China is trying to build one of the world's most sophisticated surveillance technology networks nationwide, with millions of cameras in public places and increasing use of systems such as facial recognition.
IN recent years, tech titans Alibaba Group Holding and Tencent Holdings have competed across a range of mobile internet businesses. Now the duopoly that has defined China’s internet is going to war.
Industry watchers got a whiff of the brewing conflict earlier this month at the World Internet Conference, an industry event backed by the Chinese government. Alibaba’s Jack Ma, the face of Chinese entrepreneurship, was conspicuously absent from two high-powered dinners attended by industry superstars.
At the head of the table at one dinner sat Tencent co-founder Pony Ma, surrounded by the heads of 10 fast-growing Chinese internet companies—of which Tencent is an investor in all but one. They included ride-sharing company Didi Chuxing Technology and lifestyle-services platform Meituan-Dianping.
On Chinese social media, the gathering immediately became known as the “anti-Alibaba alliance.”
Then, Tencent went after Alibaba’s core business, retail, in a big way. Tencent said last week that it is acquiring a 5% stake in Chinese supermarket chain Yonghui Superstores for $638 million. This week it teamed up with Alibaba’s chief e-commerce rival, JD.com, to invest $604 million for a 7% stake in online discount fashion retailer Vipshop Holdings.
It’s a full-blown war,” says Wu Shichun, founder of early-stage investor Plum Ventures.
How this plays out, investors say, is likely to reshape the landscape of China’s business world and affect the lives of Chinese and the destinies of smaller companies.
An Alibaba spokeswoman sees the rivalry with Tencent as positive, saying “competition makes us better and will ultimately benefit consumers.” A Tencent spokeswoman says the company aims to foster a healthy environment that benefits users, developers and other companies in its ecosystem.
Just a few years ago, China had three dominant internet powers, collectively known as BAT, with search engine Baidu joining Alibaba and Tencent. Baidu, once as powerful as Google in the age of the personal computer, stumbled when the world moved to smartphones, and its valuation has lagged behind.
Now, it is only AT.
Alibaba and Tencent grew big by first dominating separate internet spheres: e-commerce for Alibaba and games and messaging for Tencent. They plowed their huge profits into emerging internet businesses. As they did, they increasingly came to compete head-to-head in finance, payments, cloud computing, entertainment, bike-sharing and meal delivery. By Tencent’s Mr. Ma’s own count, the two companies compete on about a dozen fronts. “Too much,” he told another conference this month.
They have more influence in how Chinese eat, shop, travel and have fun than any other companies in the country and arguably more than the Communist Party. It takes at least the four FANG firms (Facebook, Amazon.com, Netflix and Alphabet’s Google) to measure up to AT.
As the growth in online users slows, rivalry is sharpening over control of the convergence of online and offline services. That, tech investors say, is driving Alibaba and Tencent to try to take more of the other’s turf.
“In the past Alibaba and Tencent were mainly engaged in proxy fights [through startups]. Now they confront each other directly,” says an influential investor who knows both Alibaba’s Jack Ma and Tencent’s Pony Ma and has invested alongside them in startups. “It’s a world war now.”
Increasingly, everyone, from startups to publicly listed tech companies and brick-and-mortar retailers, is feeling compelled to take sides, as Vipshop did, or risk becoming collateral damage, say people in the industry.
Retailers are particular targets. Alibaba and Tencent each see payment systems as the most crucial ground to occupy—bringing them money and huge amounts of consumer data. So they want to snap up as many points of sale as they can to the exclusion of the other.
Alibaba’s Taobao online marketplace and Tencent’s WeChat messaging app block each other’s links, meaning the links aren’t clickable. Consumers can’t use Tencent’s Tenpay payment system on Alibaba’s online shopping platforms while JD.com, of which Tencent owns 18%, doesn’t accept Alipay.
Payment “has become an important way for the internet giants to claim their territory,” Hong Bo, a marketing consultant and a technology commentator, wrote recently on his personal blog. Eventually, he says, “as consumers we might have to choose whose subjects we will become.”
Alibaba, which has been acquiring and investing in online retailers, department stores and grocery chains in recent years, accelerated the pace this year. Meanwhile Tenpay, which has been eroding Alipay’s dominance by piggybacking on Tencent’s popular WeChat, hit a speed bump. Tenpay’s market share declined in the second quarter, the first time in three years that has happened, according to consultancy iResearch.
Hence, investors and industry executives say, Tencent’s renewed foray into retailing.
All the scrapping is drawing louder calls for checks on the big tech companies, and regulators are taking notice. At a conference in June, an official at the central bank, which regulates financial services, talked about a “data monopoly” held by unnamed companies that scooped up personal information by investing in different product lines.
I asked the investor who knows both Messrs. Ma why they would launch a war and give the government an excuse to crack down on them. “Ego,” he says and cites a Chinese proverb: “They forgot when the sandpiper and the clam are tied in a fight, the fisherman can come by and catch them both.” - WSJ
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