Apps & Software

With Alibaba Rising, Tencent Tries a Spending Spree


Alibaba, Baidu, and Tencent have long ruled their own corners of Chinese cyberspace. Alibaba is tops in e-commerce, Baidu (BIDU) in Chinese-language search, and Tencent Holdings (700:HK) in games and messaging. But with China’s Internet use shifting from PCs toward smartphones, all three companies need to adapt.

Each company has been making deals to strengthen its core business while expanding into new areas. Ahead of Alibaba’s upcoming initial public offering in New York, Chairman Jack Ma has been especially busy pushing into fields from finance to entertainment. Yesterday the company introduced its latest project, a crowdfunding platform called Yu Le Bao that lets people invest as little as 100 yuan ($16.09) in TV and movie productions. In the past year, Baidu has agreed to buy app store 91 Wireless for $1.9 billion and group buying site Nuomi.com for $160 million.

Tencent has been on a dealmaking run of its own. This month alone, the company agreed to pay $180 million for 15 percent of Leju, an online property agency; said it will pay $215 million for 15 percent of e-commerce website JD.com; and in a deal announced yesterday, agreed to pay $500 million for 28 percent of South Korean mobile game developer CJ Games.

If the e-commerce run is an attempt to muscle in on Alibaba’s turf, Tencent is going after Baidu, too. Last September, Tencent agreed to pay $448 million for 36.5 percent of Baidu’s search engine rival, Sogou.

Those deals and earlier investments should help Shenzhen-based Tencent challenge Alibaba’s primacy in e-commerce and Baidu’s lead in search. Still, investors aren’t thrilled: Tencent’s Hong Kong-listed shares fell 7 percent in early trading on Thursday. Since hitting a record on March 6, Tencent’s stock price has plunged 19 percent.

And with the company likely to keep on spending, shares might have more room to drop. Chinese media, citing unnamed sources, reported yesterday that Tencent has reached an agreement to buy about 20 percent of online video site Youku Tudou for at least $300 million.

Tencent was the company to beat in the PC era, thanks to its ubiquitous instant messaging program, QQ. The company has extended that dominance into the smartphone and tablet era through WeChat, a WhatsApp-like messaging service with 355 million active monthly users. Until now, though, Tencent hasn’t managed to turn that popularity into profit. Unlike WhatsApp, it has been selling ads on its messager; they just aren’t enough. Tencent is trying harder to make money from WeChat: Such companies as McDonald’s (MCD), PepsiCo (PEP), and Burberry (BRBY:LN) are testing marketing campaigns on the app.

The latest advertiser to sign up with WeChat is California’s Orange County Visitors Association, which hopes to use the app to attract the growing number of China’s high-spending tourists. Orange County “will begin telling the OC story on WeChat with the next few months,” the tourism promotion agency said in a statement Monday. The WeChat content is part of a strategy that also includes a new website targeting mainland tourists, with the goal of presenting “the destination’s tourism story in a way most familiar to Chinese travelers.”

To boost WeChat’s popularity outside China as it goes up against Facebook’s (FB) WhatsApp, Tencent plans on spending up to $200 million this year on marketing. The company has hired soccer star Lionel Messi to appear in a series of videos for WeChat. As Alibaba tries to sell its own messaging app, Laiwang, recruiting a similar international celebrity may be on Jack Ma’s to-do list.

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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Companies Mentioned

  • BIDU
    (Baidu Inc)
    • $234.23 USD
    • 2.35
    • 1.0%
  • 700:HK
    (Tencent Holdings Ltd)
    • $115.7 HKD
    • 3.80
    • 3.28%
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