Monday, March 10, 2014, 09:00
Alliance of Tencent, JD could be a giant slayer

Alliance of Tencent, JD could be a giant slayer
Tencent president Martin Lau(L) shakes hands with Richard Liu, founder, chairman, and CEO of JD.com. (Provided to China Daily)

China's Internet giant Tencent Holdings Ltd is buying a stake in the country's second-largest online retailer in order to boost its competitive advantage in mobile Internet against its rival Alibaba Group Holding Ltd, the country's dominant player in e-commerce.

Shenzhen-based Tencent said on Monday it is injecting about $215 million in cash and its self-run e-commerce units into JD.com Inc for a 15 percent pre-IPO stake in the online retailer.

The deal, which comes ahead of JD's listing in the United States for $1.5 billion, is the latest in the rapidly growing Internet sector in China

Under the strategic partnership inked by the two Internet companies, Beijing-based JD will gain access to tap into Tencent's significant mobile and Internet user base.

For its part, Tencent, whose dominating mobile messaging app WeChat has more than 600 million accounts, is expected to use JD's e-commerce services to turn WeChat into a super gateway to gain subscribers in the era of mobile Internet, said analysts.

"Our strategic partnership with JD will not only extend our presence in the fast-growing physical goods e-commerce market, but will also allow us to better develop our enabling services such as payment, public accounts and performance-based advertising network," Martin Lau, president of Tencent, said in a statement on Monday.

According to the arrangement, Lau will join JD as the company's board of directors. Tencent will subscribe at an IPO price for an additional 5 percent of JD on a post-IPO basis.

The competitive environment in China, where 500 million people have access to the Internet through mobile devices, has sparked a buying spree among homegrown Web titans. Citi Research has forecast that the big three - Baidu Inc, Tencent and Alibaba - will drive Internet-related deals to a record this year.

Compared with Tencent's previous two strategic investments - one in taxi-booking application Didi Dache, the other in restaurant-rating and group-buying service provider Dianping - the company's stake in JD is in a different class, one that could completely change the makeup of not only e-commerce but China's entire mobile Internet sector.

"It is clear that Tencent aims to build its WeChat into a super gateway in mobile Internet," said Lu Zhenwang, an independent Internet expert and the chief executive officer of the Shanghai-based Wanqing Consultancy.

"Its investment in both Didi Dache and Dianping has allowed Tencent to embed the two companies' applications into its WeChat platform, which can help Tencent tap into offline business and build up its status as a powerful mobile payment provider," Lu said.

"But to turn WeChat into a mobile e-commerce platform, no one can do a better job than JD," he added.

According to the Hangzhou-based China e-Business Research Center, Alibaba's Tmall accounted for 50.1 percent of China's business-to-consumer market in 2013, and JD ranked second, with 22.4 percent.

The combination of JD's more than 100 million users and WeChat's more than 600 million accounts makes an ideal mobile e-commerce team, analysts said.

"The move will not only shake Alibaba's No 1 position in e-commerce, but also its leading position in mobile payment," said Lu.

But Alibaba has time to fight back if it chooses its strategy properly, said Lu Jingyu, an analyst with iResearch Consulting Group.

According to Lu, JD will serve as a powerful catalyst to speed WeChat's transformation from a social tool to an e-commerce platform, but the effect won't kick in for another few years.

"To form a new habit for users take a long time. If Alibaba can make the right move, it can still change the situation. But the clock is certainly ticking," she said.