19 October 2018

Tencent faces a less than perfect scenario amid buying spree

Like there’s no tomorrow, internet behemoth Tencent (00700.HK) has been snapping up assets left and right, the latest of which is restaurant rating site Dianping which was added to its e-commerce business portfolio earlier this month.

What’s Tencent up to? Take a minute to list down all the purchases the company has made in the past few months, and a pattern emerges. It could give us a rough idea of what Tencent is cooking up.

Before Dianping, Tencent has invested in taxi-hailing app Didi Dache. It also has fully acquired logistics platform China South City (01668.HK) and mapping service provider Linktech Navi Technology, and a stake in search engine Sogou.

What’s it going to do with all these assets? Let’s imagine this: A group of friends in different parts of Beijing are chatting on WeChat, Tencent’s instant messaging platform which boasts half a billion users.

They decide to meet up for dinner, and to find the best restaurant in terms of food, location and prices, they consult Dianping, which recommends a list of joints that pops up on WeChat’s “Today’s special menu” {今日美食} message board.

Having decided where to go, they make reservations and avail themselves of a group discount, and pay through Tencent’s Weixin payment platform using their smartphones.

They then arrange for a ride using Didi Dache, which quickly draws up an itinerary to collect all of them and take them to the restaurant. 

After a hearty meal and exchange of the latest jokes and rumors, they decide that it’s still too early to call it a day. So they search for the best deals available near the restaurant using Tencent’s mapping services and arrange to see a movie or go to a karaoke bar. 

Thanks to Tencent’s sites and apps, the friends had a perfect night out.

So there’s a method in the seeming madness to buy up all these assets. By gathering all these disparate internet business pieces, Tencent is apparently building a closed circuit online-to-offline platform that caters to all the customers’ needs, including dining, clothing, entertainment, transport and other lifestyle services.

That’s the perfect scenario. It’s fine if the integration of these assets is done seamlessly. But that’s just a part of the problem solved.

Another challenge is the fact that in almost every field that Tencent is now stepping into, there’s at least one formidable rival that is competing for deals, resources, merchants, talent and market.

There’s Dianping, for example. While it is the indisputable leader in restaurant reviews and will surely bring to Tencent lots of offline offerings and transactions, one of its major businesses, group buying packages for restaurants, has to compete head on with Meituan.

Backed by Alibaba, Meituan saw 13 billion yuan (US$2.1 billion) in transactions from January to November last year,  according to, against Dianping’s 7.1 billion yuan during the same period.

Competition is also intense in the taxi-hailing app business. Shortly before Tencent acquired a stake in Didi Dache last year, Alibaba has invested in Kuaidi Dache. The two are now burning cash to grab market share, paying a subsidy of up to 12 yuan per ride, which is why some users may even earn money by riding a cab if the subsidy exceeds the fare.

Alibaba also boosted its mobile mapping business by fully acquiring AutoNavi for US$1.6 billion earlier this month. The deal widens its lead over Tencent, which has been handicapped by its weak in-house product, a situation it hasn’t been able to rectify even with its takeover of Linktech Navi Technology. Tencent is also lagging behind Baidu Map.

Considering the importance of location-based technology in driving O2O traffic, Tencent’s efforts to build a formidable package of internet offerings remain feeble.

In September last year, Tencent also invested US$448 million in Sogou and injected its Soso search-related businesses and some other assets into the search engine, in return for a 36.5 percent stake.

The two have joined hands in the hope of giving market leader Baidu a run for its money, but nothing concrete has come out from the alliance yet.

Tencent, Alibaba and Baidu are all determined and well-armed to become the undisputed leader of the potentially rich O2O market. They are all acquiring assets and expanding strategically in related fields to gain an upper hand or at least make sure their opponents won’t dominate the game.

In social networking and online games, Tencent rules the roost. In O2O and other new businesses, the battle has just started and it’s turning out to be a long, bitter fight.

– Contact the writer at [email protected]



EJ Insight writer

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