What role does InTime play in Alibaba's 2020 strategy?

If you take a minute to think about Alibaba's current business, it serves as a platform. The Alibaba platform was originally designed to help match suppliers to buyers. The Taobao, and later TMall, platforms facilitate business to consumer transactions. Alipay is a payment platform. So at no point does Alibaba actually sit on any of the goods they sell - it is always in the middle facilitating transactions, but never actually the seller of the goods themselves.

So that begs the question - why would Alibaba then invest in InTime, which does actually sit on goods and not only acts as the channel, but the seller as well?

The easy answer is that the internet in China right now is a battlefield. The BATs (Baido, Alibaba, Tencent) are competing for clicks and views across nearly every electronic channel. Tencent has the dominant chat app. Baidu has the dominant search. Alipay has over a third of domestic payments. Taobao handles the majority of online shopping. Etc..

The more complete answer is necessarily more complex and slightly convoluted as we're really trying to explain an investment that actually doesn't make that much sense. The investment will give Alibaba the opportunity to expand its payment footprint as well as work more with Online to Offline sales.

On the payment side, the press releases spoke of being able to purchase goods at an InTime store using a Alibaba virtual credit card on the Alipay mobile wallet. (Although the virtual credit cards are currently banned by the PBOC). In addition to making payments easier, the partnership will increase penetration and use of loyalty programs. Customers at Alibaba's InTime might be able to get Alipay points of some sort and vice-versa. This is good - although any expansion will lack the scale that Alibaba gets already through Taobao where one change or addition to the payment platform can result in thousands of new payments.

While the opportunity to increase their payments functionality and volume is interesting, the online to offline aspect of the business is potentially more compelling. Alibaba pretty much has the online-online model down with Taobao and Tmall, but they haven't made inroads on the online to offline model which is something that Tencent is getting better at as it integrates functionality into their WeChat platform. The InTime investment will allow Alibaba to not only expand its payment possibilities as mentioned above, but also increase the opportunity to engage with customers in a physical and first-hand manner by facilitating physical purchases. Is there really value in this? Well potentially, if leveraged correctly. Again, Tencent has this down to a science through their WeChat and with continuing to add payment and value added services, is increasing their 'footprint' in consumer online transactions.

Although this all sounds quite good for Alibaba, it's still a bit unclear if this was the right move for the company. Alibaba is gearing up for what will likely be the biggest tech IPO ever, so increasing its footprint and expanding the business model might help to justify the massive valuation that they are looking at, but it is a bit unclear if these acquisitions will actually help them in the long-run. Will Alibaba's InTime fundamentally change the way Alibaba does business? Could it be a model of future partnerships? Tencent making an investment in Dianping to continue the WeChat push into location based services and more value add around customer interaction makes sense. Buying into a bricks and mortar retailer? Maybe not so much.