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Baidu

Alibaba's buyout of Ele.me leaves Baidu with clean plate to focus on artificial intelligence

Baidu has been remaking its internet search business to focus on AI-related businesses, including autonomous cars

PUBLISHED : Monday, 26 February, 2018, 8:44pm
UPDATED : Tuesday, 06 March, 2018, 7:42pm

Baidu may be poised to exit the food-delivery business after almost four years as Alibaba Group Holding is said to have proposed buying out other shareholders of Ele.me, potentially freeing resources up for the internet search engine operator in its transformation into an artificial intelligence company.

Alibaba, China’s biggest e-commerce services provider, plans to acquire the rest of Shanghai-based Ele.me, as part of its New Retail strategy, according to a person familiar with the proposal, asking not to be identified as the discussions are private. The talks are still preliminary and an acquisition may not happen, the person said. 

Hangzhou-based Alibaba is currently offering US$9.5 billion to acquire Ele.me, Chinese tech news site 36kr.com earlier reported. Alibaba declined to comment on the reported acquisition. Representatives for Baidu and Ele.me did not immediately comment.

The New Retail concept, pioneered by Alibaba founder and executive chairman Jack Ma Yun, refers to the integration of online and offline experiences for consumers, be it shopping, food delivery or buying groceries. Since last year, Alibaba has splashed out billions, investing in both offline and online retail companies such as Suning, Intime Retail, Sanjiang Shopping Club, and Lianhua Supermarket.

For Baidu, an exit from food delivery would take place at a time when it is stepping up efforts to remake its dominance of China’s internet search business into the country’s leading investor in artificial intelligence, with applications from big data analysis to autonomous driving.

The online search giant, led by founder and chief executive Robin Li Yanhong, recently displayed its autonomous cars during the widely watched Lunar New Year Gala. 

In August last year, Baidu food-delivery arm Baidu Waimai merged with Ele.me, ending years of subsidy-driven competition. Baidu’s stake in the merged Ele.me was not disclosed.

“Alibaba wanting to buy Ele.me will leave the food delivery business as Tencent’s Meituan and Alibaba’s Ele.me. The frenzied early days of food delivery are now over, consolidating to two stable companies,” said Jeffrey Towson, an investment professor at China’s elite Peking University.

Towson added that the food delivery service will also integrate well into the rest of Alibaba’s ecosystem of services.

At the height of the competition between Baidu Waimai, Ele.me and Tencent-backed Meituan-Dianping, customers were offered steep discounts and even free meals in an effort to carve out market share in the fiercely-contested food delivery industry, similar to how ride-hailing services Uber and Didi Chuxing burned through billions of dollars in subsidies to gain users before Didi bought Uber’s China operations.

As of April last year, Alibaba held a 23 per cent stake in Ele.me, after investing close to US$1.2 billion in the company since August 2016 in two separate investments. Last May, the company was said to be valued at between US$5.5 billion and US$6 billion. Alibaba owns the South China Morning Post.

With additional reporting by Meng Jing in Beijing