• Tue
  • Jul 22, 2014
  • Updated: 10:25pm
Corporate China
PUBLISHED : Monday, 17 February, 2014, 3:07pm
UPDATED : Monday, 17 February, 2014, 3:10pm

Weibo: Vancl's new clothes, Dianping's new partner

BIO

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”
 

Talk involving major new investments in online clothier Vancl and restaurant ratings site Dianping was buzzing through the blogosphere this past week, reflecting the new partnerships that are quickly forming amid intense competition plaguing the overheated Internet space.

Vancl has been racing to find profits before it runs out of cash, and recently received a lifeline in the form of $100 million (HK$775 million) in new funding from a group led by Lei Jun, the marketing-savvy co-founder of trendy smartphone maker Xiaomi. Lei Jun and Vancl CEO Chen Nian engaged in a round of online banter this week on their microblogs that could hint at some of the new directions and tactics that Vancl will take as it searches for the elusive business model that can move it into the black.

Meantime, Dianping, the Chinese equivalent of US restaurant ratings site Yelp (NYSE: YLP), became the subject of speculation from several Internet executives, as word circulated that the company could soon announce a major stake sale to leading Internet firm Tencent (0700.HK).

The last two years have been tough for many of China’s younger Internet firms, as they struggled with stiff competition and were abandoned by investors who funded operations during their start-up phase. As a result, many firms have faced a cash crunch, forcing some to sell themselves to bigger rivals and others to close up shop.

Vancl was once an venture capital darling, positioning itself as one of China’s leading online clothing sellers and planning a New York IPO as recently as two years ago. But lack of investor interest led it to scrap the offering, and its situation was becoming critical when Lei Jun stepped in earlier this month to provide the $100 million in new funding.

This week in the blogosphere, Lei Jun and Vancl’s Chen Nian held a brief online dialogue on high-end clothing, in an exchange reminiscent of Lei’s own posts that often seem highly scripted and designed to create buzz. The subject of the banter was relatively mundane, centred on Lei Jun’s preference for high-quality shirts with a count of at least 300 threads per inch.

Lei Jun pointed out how his needs are simple, and that the main thing he wants is good quality, namely shirts with the higher thread count. Chen Nian replies by implying that after much searching, he was finally able to offer such products on Vancl, and several other Vancl officials also step in to comment on the matter.

This kind of scripted dialogue hints that Vancl may try to become more niche oriented by focusing on higher-end, limited-edition clothing in a bid to differentiate itself from its many rivals. I wouldn’t be surprised to see it engage in the kind of “hunger marketing” that is one of Lei Jun’s specialties, where Xiaomi often creates artificial product shortages in order to generate buzz and boost demand. We can probably expect more of this kind of scripted banter going forward as Vancl tries to reinvent itself as a company that can finally turn in sustainable profits.

Meantime, a couple of business executives were imagining the possibility of a new Tencent-Dianping tie-up, following growing rumours that the former will soon announce a deal to buy a strategic stake in the latter, or purchase the latter outright. The latest rumours say Tencent will buy 20 per cent of Dianping, in a deal that could be announced as soon as this week, according to a re-post from Derek Shen, the newly named China head of US professional networking giant LinkedIn (NYSE: LNKD).

Shen nicely recaps many of the major acquisitions by China’s leading Internet companies in his post, with search leader Baidu (Nasdaq: BIDU) and e-commerce giant Alibaba doing much of the buying. Tencent has been the least active in the acquisition spree, though that could change with a Dianping tie-up. Shen offers his congratulations to Dianping CEO Zhang Tao, even though a deal has yet to be announced.

Business magazine editor Zhang Peng doesn’t offer his congratulations just yet, but recalls a conversation from a year ago where Zhang Tao said he would consider such an investor for Dianping if it were “reasonable” and both companies could benefit from the alliance. At this point the rumours seem to have enough momentum that there’s probably some truth to the talk, and I wouldn’t be surprised to see an official announcement of a new tie-up in the next week or two.

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