The mobile internet era seems not only to change people’s consumption habits, but also shakes market positions of the BATs (Baidu, Alibaba and Tencent), who have dominated web search, e-commerce and social networking, respectively. To keep their monopoly status, BATs have conducted acquisitions to extend their current businesses and resources. It is reported that since 2011, Alibaba, Tencent and Baidu have acquired or bought shares in 30,40 and 30 companies, respectively.
As the largest e-commerce platform in China, Alibaba’s main revenue comes in form of fees paid by vendors. At the same time, promising business areas such as cloud computing and big data only contribute a small part and still require hundreds of millions RMB of investment to bring significant profits. In the PC era, Alibaba was very successful in leveraging scale to attract new PC users. However, with arrival of the mobile internet era, traffic sources have diversified and divided. While Alibaba’s established e-commerce business has less positive growth prospects, the roll-out of mobile LBS (location based service), a position service similar to GPS, has reinvigorated the traditional retail and service industry. With this in mind, Alibaba shifted its strategy to “All in Mobile E-Commerce”, at the beginning of this year. The strategy implies that Alibaba will combine online business with offline business (O2O). However, before that Alibaba's mobile internet influence on the market must become more substantial.
Last September, Alibaba has launched “Laiwang”, a friend-making platform similar to Wechat. However, after months of active marketing, it still did not get enough traction. The other two popular mobile applications are Taobao and Alipay, which are not suitable mobile services for the O2O business. At the same time, with the emergence of mobile internet, mobile maps have become an indispensable part of our daily lives. Data shows that among daily life web-services, 67% are connected to navigation maps. In this situation, Alibaba first purchased 28% shares of AutoNavi Holdings Limited (“AutoNavi”), a mapping company, for USD294 Million on May 10th, 2013. In the February of this year, Alibaba acquired the rest 72% shares for USD10.45 Billion. Alibaba bets on that AutoNavi will become an essential link between online business and offline business. However, the key question is how to integrate AutoNavi with Alibaba’s current resources as well as the recently acquired offline resources.
To further set the footprint in the O2O business, Alibaba announced to acquire Intime Retail (Group) Company Limited (“Intime Retail”), owner of department stores and supermarkets for HKD5.37 Billion. After the acquisition, Alibaba holds 9.9% shares of Intime Retail and HKD3.71 Billion in convertible bonds. Intime Retail was listed on Hong Kong Exchange in 2007. At the end of 2013, Intime Retail operated 28 department stores and 8 shopping malls. It is said that through the cooperation, buyers can pay via Alipay in Intime Retail outlets. In addition, buyers can shop Intime Retail products in Tmall and pick up at the nearby Intime Retail department stores.
Evidently, Alibaba’s purpose of purchasing Intime Retail is for the O2O business. We think that in this way, Alibaba can make use of Intime Retail’s national-wide retail network to establish the O2O foundations, try to integrate products, payments and logistics from both online and offline. However, how to avoid conflicts of interest between Alibaba and Intime Retail? How to make use of Intime Retail’s e-commerce arm, Yintai?
Never strong in offline, the advancement of mobile internet only exacerbated Alibaba’s weakness. To compensate, Alibaba chose the O2O business model. In the context of mobile internet, the company will have to adjust its strategy and operations. Whether Alibaba will find a successful path in the O2O business and set up an industry example like it did in e-commerce before is still a question.