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  • Sep 3, 2014
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Tencent

Founded in November, 1998, Tencent has grown into one of China’s largest Internet service portals. Its platforms include QQ (QQ Instant Messenger), QQ.com, QQ Games, Qzone, 3g.QQ.com, SoSo, PaiPai and Tenpay, and span communication, information, entertainment, e-commerce and others. As of September 30, 2011, it said its active QQ user accounts for QQ IM stood at 711.7 million. Tencent listed in Hong Kong in 2004.

BusinessChina Business
TECHNOLOGY

Tencent-JD.com alliance intensifies e-commerce challenge to Alibaba

Partnership may reshape China's e-commerce market as more people shop using smartphones

PUBLISHED : Monday, 10 March, 2014, 9:38am
UPDATED : Tuesday, 11 March, 2014, 12:37am

The mainland's rapidly expanding e-commerce landscape is poised for a seismic shift after Tencent agreed to acquire a 15 per cent stake in online retail platform JD.com for US$214.66 million, ratcheting up their challenge to market leader and common rival Alibaba Group.

Shenzhen-based Tencent, through subsidiary Huang River Investment, also committed to subscribe to an additional 5 per cent of JD, following the Beijing-based firm's planned initial public offering in the United States.

"By acquiring a stake in the mainland's second-largest business-to-consumer platform, Tencent can more effectively compete against Alibaba in the e-commerce sector," said Ricky Lai, a research analyst at Guotai Junan International.

Data from internet consultancy iResearch showed that JD had a 17.5 per cent share of the business-to-consumer e-commerce market in the third quarter of last year, while the online retail operations under third-ranked Tencent E-commerce had a combined 6 per cent share.

Tencent, Asia's largest internet company, has opted to restructure its e-commerce operations so that JD can close the gap with Alibaba's Tmall.com which held a 51.1 per cent share in the mainland's business-to-consumer retail market in the same period last year.

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

As part of the transaction, JD will take over the operations of Tencent's QQ Wanggou and PaiPai e-commerce businesses, logistics personnel and other assets. It will also get a minority stake in 51buy.com also known as Yixun, an online site selling smartphones and appliances.

Tencent pointed out that JD's e-commerce activities would be strongly supported on its popular wireless messaging applications Mobile QQ and WeChat, known as Weixin on the mainland.

According to iResearch, gross merchandise volume of the mainland's mobile shopping market will reach nearly 1 trillion yuan (HK$1.26 trillion) by 2017 from 167.64 billion yuan last year. By comparison, total online shopping through desktop computers is forecast to hit 3.14 trillion yuan from 1.69 trillion yuan.

While Alibaba still leads both online and mobile shopping segments, change may be around the corner.

"The tie-up between Tencent and JD has the potential to reshape the mainland's e-commerce market as more people shop on their smartphones and tablets," said Lu Zhenwang, chief executive at Shanghai Wanqing Commerce Consulting.

WeChat, which had about 272 million monthly active users worldwide in the third quarter, is at the core of Tencent's mobile e-commerce strategy. Tencent started offering payment services to merchants through the WeChat app. It charges a 0.6 per cent commission per transaction on WeChat.

"I don't think Tencent cares about how big JD's online retail operations will become because what it wants are more merchants and consumers using WeChat," Lu said.

A Barclays report said JD, which has 82 warehouses in 34 mainland cities, allowed Tencent to free up its investment capital away from logistics expansion and sharpen its focus on mobile internet growth.

Tencent's share price was down 2.22 per cent yesterday as investors speculated about the deal weeks ago.

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