20 January 2019

5 stars out of 5 for Tencent-Dianping deal

The ink was barely dry on Alibaba Group Holdings’ buyout of AutoNavi Holdings Ltd. (AMAP.US) this month when the market got wind that tech rival Tencent Holdings (00700.HK) was in the final stage of talks for a stake in, China’s biggest online urban guide.

Tencent’s shares soared on reports that it will pay US$400 million for a 20 percent stake in the location-based entertainment and food site, a deal that would strengthen the company’s presence in mobile internet. Dianping’s big selling point is its huge database of offline retailers that could expand the coverage of Tencent’s online-to-offline (O2O) ecosystem.

Dianping, best known for its third-party restaurant reviews, was one of China’s first online independent consumer service rating sites. In addition to detailed merchant information, customer ratings and promotions, the site also provides group-buying, e-membership cards, online restaurant reservations and other O2O services.

As of the fourth quarter of 2013, Dianping had more than 90 million monthly active users, had amassed 30 million-plus reviews, and covered more than 8 million businesses in about 2,300 cities across China.

While the market is convinced the deal will help Tencent cement the mobile dominance it has secured through its WeChat app, Dianping also has much to gain. The tie-up gives the smaller firm access to hundreds of millions of Tencent users, opening the door for more real-time commenters to reach the platform and boost the site’s value.

Tencent’s Dianping deal is also a response to the Alibaba-AutoNavi alliance. Tencent’s key competitive edge is in entertainment such as online games and mobile apps, and its lack of experience in handling offline businesses is undermining its O2O development. The company also has just a low single-digit share of mobile mapping services.

Bringing Dianping’s huge offline retailer database on board will really bolster Tencent’s map business, helping to lure map traffic from rivals such as Inc. (BIDU.US) and AutoNavi.

Tencent could also use its WeChat platform to offer services to merchants mentioned by Dianping consumers. For example, merchants could open WeChat accounts to send out special offers to people in their area, a huge potential business for which Tencent could charge monthly fees. WeChat’s new payment gateway will be central too, allowing businesses to accept WeChat payments at the register and adding to the offerings’ stickiness.

Dianping’s growth has been held back because people outside the main cities are still getting used to the idea of writing comments on consumer experiences. The partnership with Tencent can help Dianping go beyond urban consumers to a wider user base.

Competition is heating up in the O2O market and demand for the services will no doubt grow as the country pursues its urban push. The key now is for players to establish leadership in small, underdeveloped cities.

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EJ Insight writer

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