19 November 2018

Internet rivals take O2O fight to the streets

China’s internet giants are in a race to build their online-to-offline (O2O) business to encourage customers to use their payment platforms.

This is a key step toward a nationwide mobile e-commerce ecosystem.

Alibaba Group and Tencent Holding Ltd. (00700.HK), the country’s top internet players, have taken the fight to the taxi market by partnering with taxi call service app providers — Alibaba with Kuaidi and Tencent with Didi.

Ultimately, Alibaba and Tencent want to expand their virtual payment services — Alipay and Weixin, respectively — to the real world.

Both are subsidising cab drivers and passengers to encourage them to use their payment systems. Alibaba pays drivers 10 yuan for each Alipay payment, with a maximum of five payments each day. Passengers get a 10 yuan rebate for each taxi payment using their Alipay accounts.

Tencent is much more aggressive, paying some taxi drivers up to 100 yuan in daily subsidies and 5 yuan to 10 yuan for each call. Taxi drivers receive a 10 yuan bonus from each Didi app downloaded by passengers via a dedicated QR (quick response) code in the cab. Passengers get a 10 yuan rebate for each ride.

Didi, which received investment from Tecent this year, said it has paid more than 20 million yuan in subsidies since the Weixin payment service was launched on Jan. 10 in 32 cities across the country.

In addition, Didi and Weixin are splashing out 200 million yuan on a campaign to expand their respective service to all major cities in the mainland.

The aggressive strategy shows Tencent and Alibaba are keen to cash in on a potentially lucrative ecosystem linking traditional offline retailers to their online counterparts.

And enabling consumers to conduct transactions on their third-party payment platforms speeds up the process. A growing number of affordable smartphones make that possible.

Traditional retailers, which lack expertise in the mobile internet space, can now leverage these payment platforms to tap the virtual world. They can use Alibaba or Tencent to promote their products across a range of social media platforms and attract business to their stores.

For Tencent and Alibaba, the fringe benefits come in a wealth of data on consumption patterns and customer behavior. They can use the information to offer marketing and promotion services to retailers.

Given that O2O is only in the early stages of development, who knows how much Alibaba and Tencent stand to gain when the market hits its stride?

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EJ Insight writer

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