Tencent (HKG: 0700), the tech giant behind China’s QQ and WeChat messaging apps, is radically shaking up its ecommerce operations by forming a strategic partnership with JD (a.k.a. Jingdong), China’s second-largest online shopping firm. Rumors of a collaboration between the two firms had been circulating for months.
What’s the deal about? To put it as straightforward as possible, Tencent will give JD the money and visibility necessary to run Tencent’s ecommerce operations successfully.
Following the completion of the deal, JD will fully acquire the business, personnel, and logistics of Tencent’s estores QQ Wanggou and Paipai.
It will also acquire a minority stake in Tencent’s Yixun ecommerce marketplace, and will maintain rights to acquire it in the future.
[Update: representatives at JD tell Tech In Asia that Wanggou will be integrated into JD.com, marking the company’s first foray into C2C ecommerce. JD’s flagship B2C site will be integrated into China’s WeChat in the near future.]
Meanwhile, on Tencent’s side, the partnership will see Tencent benefit from JD’s upcoming IPO, which it filed for in late January. Jingdong’s IPO is estimated to raise US$1.5 billion. The deal will see Tencent take a 15 percent stake in JD, and will subscribe at IPO price for an additional five percent of JD on a post IPO-basis. Tencent president Martin Lau will also join JD’s board of directors. Lau issued the following statement on the partnership this morning:
We are pleased to combine our thriving and fast growing ecommerce initiative with JD’s in this strategic partnership, and support them to further grow and provide even better ecommerce services to our collective users. Our strategic partnership with JD will not only extend our presence in the fast-growing physical goods ecommerce market, but also allow us to better develop our enabling services such as payment, public accounts and performance-based advertising network to create a more prosperous ecosystem for overall ecommerce activities on our platforms.
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Of those three acquisitions, the Yixun deal is the one to watch. That marketplace is already integrated into China’s domestic version of WeChat as a generic, plain-Jane shopping portal. At the moment it’s quite rudimentary and a little boring, but Jingdong’s expertise in logistics and inventory management could help make it more exciting. The company is best known for its lightning-fast shipments, offering 24-hour delivery to 156 cities in China.
Tencent has traditionally earned most of its revenues from gaming-related purchases, but that’s looking to change as the company moves its mammoth WeChat messenger into the realm of ecommerce. Tencent is currently working to spice up the new frontier of messaging-driven online shopping, exemplified by its expansion of WeChat Payments (aka Weixin Payments) to all brands, retailers, and estores on the app. Opening its third-party payment service to businesses with official accounts means that Chinese WeChat users can go from a chatroom to a retailer’s checkout page in seconds.
Tencent’s coupling with JD comes at the expense of Alibaba, China’s leading ecommerce firm. While that company continues to own a majority of China’s ecommerce market with Taobao and Tmall, it’s mobile traction in China is relatively weak. Since Chinese consumers have been so quick to adopt to WeChat’s features, as evidenced by the ubiquity of WeChat QR codes in China, Tencent’s steady foray into shopping has at times caused Alibaba’s Jack Ma to lose his cool.
Earlier this month Tencent announced it purchased a 26 percent stake in Dianping, China’s rough equivalent of Yelp. That deal will soon bring restaurant reviews, table reservations, and group-buying to the messaging app.
WeChat currently has 272 million monthly active users around the world, the majority of whom likely reside in mainland China.
(Editing by Paul Bischoff)