Date
22 November 2017
The unparalleled client base of Baidu, Alibaba and Tencent makes it hard for startups to survive and grow without support from these internet giants.  Image: 2Open
The unparalleled client base of Baidu, Alibaba and Tencent makes it hard for startups to survive and grow without support from these internet giants. Image: 2Open

Is BAT dominance crowding out startups?

China’s three internet giants – Baidu, Alibaba and Tencent, or collectively known as BAT – has continued to dominate sectors such as online search, e-shopping, gaming and instant messaging.

Consistently high revenue and profit growth has enabled them to expand rapidly.

The three behemoths have successfully penetrated all aspects of life ranging from entertainment to consumption, travel and investment. Alibaba and Tencent even own banking licenses.

Tencent posted a record profit of 180 million yuan (US$26.95 million) per day in the second quarter. That means each mainlander contributed 0.13 yuan of profit to the internet giant each day during the period.

Major players in new but booming sectors like ride-hailing, bike-sharing and food delivery services are all backed by BAT.

In a recent deal, the three giants participated in China Unicom’s restructuring plan. It’s the first time that they have been involved in a mixed ownership reform of central state-owned enterprises.

It’s unclear how BAT can help revitalize the state-owned group but what’s clear is that it is everywhere.

With abundant cash on hand, BAT keep investing in whatever business they think has a potential for success.

While startups can benefit from their financial support, the situation may bode ill for the country’s small firms in the long run. It is becoming apparent that only startups backed by BAT can thrive.

Let’s look at Tencent again. Its mobile games revenue soared 55.9 percent to 27.76 billion yuan in the first half of this year. The company has snapped up 49.4 percent of China’s mobile game market, compared with 47.5 percent last year. Its Honor of Kings, based on Chinese historical characters, has become the world’s top-grossing mobile game.

As Tencent rules the roost, what will happen to smaller gaming firms? Would they be able to survive?

Here’s another example. A number of ride-hailing companies have sprouted across China in recent years. However, Didi has beat all its rivals, including Uber, thanks to support from BAT.

BAT’s massive customer base enables them to outcompete everyone. They can decide which startups should win and which should not.

As part of efforts to restructure its economic growth model, China has placed particular emphasis on the so-called Internet Plus strategy, which aims to integrate the internet with traditional industries.

It’s quite likely that BAT may keep dipping into more industries with government support. It’s definitely a positive for BAT shareholders.

At the same time, however, the government should also give some support to startups to maintain a healthier business environment.

This article appeared in the Hong Kong Economic Journal on Aug. 18

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

HKEJ columnist

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