The shopping spree of Tencent Holdings (00700.HK) and Alibaba Group shows no sign of coming to an end anytime soon as the Chinese internet giants seek partnerships with other players in segments such as online games and instant messaging to boost their value chain.
On Wednesday, Tencent announced that it will pay US$500 million for a 28 percent stake in South Korea’s CJ Games. The transaction will make Tencent the third-largest investor in the Korean gaming firm and help it expand its mobile gaming business worldwide. Tencent is currently China’s largest integrated online game company.
Meanwhile, Alibaba Group said last week that it agreed to invest US$215 million in messaging app Tango, in another effort to challenge Tencent’s dominance in the instant messaging market via QQ and WeChat apps.
With a slew of initiatives in the recent past, Alibaba and Tencent are now competing head-to-head in almost all the business segments in China’s internet market.
Alibaba is keen on expanding its coverage to online entertainment, mobile communications and cultural industry by leveraging its strong customer base in the core e-commerce business. Mobile communications should top Alibaba chief Jack Ma’s agenda as China’s 4G network rollout will push more users to mobile internet.
However, the e-commerce giant is yet to establish a winning formula for the mobile communication segment. The company has tried to scale up by offering cash rebate to people using its instant messaging app Laiwang, but it is still a long way behind Tencent.
Tango, which has offices in California, Texas and Beijing, is one of the nearest peers of Tencent’s WeChat. Tango offers games, multimedia sharing and other content on its platform. It remains to be seen what Alibaba intends to do with Tango and whether it will be integrated with the Chinese firm’s own Laiwang app.
However, what is clear is that Alibaba is moving step by step to challenge Tencent in its key businesses. That makes it imperative for the latter to cement its position by taking in new partners and protecting its competitive edge. The CJ Games deal can be seen from this perspective.
The investment in CJ Games, which will acquire online and mobile game portal Netmarble as part of the deal, is the latest in a series of moves that Tencent has made to bolster its competitive position vis-a-vis Alibaba, which has signaled its interest in the online entertainment market.
CJ Games is a leading game developer and publisher in Korea and overseas with multiple hit titles in its portfolio. The partnership brings together CJ Games’ game development skills and mobile game line-up and Tencent’s strong game publishing and operation capabilities in China. That should ensure that Tencent will be able to defend its market share in the country.
In the last three months, Tencent has taken 15 percent stake in JD.com, one of China’s largest e-commerce companies and an Alibaba competitor; launched a mobile open platform for developers; and invested US$195 million in logistics firm China South City.
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