Tencent’s E-Commerce Subsidiary Ready to IPO, But First Needs More Customers

Tencent (HKG:0700), one of China’s largest and oldest web companies, got restructured into six separate units last week so as to make it more adaptive and lean. And now the new CEO of the freshly-formed e-commerce division, Wu Xiaoguang (pictured below), has suggested that its online retailing ventures – Paipai for C2C selling, and QQ Buy for B2C – are near the mature stage where it’d make sense to go for a subsidiary IPO. No time-frame was given for this, however.

Mr. Wu added, in a recent internal memo reported by the Chinese media, that the restructuring would allow the e-commerce division to use more flexible management strategies and to more tightly seize hold of the whole vertical, from offline logistics to new product development on the sites.

Despite Tencent’s huge social media user numbers for its iconic QQ IM service, the Shenzhen-based company hasn’t managed to translate that into e-commerce success, missing out on the initial growth stages in the industry to Alibaba’s Taobao and Tmall sites, and then in the more recent few years failing to get ahead of more specialist e-tailers such as 360Buy and Dangdang (NYSE:DANG). That has left Tencent being, in this sector, in the quite odd situation of being an oft-overlooked also-ran. Indeed, Wu Xiaoguang admitted that his subsidiary’s operations will likely incur financial losses as it invests and tries to expand.

Tencent's new e-commerce head, Wu Xiaoguang. (Image from iFeng Tech).

Tencent starting its online shopping efforts in 2006 with Paipai, aiming to tap into the amateur shopkeeper craze that was started by Taobao in China after it crushed eBay (NASDAQ:EBAY). Now, says Wu Xiaoguang, the company’s e-commerce venture is in a mature third-stage of growth in which it needs to succeed whilst also adding value to the industry and consumers. Amazon is cited in his memo as a successful example of an e-tailing platform – though Tencent’s challenges are greater, having far more competition in the country and trying to compete on a much wider catalog of products. As if all that is not enough, Mr. Wu also name-checks mobile commerce as something that his unit needs to master.

I hope he’s getting paid well, as that’s a huge task to take on. In our most recent look at B2C e-commerce market share in China, QQ Buy is way down among the very numerous “others” operating in online retail.

[Source: iFeng Tech – article in Chinese]