- Lesser known Chinese tech giant Tencent is quietly expanding into new areas
- It has boosted its stake in the web portal 58.com, China's Craigslist
- Tencent can make commercial use of its clear advantage in social media
By Neil Flynn
Since Alibaba’s IPO, there has been a lot of talk about how the firm will use its capital, and more specifically, which firms it will acquire. I have discussed two major candidates recently, Youku Tudou and Weibo, which will likely see further investment from Alibaba, but amid all the speculation, China’s lesser-known tech giant is quietly expanding its ecosystem.
China’s trio of tech giants – Baidu, Alibaba and Tencent, collectively known as BAT – have spent the past few years acquiring and investing a wide variety of firms in order to compete with each other across various industries. But while both Baidu and Alibaba are major components of the Nasdaq and NYSE respectively, Tencent trades on the OTC markets, which is why its dealings tend to get less attention than its two rivals.
Tencent will be able to take advantage of the massive WeChat user base of about 700 million people, who use it everyday. Photo: Thinkstock
Last week, Tencent boosted its investment to a 24.6% stake in 58.com, which is a web portal for a whole range of services in the local area, and often been described as China’s Craigslist. In the second quarter, it had monthly unique visits in excess of 200 million, and mobile represents 54% of total page views. In addition, subscription-paying merchants increased to 1.21 million in the second quarter from just 441,000 in the first quarter and 298,000 in the second quarter of 2013.
As Tencent had previously held a smaller stake in 58.com, the two firms had been working together. And 58.com has been developing its WeChat service accounts, to improve the efficiency of transferring users between the two platforms. In addition, 58.com has discussed using Tencent’s two messaging platforms, WeChat and Mobile QQ, to help improve communications between customer and merchant.
Tencent has been acquiring 58.com at just under $40, and I believe that this shows that Tencent sees real value at this level. So 58.com is a very good investment for Tencent, because along with its investment in online retailer JD.com, Tencent can offer users an online shopping experience ranging from premium brands to local independent sellers. This means it can effectively compete with Alibaba.
In August, I discussed how Tencent would benefit from JD.com’s development of PaiPai, the C2C retail platform, because JD is a direct competitor to Alibaba’s Tmall, and PaiPai is a direct competitor to Taobao. Alibaba sees much higher retail sales figures and online payments than Tencent, but Tencent can compete by leveraging its WeChat platform.
Tencent has a clear advantage in social media over its rivals. Although Alibaba has its own Laiwang messaging app, reports surfaced on Bloomberg earlier this week that users of one of the two games on Laiwang had found videos of themselves online. Users of the charades game found videos of themselves uploaded onto Youku Tudou, without giving prior consent for the uploading, which was all the more embarrassing as some users were just wearing underwear or were even naked. So rivals fall short of matching what WeChat can offer, and this gives Tencent a strong foundation from which to base its ecosystem on.
The concept of the mobile ecosystem is very important for the BAT trio. Each firm bases their ecosystem on just one service that people use regularly, such as Baidu Search, WeChat or Taobao. From there, other services are available to users that cover all their possible needs, from travel to gaming.
By keeping users within their ecosystem, each of the BAT trio can attain a better understanding of their users, and advertisements can be targeted and personalized. This is a key driver of future growth, because as advertisements become more personalized, and the user click ratio rises, the price that the BAT trio can charge for advertising then increases as well.
With 700 million users, WeChat has the biggest active mobile user base in China, and is the strongest foundation on which to build a mobile ecosystem, because users don’t search on Baidu or shop on Alibaba’s platforms as often as they use WeChat, which is everyday. Tencent has added a direct link to JD.com on its WeChat portal, and I expect 58.com to be incorporated soon. And 58.com offers local services that WeChat can exploit by connecting merchants with nearby potential customers.
-- Edited by Robert RyanNeil Flynn is head equity analyst at Chinese Investors