While Alibaba Group Holding Ltd. prepares for what’s expected to be a huge public offering of stock on the New York Stock Exchange, back home in China its rivals are forming alliances aimed at curbing the growth of China’s leading e-commerce company.
The biggest example of that is the increasingly close integration of JD.com Inc., China’s largest retailer in terms of sales of its own merchandise, and Tencent Holdings Ltd., a major player in online gaming, messaging and advertising in China. In the latest move in that alliance, JD.com began last week selling directly from a prominent position on Mobile QQ, Tencent’s messaging platform that’s used by 490 million consumers each month, many of them young people.
“The announcement is a game changer that brings JD.com’s outstanding customer experience closer to consumers throughout China where Mobile QQ is the leading social communications platform,” says Shen Haoyu, CEO of JD.com. “It will help to increase consumer awareness of JD.com’s authentic products and outstanding last-mile delivery network, and support our strong growth in key target markets.”
JD.com is No. 1 in the Internet Retailer China 500, which ranks retailers by their own online sales. While Alibaba’s two big online marketplaces—Taobao and Tmall—account for more than 80% of online retail sales in China, Alibaba, like eBay Inc., does not own any merchandise and thus is not ranked in the China 500. JD.com, formerly known as Jingdong Mall, booked $18.2 billion in 2013 online sales, while consumers purchased $248 billion from Alibaba’s two big marketplaces last year from some 8 million sellers.
Tencent, whose revenue increased 38% to $9.91 billion in 2013, is viewed as one of Alibaba’s biggest rivals in China. Its alliance with JD.com puts it in partnership with a powerful online retailer that, as of March, was offering 40.2 million SKUs in 13 categories and providing same-day delivery in 43 cities and next-delivery in another 256 cities. JD.com raised nearly $1.8 billion in an IPO in the United States on the Nasdaq stock exchange. The company, founded in 2004, became profitable for the first time in late 2013.
The tie-in with QQ is part of JD.com’s strategic partnership with Tencent, announced in March. That agreement included Tencent paying nearly $215 million for a 15% stake in JD.com. The partnership also guaranteed JD.com “Level one entry points” on WeChat and Mobile QQ—meaning Tencent would provide JD.com with prominent marketing positions on its mobile chat service that would allow JD.com to sell to users of those services.
Considering Mobile QQ’s large user base, this move could bring huge traffic to JD.com. Launched in 1999 as a messaging service for use on personal computers, QQ has gained even greater popularity with the introduction of its mobile version, Mobile QQ. Tencent also launched another messaging platform, WeChat, in 2011, designed for smartphones. Tencent said this spring that WeChat had 396 million users.
To promote its service to Mobile QQ users, JD is offering exclusive products on Mobile QQ, such as wearable devices from Huawei Technologies Co., another giant company that makes mobile phones and telecom equipment.
JD says it plans to spend 1 billion Yuan ($161 million) on a promotional campaign featuring a social media game called “Grab Hongbao.” Giving hongbao, or red envelopes filled with money, to children, relatives and employees is a Chinese holiday custom. JD.com encourages Mobile QQ users to play and share this game with their friends via social networks. Users receive cash incentives based on the number of friends they share the game with.
Tencent used a similar campaign to attract 5 million participants in 24 hours during the Chinese New Year celebration in January.
JD.com began in June selling through a top navigation tab on WeChat and says it has achieved some positive results. For example, JD.com says it sold more than 1 million ZTE Nubia Z7 smart phones through WeChat in July.
Some people agree that online retailers can generate traffic through social media promotions aimed at mobile shoppers, but wonder if these offers will produce substantial long-term profits.
Among of them is Li Guoqing, CEO of Chinese e-retailer Dangdang.com, who has argued that mobile social media promotions don’t guarantee large sales. He also says that success in e-commerce is not just about generating traffic to a web site, but also requires advanced supply chain management and excellent customer service.
Readers who prefer to read in Mandarin can find Chinese e-commerce news on dianshang500.com.
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