China's internet titans: Preparing for battle | The Economist

TWITTER is blocked in China. And yet, the Chinese are probably the most active tweeters in the world. They share their banalities (and, on occasion, profundities) using Weibo, a microblogging service run by Sina, a Chinese internet firm. Although the majority of Weibo?s more than 500m user accounts are inactive, many millions use the service every day.

Weibo?s popularity has caught the eye of Alibaba, China's biggest e-commerce firm. On April 29th it announced that it would take an 18% stake in Sina Weibo for $586m in a deal that gives it the option to raise that stake to 30%. The agreement values Sina Weibo at nearly $3.3 billion. But why would Alibaba, expected to go public soon, shell out that sort of cash?

Alibaba may be a titan of e-commerce that handled more transactions last year than Amazon and eBay combined. But in social media it is still an also-ran?which could become a serious competitive disadvantage. More than elsewhere, shopping is a social phenomenon in China. It is not just young women who want to discuss styles and shoes with their girlfriends. Men often shop in groups for clothes and watches. And punters of all ages post and scrutinise numerous consumer reviews online before buying.

In tying up, the two firms hope to combine e-commerce and social media to "bring unique and valuable services to Weibo users," in the words of Jack Ma, Alibaba's chairman (pictured). The deal is supposed to help Sina squeeze more money out of Weibo (which, like Twitter, generates more buzz than profits) and to speed up Alibaba's efforts at expanding its e-commerce platforms onto mobile phones (an exploding market, but one that Alibaba does not yet control in the way it dominates web-based e-commerce in China). The firms have not revealed much about how exactly they will do all this, but it is a safe bet to say that they intend to combine and mine the enormous quantities of consumer data they have collected. In other words, the Weibo joint venture will be one of the world's most interesting test cases for big data.

That may seem reason enough to justify the deal, but another motivation is just as important: taking on Tencent, another big Chinese internet firm. It made its mark with simple messaging and gaming, but its greatest innovation may be Weixin, known in English as WeChat. This clever service, which is spreading like wildfire in China, is a fusion of features offered by Twitter, Facebook and other social-media services. The firm hopes to also make it a success abroad.

Tencent has recently declared its intention to make its biggest bet on e-commerce yet. With its highly profitable gaming business, an online payment system to rival Alibaba's Alipay and a social-media blockbuster in We Chat, Tencent looks to be the only internet company in China that poses a real threat to Alibaba. By taking a stake in Sina Weibo, Alibaba is arming itself for the coming clash of titans.

Source: http://www.economist.com/blogs/schumpeter/2013/04/china-s-internet-titans

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