What Ele.me acquisition means for Alibaba

SC Yeung April 03, 2018 15:19

Alibaba Group announced on Monday that it will acquire all outstanding shares it does not already own in online food delivery company Ele.me, in a deal valuing the target company at US$9.5 billion.

The valuation is well above an earlier US$6 billion valuation given to Ele.me.

The deal manifests the escalating competition between Alibaba Group and Tencent Holdings, which controls Ele.me’s main rival Meituan Dianping, a food review and daily life services platform.

Even before the deal, Alibaba and its financial arm Ant Financial were already the largest shareholders of the company with a combined 32.94 percent stake. The e-commerce giant had integrated its own Kuobei.com service into the Ele.me platform. The deal suggests that Alibaba would further use the two platforms to reach out to offline customers as part of its online-to-offline strategy.

Both Alibaba and Tencent have been working hard to enhance their respective ecosystems in the new economy. The focus has been shifting from online expansion in entertainment, e-commerce, games and IT infrastructure into the offline arena, which includes retail outlets, shops and restaurants.

The aim of integrating the physical stores with the online platforms is to encourage online users to bring their consumption power to offline outlets and offline stores to reach those young netizens who are trigger-happy with the payment systems on their mobile phones.

Led by Jack Ma, Alibaba Group strongly believes in its own executive capability. Ma and his associates believe they have the right strategy to be deployed through an aggressive acquisition of startups and their subsequent restructuring under an efficient Alibaba ecosystem.

At the same time, Alibaba aims to keep all the transaction data and information generated by the whole ecosystem for itself and use it for profitable results through data mining. Indeed, data is the killer application that Alibaba is using in its bid to dominate the fast-growing internet economy.

The group's strategy is to build a completely new paradigm for in-store, delivery and retail businesses for the local community. Ele.me is the core part of the delivery service, while Kuobei.com focuses on in-store services.

The integration of the two platforms could transform Alibaba’s local service landscape. Alibaba wants to position Ele.me as one of its most frequently used services, while Kuobei could leverage on its data technology to upgrade in-store dining experience and explore new business opportunities.

For restaurants already on the Ele.me platform, the merger would enable them to completely upgrade their business offering with the new in-store, delivery and retail model as well as take advantage of the big data technology and supply chain management connected to the Alibaba platform.

Such infrastructure would help Alibaba to further enhance its delivery services in major communities within 3 kilometers from the physical stores. The model has been rolled out in 20 core cities across the nation.

Ele.me's service will no longer just be about delivering food for diners; it will become part of Alibaba’s local network to deliver fresh food, home emergency services and other online orders on the group’s platforms.

Meanwhile, Tencent chairman Ma Huateng said his group won’t be involved in all the operations of its investments in the retail sector. Tencent's goal is to enable partners to enhance their services by making use of the group's technologies.

In fact, Tencent wants its partners to own the operating data and consumer information they get in their businesses, rather than to keep them under the group's control.

This strategy seems work for Tencent as it boosts its market share in the mobile payment market. Chinese consultant firm Analysys International found that at the end of 2017, Alibaba’s Alipay held about 54.3 percent of the mobile payments market, while Tencent’s WeChat Pay cornered 38.2 percent. But Tencent is fast catching up and could very well surpass Alibaba's market share if it harnesses the full growth potential of its businesses.

That could be the reason why Alibaba is keen on taking over Ele.me: to boost its service coverage and cement Alipay's market leadership.

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SC Yeung

EJ Insight writer