Alibaba buries hatchet with Tencent as regulatory partitions shut in
SHANGHAI – As China cracks down on the country’s tech giants, Alibaba Group Holding has expanded an olive branch on longtime rival Tencent Holdings to move away from exclusionary platforms that have long been the focus of their business strategy.
The leading e-commerce provider has long seen strong profits, backed by its influence in the massive Chinese market. However, antitrust pressures and its struggle to diversify have cast doubts about its ability to continue growing over the long term, especially as the company struggles with its first quarterly loss since going public in 2014.
Alibaba announced Thursday that it recorded a net loss of 5.4 billion yuan ($ 839 million) attributable to shareholders from January to March, largely due to an antimonopoly fine of more than that imposed by Chinese authorities 18.2 billion yuan was due.
“We have stated that we will sincerely accept the punishment and make sure we keep the resolve,” said Chairman and CEO Daniel Zhang in a call for awards that day.
For the full year ending March, Alibaba posted a record profit of 150.3 billion yuan. “In fiscal 2022, we plan to invest all of our additional profits and capital in supporting our merchants and developing new businesses, as well as in the key strategic areas that will help us grow consumer wallets and penetrate new addressable markets.” CFO Maggie Wu said Thursday, emphasizing Alibaba’s focus on creating long-term value.
Still, the tech giant has struggled to keep up with competitors outside of its core businesses in recent years.
Alibaba on Thursday named Taobao Deals as one of its engines for future growth. The affordable e-commerce app is primarily aimed at small towns and rural villages in which the company has only a limited presence.
The monthly active users of the app reached 130 million per year. “I think this is a good start,” said Zhang. But Alibaba lags far behind its competitors in bargain apps, an area originally developed by China’s third e-commerce company, Pinduoduo.
Alibaba has also invested heavily in cloud services in recent years to curb reliance on e-commerce. However, that company’s operating loss rose nearly 30% to 9 billion yuan in the fiscal year ended March, and it remains unclear when it will escape the red.
China’s regulatory action is another obstacle for Alibaba. The pressure to change its existing business model “will affect its profitability,” said an industry expert.
The company’s collaboration with Tencent Holdings, released earlier this year, shows how regulatory pressures are forcing China’s tech giants to reassess their strategies.
Alibaba Group Holding was founded by Jack Ma, who is believed to have upset Beijing by criticizing antitrust rules over the past year. © Reuters
Tencent and Alibaba, founded by outspoken billionaire Jack Ma, have spearheaded China’s tech industry since its inception. Although Alibaba originally gained prominence in e-commerce and Tencent in games and social media, the groups have aggressively picked up various internet-based companies and expanded into a number of customer deals.
Both Alibaba and Tencent are focused on creating unique online ecosystems that give members access to their extensive resources for smartphone-based payments, big data, and social media, but exclude others.
For example, most of the services affiliated with Alibaba do not accept payments through Tencent’s WeChat messaging app. Meanwhile, Tencent is blocking most of Alibaba services from WeChat mini-programs.
But their infamous rivalry began to unfold this spring when Alibaba’s Vice President Wang Hai expressed an interest in partnering with Tencent. The companies are now working together on certain services, and WeChat is now offering a mini-program for Alibaba’s delivery app.
The move comes when Chinese authorities crack down on technology platforms with massive market shares like Alibaba and Tencent. Pressure is forcing groups to turn away from their ecosystem model that is designed to freeze rivals out, although it is unclear whether their new collaboration would support or hinder growth in the long term.
Alibaba and Tencent are only expected to face greater pressure to open their platforms to emerging rivals who have been frustrated by the giants’ iron grip on their services. TikTok operator ByteDance sued Tencent in February for alleged antitrust violations.
Concern about Alibaba’s future has also emerged. The stock fell over 6% at one point on Friday in Hong Kong. The problem is down over 30% from its recent high, and Morgan Stanley warned of ongoing uncertainties over China’s internet regulations in an April report.