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Alibaba mapping a future filled with smart devices
Publication Date : 12-02-2014
Cash-rich Internet companies in China are deepening their commitment to online-to-offline deployment as they turn their focus to location-based services.
The latest attempt is that of Alibaba Group Holding Ltd, China's top e-commerce site by revenue, which offered a full takeover of digital mapping firm AutoNavi Holdings Ltd on Monday.
The tie-up, aiming to woo China's growing legions of mobile users, will enable Alibaba to transfer some of its huge virtual business to real-world uses.
The all-cash buyout, following the 28 per cent share that Alibaba has held since May, would value the Nasdaq-listed company at US$1.6 billion, a 27 per cent premium over its closing price at the end of last week.
Alibaba said in a letter that taking control of AutoNavi will help it fend off rivals such as Tencent Holdings Ltd and Baidu Inc, which are eyeing location-based services via smart device rollouts.
AutoNavi holds a number of limited licenses issued by the Chinese government that lets vehicles access accurate street maps. It led the domestic digital mapping market with a 31.3 per cent share, IT consultancy Analysys International said in August.
Alibaba faces stiff competition from well-capitalized Internet firms. Search engine provider Baidu, which purchased geographical data from NavInfo Co Ltd, fought for market share by offering a free service in August.
But the deal-making will give Alibaba a boost in extending its reach to catering, logistics and taxi rides, said Hong Bo, an independent information and communications technology analyst who runs consultancy IT5G in Beijing.
"The mapping service acts as a 'bond' that glues Alibaba's online platforms, payment systems and offline layouts," said Hong, who regards the purchase as one of "strategic importance" to the company.
Alibaba, home to 7 million separate online stores, controls 80 per cent of China's e-commerce market.
But its dominance is being eroded by rival Tencent, as the latter leverages its hit mobile messaging app WeChat for even greater revenue.
WeChat has drawn more than 600 million users in just two years. Its newly integrated payment function aims to turn a solid user base into substantial earnings.
While Laiwang, the equivalent of WeChat run by Alibaba, hasn't had much of an impact on the mobile Internet front, AutoNavi may come to the rescue, said Dong Xu, a senior analyst with Analysys International.
"One scenario is to utilise the mapping services on its mobile meal-order app Taodiandian, which shows users the physical location of vendors," said Dong.
Customers can seek restaurants based on proximity, download vendor coupons and order food for pickup. They can swipe the QR code upon arrival at the restaurants and pay via credit card or the Alipay Wallet, Alibaba's mobile payment app.
The largest number of daily orders made by phone app exceeded 30,000, according to statistics released by the Taodiandian team in January.
Alibaba's offline forays include a payment platform for cab rides using the Alipay Wallet app or facilitating the purchase of movie tickets at Wanda and Jinyi cinemas with sound-wave technology.
In the taxi-hailing market, Alibaba offered 500 million yuan in cash rebates to users who downloaded the Kuaidi app, in which the company has a stake.
Tencent is also subsidising a rival app.
"It's definitely good news for Chinese customers who are looking for more O2O integration so they can quickly convert their stored e-cash into tangible goods and services," said Sun Hongchao, a commentator at Internet company NetEase Inc.
According to Sun, Alibaba is well aware of the importance of offline penetration as it builds logistics network Cainiao and heavily invests in group-buying site Meituan and micro-blogging server Sina Weibo.
But it is the sudden rise of WeChat that has propelled it to pick up the pace.
"Tencent is trying to build WeChat into a multipurpose, one-stop platform with e-commerce, gaming, financial services and other capabilities," Sun said.
"Its still-nascent mapping service will soon take off as more rely on smartphones to surf the Web," Sun said, adding that in the mobile Internet age, it is the company that has users, rather than customers, that rules.