Tencent and JD.com take on common foe Alibaba by merging e-commerce services: report

PUBLISHED : Tuesday, 25 February, 2014, 4:43pm
UPDATED : Tuesday, 21 April, 2015, 11:26am

Asia’s largest internet company Tencent and China’s leading online retailer giant JD.com are “close to striking a deal” to combine their e-commerce operations, a major Chinese magazine reported.

Shenzhen-based Tencent will merge its less popular e-commerce services of buy.qq.com and yixun.com with JD.com, China’s second-largest online retailer also known as 360Buy.com, in return for the latter’s stock shares, reported Caixin, a leading Chinese mainland financial news publication.

The report, which cited people familiar with the merger, came less than a month after JD.com announced it aimed to raise US$1.5 billion (HK$11.6 billion) in an initial public offering (IPO) plan in the US, potentially making it the largest IPO of a Chinese internet company ever.

Both Tencent and JD.com were unavailable to comment on the news report on Tuesday.

The move is widely viewed as a strategic collaboration to shore up the two parties against their common competitor, Alibaba, which is by far China’s largest e-commerce company.

Online shopping sites owned by Alibaba account for half of all online retail sales and 80 per cent of consumer-to-consumer online sales, while JD.com currently has a 13 per cent share of the e-commerce market, according to data from consultancy Euromonitor.

Competition between Alibaba and Tencent has escalated to multiple fronts with the two companies going head-to-head over their instant messaging mobile applications, online payment systems and financial service products.

“The merger will definitely be a win-win situation,” said Tian Hou, chief executive and founder of T.H. Capital in Beijing.

“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,” she said.

“But the collaboration, even if it takes place successfully, may not topple Alibaba’s domination overnight.”

Tian added the union would certainly intensify the competition and further expand the e-commerce mobile market.

JD.com currently operates 82 warehouses and 1,453 delivery stations across China. It has received US$1.7 billion in private equity funding over the last two years. Its most prominent investor, Saudi billionaire Prince Alwaleed bin Talal, owns about five per cent of the company. Liu Qiangdong, the website founder, holds about 46 per cent of shares.

China is on course to become the world’s largest e-commerce market by 2015, with a forecasted US$315 billion in online sales, according to Forrester Research, an international consultancy. The growth is driven by an increase in disposable income, growing mobile commerce popularity, and Chinese government’s support, a report of the consultancy said.