Tencent Holdings Ltd. (700) faces the prospect of losing its position as
Asia’s most-valuable
Internet company this year after
Alibaba Group Holding Ltd. (BABA) goes public. The Shenzhen-based company isn’t going to concede quietly.
Tencent
is taking on Alibaba in almost every business related to the Web, from
games to security to search. In the latest escalation of the battle,
Tencent is expanding in messaging services and using the technology to
drive customers to its e-commerce partners -- in a direct challenge to
its rival.
The fight exposes a rare vulnerability for Alibaba,
which is planning an initial public offering that may be the largest in
U.S. history.
Tencent has an enormous lead in messaging, with about a
billion users for its QQ and WeChat products, compared with Alibaba’s
last target of 100 million for its offerings.
Tencent is projected to
report a 52 percent surge in profit when it announces second-quarter
results today, bolstered by messaging.
“Tencent is using Mobile
QQ and WeChat to take traffic away from Alibaba and direct people to
e-commerce platforms backed by itself,” said Bill Fan, a Hong Kong-based
analyst at
China
Securities Co. “Instant messaging hasn’t been Alibaba’s strong point,
but it sees the viral effect that Tencent’s app is having so it’s trying
to develop similar services.”
Photographer: Brent Lewin/Bloomberg
Alibaba Group Holding Ltd., 24 percent owned by Yahoo! Inc., is competing with Tencent... Read More
Tencent’s two technologies let people trade messages over mobile phones and tablets, akin to the WhatsApp service that
Facebook Inc. (FB)
agreed to acquire this year for $19 billion.
QQ, which began as an
instant-messaging service on desktop computers and was repurposed for
use on mobile devices, has about 848 million monthly active users.
WeChat, known as Weixin in China, has 396 million. (WhatsApp has more
than half a billion active users.)
Most Valuable
The success of the messaging services has helped boost Tencent’s market value to about
$161 billion,
making it the most valuable Internet company in Asia.
Alibaba will
compete for that title after it goes public. The latest estimate is that
after the IPO the company could be valued at $187 billion, according to
a survey of 11 analysts by Bloomberg. Tencent shares declined 0.2
percent as of 9:52 a.m. in Hong Kong trading, while the benchmark
Hang Seng Index was unchanged.
Alibaba
is trying to close the gap in messaging. In September, it started
offering a service called Laiwang. Still, Tencent has continued to
expand the features available through its apps to maintain its lead
Photographer: Brent Lewin/Bloomberg
QQ and WeChat helped triple Tencent’s mobile-game revenue to 1.8 billion yuan in the... Read More
“In the latest version of QQ, we have upgraded it to a
platform for food, drinking and entertainment, and the number of cities
we cover is also expanding,” said Dowson Tong, president of the
company’s social network group that oversees QQ, in a recent interview.
Revenue Boost
Tencent
has integrated games more tightly into its messaging services to
capitalize on the China online gaming market, which IResearch
projects will expand to 225 billion
yuan
by 2017.
QQ and WeChat helped triple Tencent’s mobile-game revenue to
1.8 billion yuan in the first quarter from the previous three months.
That
trend likely continued in the second quarter. Tencent’s profit rose to
5.59 billion yuan in the three months ended June, according to the
average of 11
analysts’ estimates compiled by Bloomberg.
That would make the second successive quarter with profit growth of more than 50 percent. Earnings
climbed 61 percent in the three months ended March 2011.
QQ was the first iconic product billionaire Ma Huateng created at Tencent in 1999, two years after
AOL Inc. (AOL)’s
messaging service took off.
As more Chinese accessed the Internet,
instant messaging became the most popular online app. Ma restructured
QQ’s divisions in 2012 to take it mobile and the effort paid off.
Photographer: Brent Lewin/Bloomberg
QQ was the first iconic product billionaire Ma Huateng created at Tencent in 1999, two... Read More
Last year, 83 percent of China’s Internet users subscribed
to Mobile QQ and 80 percent to WeChat, compared with Laiwang’s 23
percent,
according to a survey among almost 4,000 people by Shanghai-based IResearch in June.
Stake Purchases
Tencent is now leveraging its vast user base to go after a bigger share of the China e-commerce market, which
IResearch estimates will more than double from last year to 21.6 trillion yuan ($3.5 trillion) in 2017.
The
company in March took a 15 percent stake in JD.com Inc., a direct
competitor to Alibaba, and folded its own e-commerce assets into the
venture. This year, Tencent has also agreed to buy 19.9 percent of
Craigslist-like 58.com Inc. and take a 20 percent stake in Dianping.com,
a website similar to Yelp Inc. that users review restaurants in China.
Single Click
Tencent
has been working closely with JD.com and Dianping, directing traffic
from Mobile QQ and WeChat to the websites, said Tong.
Those
steps are beginning to yield results. A new single-click link to JD.com
from Weixin produced an eightfold increase in daily transaction volumes
compared with an earlier access that took two clicks, JD.com said in
June. This month a similar integration with JD.com was provided to users
of Mobile QQ.
Still, Tencent and its partners are far behind in
e-commerce. Alibaba, which operates platforms including Taobao
Marketplace and Tmall.com that connect retail brands with consumers,
accounted for 76.4 percent of total mobile retail transactions in China,
according to its IPO
filing to the U.S. Securities and Exchange Commission.
The
fact that Tencent wrapped its e-commerce assets into JD.com shows it
wants to limit its investment in the segment, said Yao Yue, a
Shenzhen-based analyst with Morningstar Inc.
“Even if Tencent’s
instant messaging apps can direct a lot of traffic to JD.com, at the end
of the day it still depends on who has the better shopping service, and
Alibaba’s Taobao is dominant,” said Yao.
Alibaba hasn’t been
able to achieve the same success in mobile messaging so far. The company
in 2004 started Aliwangwang, a PC-based instant messenger for buyers
and sellers, that is now used for negotiating prices, customer services
and delivery notifications on its Taobao marketplace. It also has a
mobile version called Wangxin.
Lagging Behind
Laiwang
was started by Alibaba to broaden its reach, after billionaire founder
Jack Ma alluded to Tencent being ahead in the messaging race at a Credit
Suisse conference in March 2013.
“We also invested heavily, but
we are not that lucky and not creative, so creative like Tencent, which
has WeChat, such a powerful thing,” Ma said at the conference.
Ma
has vigorously tried to promote Laiwang and said the company wouldn’t
pay bonuses to staff who didn’t get 100 clients for the app before Nov.
30 last year, according to a post on the company’s microblog.
In
an attempt to generate revenue from Laiwang, Alibaba said in January it
would offer games on the app. A month later Alibaba’s Ma said the
company’s achievement on mobile applications wasn’t satisfactory.
Alibaba spokeswoman Florence Shih declined to comment on the company’s mobile strategies, citing pre-IPO restrictions.
Jin
Yuan, a Shenzhen mobile phone user, underscores the lead that Tencent
has in messaging. Jin has been a QQ subscriber for the past 13 years and
says Tencent does a better job of making messaging apps that are easy
to use.
“I use QQ to keep in touch with friends I’ve known since
the PC age and I use it for a lot of group chats,” Jin said. “I like to
use WeChat a lot for sharing information about good places for food.”
By Lulu Yilun Chen Bloomberg
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