attempted to launch new products, including WeChat competitor Laiwang in 2013, and acquire firms, including an 18% stake in Sina's Weibo - essentially China's Twitter - which recently announced an initial public offering (IPO) share floatation of its own.

Tencent acquisitions

Not to be outdone, Tencent has also been on a shopping spree. Purchases and investments include:

  • E-commerce site JD.Com - $214m for 15% stake
  • Dianping, China's Yelp - $400m for 20% stake
  • Travel service 17u.cn - $82m investment
  • Map firm Linktech Navi - $9.9m acquisition
  • Logistics firm China South City Holdings - $195m for 10% stake
  • Search engine Sogou - $448m for 36.5% stake

"I think Alibaba is running scared - as they're about to IPO, it's really damaging for them," says Shaun Rein, managing director of the China Market Research Group.

"Jack Ma looks desperate right now."

And Tencent hasn't been intimidated by Alibaba's big spends, as it has deep pockets of its own.

The firm recently bought a large stake in JD.com, the second-biggest e-commerce site in China behind Alibaba, for $215m.

Alibaba's Tmall, which allows business to sell to consumers, has about a 50% market share, followed by JD.com with 19%, and Tencent's own platform with 7%, according to research firm Analysys.

"The two giants are competing with each other, making acquisitions in very similar areas - travel, online lifestyle websites, shopping - it's head-to-head competition," says Mr Wang.

"I believe it will be one of the most expensive competitions in online history."

And the competition is just heating up. "In the next six to 10 months, you're going to see a lot of consolidation in the mobile start-up space," says Mr Rein.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Business Live

  1.  
    09:10: Facebook friends Russia
    Navalny

    On its front page, The Independent reports that Facebook has been accused of giving in to censorship after it apparently blocked access to a protest page on its site - under pressure from the Kremlin. A former US ambassador to Russia describes it as a "horrible precedent". According to The Daily Telegraph, Facebook has declined to comment on the suggestion that it stopped Russian users from viewing a page, rallying support for one of President Putin's most prominent opponents.

     
  2.  
    08:55: UK jobs Radio 5 live

    The employers' organisation, the CBI, says its latest survey suggests that half of its members plan to take on more staff next year. "Skills are at a premium in lots of areas," says CBI's director for employment and skills, Neil Carberry. "In fact one of the things we found in this year's survey is the biggest worry now for companies in their broadly rosy picture is whether they can get the skills they need to keep growing."

     
  3.  
    08:45: Markets update

    The main European markets are all looking rather chirpy this morning. Gains for oil firms, including Tullow Oil, Royal Dutch Shell and BP are driving the FTSE up 1% to 6,608. That's partly because Brent Crude has risen by 2% to $62.24 a barrel. In Germany, the Dax is up 0.9% to 9872, while in France, the Cac-40 is up 1.2% to 4293.

     
  4.  
    Cranking up Lada 08:28: Via Email Tony Higgins Lada owner

    "We had a Lada Niva. We bought it when we moved to a Lancashire hill farm in 1993. It was great. The early years were bad winters but the Lada coped very well. It was like a crab both on and off road, permanent 4WD. No power steering so hard work."

     
  5.  
    08:12: Pull over, Uber
    Xiaomi

    Uber may have been valued at $40bn, but one Chinese tech firm could now be worth an estimated $45bn, despite being relatively unknown outside Asia. The WSJ reports that smartphone and tablet maker Xiaomi, whose polished branding and devoted fan base is reminiscent of Apple's, has overtaken Samsung in China, but faces several challenges in expanding into India and beyond.

     
  6.  
    07:54: Cranking up Lada

    So, on to some of those Lada jokes. What do you call a Lada with a sun roof? A skip. What do you call a Lada with a sunroof and twin exhausts? A wheelbarrow. Etc. Send us your favourite Lada jokes: bizlivepage@bbc.co.uk and we will publish the best. Or if you've driven a Lada, and think they get a bad rap, let us know.

     
  7.  
    07:49: Cranking up Lada
    Lada

    The New York Times reports that the Kremlin is seeking to revive Russia's last major Soviet brand - the carmaker Lada. It has recruited Swedish-American Bo Inge Andersson, previously a vice president at General Motors. Lada, historically the butt of many jokes, still accounts for a third of all cars in Russia, and as foreign companies like Audi and Jaguar Land Rover suspend sales in the country due to the plummeting rouble, the utilitarian company could return to strength.

     
  8.  
    07:35: B&Q China
    bnq

    Kingfisher says it will flog its controlling 70% stake in B&Q China to Wumei Holdings for £140m. It opened its first B&Q in the country in 1999.

     
  9.  
    07:25: Oil blessing?

    The Guardian's leader takes a contrarian stance on falling oil prices, which have been widely welcomed by Western consumers. "Oil has dipped 40%, pessimists fear, because the world no longer expects a return to economic full pelt," it argues. "Europe, Japan and - relative to its own vigorous standards - China, have all been looking anaemic this year. Like low blood pressure after a heart attack, then, cheap oil should arguably be regarded not as a sign of rude health, but rather as a consequence of malaise."

     
  10.  
    07:12: Budget Samsung
    Samsung

    $100 for a Samsung smartphone? CNBC reports the South Korean company is entering the increasingly competitive budget handset market, in a bid to sell more phones in India, where many people still use simple phones. The new handset will run Samsung's own Tizen software.

     
  11.  
    06:58: Rates Radio 5 live

    The Bank of England's Martin Weale adds that he is optimistic about the year ahead. More money to spend from cheaper oil will help. He's on the committee that helps decide the key interest rate. Will it rise this year? He's careful not to second-guess his colleagues on that one.

     
  12.  
    06:46: Santa rally? Radio 5 live
    santa

    Will there be a so-called Santa rally this year? A rise in markets in the days around Christmas? Brenda Kelly from IG says you see one in almost nine out of every 10 years since the '80s.

     
  13.  
    06:28: Rates Radio 5 live

    The Bank of England's Martin Weale has been telling Wake Up to Money why he's been voting for interest rates to move off the record low of 0.5%. "It isn't only that unemployment has been falling - at least until recently extremely rapidly. It's also that when I go and visit businesses throughout the country I find they're talking of pay increases in a way quite different from what I was hearing early in the year certainly this time last year."

     
  14.  
    06:16: Markets Radio 5 live

    Brenda Kelly from IG is Wake Up to Money's markets guest. They are talking about the falling oil prices. "A lot of it is down to a glut of supply and Saudi Arabia wants to keep market share," she says. Saudi's breakeven price is only a few dollars per barrel.

     
  15.  
    06:10: Christmas spending Radio 5 live

    Mark Barnett, UK & Ireland president of Mastercard, is on Wake Up to Money, talking about Christmas shopping habits. What else? People have returned to luxury goods, he said. Holidays and furniture are down a little bit though.

     
  16.  
    06:04: Hacking 2.0
    Kim Jong

    The global cyberwar that dominated headlines last week shows no signs of abating. Hackers have infiltrated South Korea's nuclear power provider, and posted schematics of nuclear reactors and private personal records online. It's not clear whether the same group that attacked Sony Pictures is responsible.

     
  17.  
    06:00: Howard Mustoe Business reporter

    Morning! Get in touch. Tell us what you think. Email bizlivepage@bbc.co.uk or on Twitter @BBCBusiness

     
  18.  
    06:00: Joe Miller Business Reporter

    Good morning, and festive greetings all round. In a week when the business world is winding down for Christmas, we'll bring you all the news that's sneaking in the back door, and much more besides.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.