Tencent-JD Take Aim At Alibaba In C2C
The alliance between Tencent (HKEx: 700) and JD.com (Nasdaq: JD) formed earlier this year is quickly revving up to challenge Alibaba’s dominance of China’s C2C e-commerce segment, with word of 2 big new moves in the space. This new alliance immediately challenged Alibaba shortly after its formation, pooling the 2 companies’ resources to create a player with a quarter of the market in the lucrative B2C space that sees major retailers sell their products to consumers online. But Alibaba still has near-complete dominance over the equally lucrative but more fragmented C2C space, sometimes called online auctions, which sees individuals and small merchants sell their products to consumers online.
The Tencent-JD alliance is quickly turning up the heat that space, with word that JD has removed all merchant fees for its Paipai service that it took over from Tencent when the pair formed their tie-up early this year. (English article) Paipai functions much like eBay’s (Nasdaq: EBAY) popular online auction service, and is comparable to Alibaba’s popular Taobao platform that dominates the C2C space in China.
According to the reports, all qualified merchants that sign up to open shops on Paipai before August 1 will have their annual service fees waived, and won’t have to pay commissions on the products they sell. Paipai has also said it will help new merchants to move to the site with both technical and advertising assistance.
I had to smile as I read these latest reports, as they look similar to the tactic that Alibaba used nearly a decade ago when it first launched Taobao in its own challenge to eBay, which was then the dominant C2C platform operator in China. Alibaba insisted on keeping Taobao largely free to merchants, drawing scorn from eBay CEO Meg Whitman who famously said that “free is not a business model”.
Of course, everyone knows that Alibaba ultimately won that war, and has been handsomely rewarded with a market valuation that some believe could be as high as $200 billion. I’ll admit I don’t know what Taobao’s current fee policy is, though I expect its pricing is probably higher than Paipai’s new promotion. If many merchants respond to this offer, I wouldn’t be surprised to see JD extend the deal and potentially steal some big business from Taobao.
Meantime, Tencent itself is also working directly to lure these small merchants, with word that it is welcoming those individuals to set up shops on its popular WeChat mobile messaging service. According to the latest reports, Tencent formally announced its opening of WeChat to online merchants late last month, and will offer assistance to help companies make the move.
There’s not much more detail on this latest Tencent move, which is part of a broader drive to monetize a WeChat that has some 500 million users. The welcoming of small merchants to WeChat comes as Tencent prepares to launch a shopping channel on the platform, which will also include access to JD.com’s main B2C services. (previous post)
One interesting note in Tencent’s latest move is that it looks like these new WeChat merchant accounts could compete directly with Paipai. That means we could see Tencent work with JD, but also independently, in its bid to build up its e-commerce business. That could lead to potential conflicts, though I expect the 2 partners will more broadly seek to avoid competing with each other.
In terms of the bigger picture, this latest assault in C2C is almost certain to have a big impact on Alibaba’s Taobao. The biggest attraction to merchants will be WeChat’s popularity among mobile Internet users, and the free services will also help to convince many merchants to switch platforms. I would expect we’ll see Alibaba take some counter moves, but at the end of the day we could easily see Tencent and JD collectively win up to 15-20 percent of the C2C market within the next 12 months.
Bottom line: JD and Tencent are showing they are serious about challenging Alibaba in C2C with several major new moves, and could win up to 20 percent of the market in the next 12 months.
