Commentary: China’s tech giants have few worries from smaller rivals
HONG KONG: China’s pre-eminent tech duo of Alibaba and Tencent are approaching their 20th birthdays. Still reasonably youthful but old enough to have spawned an entire new generation of internet wunderkinder.
The young start-ups include ride-hailing app Didi Chuxing, smartphone maker Xiaomi and Meituan Dianping, which delivers food and other services, and are valued at a combined US$132 billion, according to CB Insights.
But as these companies diversify and command ever-higher valuations could they dislodge the leaders?
READ: A commentary on the valuation problem facing China’s tech darlings.
The consensus, much of it with vested interests, believes not.
The more established start-ups such as Didi lack their predecessors’ breadth and, hence, ability to tie users in to anything like the same extent as either Tencent or Alibaba, both of which are also investors in Didi. Where Didi is branching out, into areas such as autonomous driving, it is doing so within its core business.
Xiaomi, which is due to launch an initial public offering in Hong Kong in July, has sought to create a similar ecosystem to the Chinese behemoths — but it is far smaller. Tencent-backed Meituan is the closest contender, having recently added ride-hailing services to its suite of offerings, but it too is on a much smaller scale.
More interesting perhaps are the newest challengers: The next generation of start-ups that are snipping at specific areas of relative weakness at the big tech conglomerates.
Chinese smartphone maker Xiaomi recently chose Hong Kong over New York for its IPO, after the southern Chinese financial hub relaxed rules that had deterred some big IPOs. (Photo: AFP/FRED DUFOUR)
E-commerce company Pinduoduo spotted a niche in value-focused shopping and rushed in, elbowing out JD.com to become the number two player in the country in terms of transactions. It has done so by finding under-served niches and meeting their needs — in this case, bargain-basement priced goods for rural residents and those in smaller cities.
Tech company Bytedance first grabbed attention with Toutiao, the country’s biggest news aggregator. Its video app Douyin has also taken China by storm, capturing 124 million monthly users since it was launched 18 months ago. That success has nudged Alibaba and Tencent into raising their stakes in the short-video streaming service.
OLD ORDER REMAINS
But not even these are seen as upsetting the old order: rather, one industry player dubs this third generation “roman candles”, a reference to the fireworks that flare brightly before quickly fizzling out.
There are several reasons. First, Tencent and Alibaba have assiduously invested in the next generation of technology companies: Tencent has a portfolio of more than 600 stakes and holdings across a range of sectors and industries.
A sign of Tencent is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, December 3, 2017. REUTERS/Aly Song
Second, the giant tech groups have built not just conglomerates but ecosystems. Whether your app is selling music or restaurant reviews, you need traffic, which means plenty of start-ups are perfectly happy to work on their platforms.
This symbiotic relationship is key to keeping start-ups on side, and turning them into revenue-spinners as well as investments. Ultimately, both Alibaba and Tencent want to keep users on their platforms as long as possible — and the more entertaining apps they have, the easier that is to achieve.
BEIJING PREFERS A FEW BIG PLAYERS
Third, it is political. Beijing prefers to regulate a few big players rather than shoals of unruly ones.
Peer-to-peer lending, for example, offers a graphic illustration of what can happen when multiple players are unleashed.
The sector has been hit by Ponzi schemes, evaporating funds and angry investors. Hence, the People’s Bank of China, the country’s central bank, continues to clamp down on the financial technology sector, moving last week to require balances held in customers’ electronic wallets to be lodged in a central custody account.
The same is true of content platforms. Censorship against information labelled “subversive” has ramped up this year. It even ensnared the children’s cartoon character Peppa Pig, which was banned from Douyin after authorities declared that it was being used subversively in user-generated content.
Peppa Pig has been given the chop in China. (Photo: AFP/Daniel Sorabji)
Beijing also prefers a tight band of champions so that the country can forge ahead in areas prioritised by the state, such as artificial intelligence.
Of course, politics cuts both ways. As plenty of one-time high-flying companies have discovered, a change in the political winds can quickly clip corporate wings.
Tencent and Alibaba have both had brushes with the state, despite treading a careful line.
But that wild card apart, the duo look sufficiently entrenched to celebrate a few more birthdays as leaders of the Chinese internet.
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