Despite generating enough money to fund a small country in one day on 11/11, Alibaba hasn’t already won the Internet. Jack Ma’s antics aside (starring in kung fu movies?), Alibaba isn’t morphing into a real life version of Mr. Robot’s Evil Corp anytime soon. The real picture is far more complex… and fragmented.
Alibaba and Tencent, China’s dominant internet companies, are engaged in a pitched battle to become China’s digital utility, an ambient layer powering and disrupting everything from buying street food, to branding, to transportation, to sales and marketing.
Utilities are protected by massive moats, either technological, practical or government-backed, and can’t be easily disrupted. Try living without water or electricity, for example. Or competing with the local electric company.
Becoming a utility is like business Nirvana: guaranteed profit for the foreseeable future, and no competition. In short, Alibaba and Tencent are fighting to become China’s internet monopoly.
The internet has already disrupted most aspects of daily life in China. When paying for something, you’re probably using mobile payment platforms WeChat (Tencent) or AliPay (Alibaba). Eating — you can order whatever you want from your phone and have it delivered. Other examples include ride-hailing, bike-sharing, personal investment, and, well, pretty much everything. The space between online and offline has basically evaporated.
Alibaba is fundamentally an e-commerce company. Their entire raison d’etre is making the process of buying and selling easier online. Alibaba e-commerce platforms Taobao and Tmall — and the technology layers like mobile payment platform AliPay that support them — are designed to bring together buyers and sellers in a friction-free environment. The long-term strategy for Alibaba, however, is a subtle shift towards being something more than a virtual shopping mall.
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To become a utility, Alibaba needs to convert their horde of buyers and sellers into more well-rounded consumers — specifically, consumers of Alibaba-produced content. Put another way, Alibaba is trying to turn commerce into attention. The most obvious examples are Alibaba’s foray into movies with Ali Pictures, and the live-streaming tools baked into Tmall and Taobao.
And why is attention important? Because of the connection between attention and marketing.
If you own everyone’s eyeballs, it’s a lot easier to sell things. If they successfully create a content layer, Alibaba can completely disrupt sales, marketing and retail in China, offering advertising-agency-style services to brands and individual sellers, and disrupting other points of sale by creating un-matched efficiencies. Marketing and selling in the same place is an unbeatable combination.
In a nutshell, Alibaba’s strategy is to turn the Internet into virtual shopping mall staffed with great content.
Like all good mythic showdowns, Tencent has the opposite set of advantages. Through social media and messaging app WeChat and Tencent’s massive online gaming empire, they already own a ton of eyeballs. WeChat alone has something like 1 billion daily active users. Basically, Tencent owns a significant portion of all the attention that exists in China.
Tencent’s challenge, therefore, is to integrate all of this consumer attention into an array of services in order to monetize it.
WeChat’s mobile payment platform is a critical piece of this integration-focused strategy, because it allows Tencent to turn every offline purchase into a gleaming node on a vast network, blurring the line between online and offline, and capturing a chunk of the sale of every dumpling, taxi ride, and sweater bought at Uniqlo.
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Similarly, Tencent’s investments in JD.com — China’s number two e-commerce platform — ride-hailing app DiDi Chuxing, and food delivery app Meituan create a seamless way to monetize attention online. Tencent’s strategy is to take the attention and traffic created by WeChat and monetize it by selling goods and services.
Long-term, because of their massive cache of attention, Tencent has the ability to create a friction-free process that dominates the entire sales and marketing process in China, from awareness and preference on WeChat to sales conversions. The vast reach of WeChat’s mobile payment platform positions Tencent to become an ambient layer merging online and offline.
The first implication is massive fragmentation. At the moment, there’s no clear winner in the Alibaba vs. Tencent battle, meaning that bits and pieces of your internet experience happen inside two competing ecosystems. You might read an article about some British post-punk band on Tencent’s WeChat, but buy the album (we can dream, right?) on Alibaba’s Tmall.
From a consumer perspective, this fragmentation isn’t a big deal, and may in fact be healthy, preventing monopolies and driving lower prices, at least in the short run.
If there’s a winner in the Tencent vs. Ali death match, however, prices will skyrocket. If you use ride-hailing app DiDi Chuxing, you’ve probably already noticed price hikes after the decimation of all meaningful competition and Uber’s utter failure in China.
If, however, you’re a marketer, all this fragmentation is a nightmare. Alibaba and WeChat do not allow cross-ecosystem links, meaning that you cannot go from a Tencent platform to an Alibaba platform directly (or vice versa). So if you’re one of the 1 billion people using WeChat everyday, you can’t go directly from the content you consume to a Taobao or Tmall shop. Tap on a link to Tmall inside a WeChat post and you get an error message.
The ramifications of this fragmentation for business are three-fold:
In the long run, my money is on Tencent. Monetizing attention via services is far easier than turning consumers of products into consumers of content. In my opinion, Alibaba will have a difficult time generating attention through content and will gradually diminish in importance.
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