Titans nab apps and grab maps to fill the gaps
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E-mail China Daily, March 6, 2014
Would you consider buying a startup with just 50 employees for $19 billion? Mark Zuckerberg, co-founder and chief executive officer of Facebook Inc, the world's largest social network, did just that in late February.
The real motivation for the lofty price was the fast-growing mobile messaging service called WhatsApp.
The acquisition gave Facebook more than 450 million global users of the service and increased Facebook's strength in mobile messaging, a vital factor in the mobile era.
Chinese Internet giants are also engaged in an acquisition spree as the country's Internet industry rapidly shifts from the personal computer to the smartphone.
So far this year, domestic Internet companies have spent about $2.5 billion on acquisitions and strategic investments, according to Citi Research, a division of Citi Group Inc.
The total isn't impressive compared with Facebook's deep pockets, but the participants are drawing lots of attention.
The three Chinese Internet giants - Baidu Inc, Tencent Holdings Ltd and Alibaba Group Holding Ltd - have been competing with one another for prime acquisitions to fill gaps in their businesses.
With almost a half-billion people in China using mobile phones to access the Internet, it's a new era, and the three know that.
Some of the latest deals:
In late January, Baidu bought out the group-buying site Nuomi Holdings Inc from Renren Inc, expanding its e-commerce offerings.
On Feb 10, Alibaba offered to buy out mapping service AutoNavi Holdings Ltd to compete head-to-head with Baidu's mobile map app. The deal valued AutoNavi at $1.6 billion.
Nine days later, Tencent announced it would to take a 20 percent stake in Dianping, China's best-known restaurant rating and reviews website, which also offers a group-buying service.
Citi Research has forecast the trio will drive Internet-related deals in China to a record this year.
That buying binge will add to their 44 announced acquisitions since 2012 valued at $18.7 billion, according to data compiled by Bloomberg News.
"There will be more acquisitions in the coming years. To defend their territory in the mobile era, these companies need to secure as many users as possible because the shift from PCs to mobile phones is irreversible," said Dong Xu, chief analyst at IT consultancy Analysys International.
"Moreover, as the Internet's 'creative destruction' of the traditional industries continues, there are new opportunities in vertical sectors, such as online education and finance.
"The three Internet giants have strong financial power. They can turn their weakness into strength in a very short time through acquisitions," said Dong.
Baidu's strategy is clear. Chief Executive Officer Robin Li said in an earnings conference call: "Whenever there is the opportunity to undertake an acquisition to buy us either time or resources or talent, we will be open for that."
According to Dong, the acquisitions will involve vertical sectors wherever Baidu sees a consumer demand.
"In the PC era, Baidu was famous for its search engine, Tencent built its empire from social tools, and Alibaba was the king of e-commerce.
"But in the mobile era, you can't meet all the needs of users with just one or two services. So their acquisition targets can be in any sector," she said. The goal for each company is to construct a complete ecosystem.
Since the Internet giants hope to address their business gaps in a relatively short period, their acquisition targets are expected to be leaders in sectors where consolidation has already occurred, said Dong.
For example, there are rumors aplenty that the Shenzhen-based Tencent is likely to invest in JD, China's second-largest business-to-consumer company.
Industry gossip also has it that Alibaba will spend $1 billion for a 20 percent stake in digital television network operator Wasu Media Holding Co, which will allow it to include TV in its empire.
Citi Research analysts Muzhi Li, Ravi Sarathy and Gregory Zhao identified a few acquisition targets in a recent report. They said these companies are likely to have offline facilities, valuable data, a user base and traffic that can be monetized.
Tencent seems to enjoy an edge in China's mobile Internet sector, thanks to the company's popular mobile messaging app WeChat.
"With the more than 600 million registered users of WeChat, Tencent has secured an important gateway in the mobile era," said Lu Jingyu, an analyst on the mobile Internet with iResearch Consulting Group.
By embedding a payment function and investing in local service providers, Tencent has integrated the taxi-hailing service Didi Dache, wealth management services, e-commerce and movie ticket sales on its WeChat platform.
With the investment in Dianping, users of WeChat can now access that company's group-buying services and merchant information on their handsets, paying directly through the payment function embedded in WeChat.
"You can almost tell the future 'look' of Tencent's mobile empire as it is expanding to verticals based on its WeChat platform," said Lu.
According to Lu, the Hangzhou-based Alibaba is cutting into the mobile Internet market with mobile payments service Alipay Wallet, which has more than 100 million users.
"Alibaba has invested in a vast range of companies, covering taxi-booking, wealth management, mapping services and social media, including its own mobile chatting app Laiwang and Sina Weibo, a micro-blogging service in which Alibaba has a stake," she said.
Compared with aggressive expansion by Tencent and Alibaba, Baidu seems "a little bit quiet in mobile expansion", Lu added.
In the past year or so, Baidu bought app store 91 Wireless for $1.9 billion and took control of the group-buying website Nuomi. Prior to those deals, Baidu invested in an online video site and online travel site.
Analysts said that Baidu's key advantage in mobile is its own mapping service. Based on that, Baidu can integrate many location-based services, from food and restaurants to hotel booking and group-buying functions. But they said it seems that Baidu has been slow in terms of the integration and expansion.
Tian Hou, chief analyst with T. H. Capital LLC, an independent research and investment advisory firm, offered another take on the acquisition spree.
"The most important thing for the three giants to succeed in the mobile era is to maintain their core advantages in the PC era," said Tian.
"Tencent's biggest asset in the PC era was its users, because the company specialized in social media. Alibaba's biggest asset was small and medium-sized enterprises, given its e-commerce empire. Baidu's advantage has been traffic, since it's a search giant," Tian said.
Tencent is maintaining its user numbers through WeChat; Baidu still has an advantage in traffic, generated by 14 apps instead of just one important portal. Alibaba, however, hasn't figured out how to maintain its former advantage, she said.
Alibaba's e-commerce empire in the PC era is like a closed circle. "Inside the circle, there are suppliers, buyers, platforms, payment functions, and everything.
"It is an ecosystem, no one can get out if they want to be in e-commerce in China," Tian said, adding she can't visualize another such circle for Alibaba in the mobile era, at least not yet.
But does "the present" predict "the future" for the three Internet giants? Not necessarily.
"I cannot predict their performances tomorrow based on their establishment today, as the landscape of the Internet industry can change overnight," she said.
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