In an ongoing battle for market share in China’s highly competitive local services market, e-commerce powerhouse Alibaba Group, along with its affiliate financial arm, Ant Financial Services Group, made a bold statement this week by investing nearly US$1 billion in its mobile shopping service, called Koubei.
Alibaba and Ant Financial each spent RMB3 billion (US$483 million) on Koubei, and each will hold a 50 percent equity stake in the business. The new venture allows customers to contact businesses via smartphone and order various goods for delivery. At first, the app will process orders for food and beverages, but later it will expand to other retail goods and healthcare services, Alibaba said. Koubei, which means “word-of-mouth reputation” in Chinese, has been in existence as an Alibaba brand since 2008, but its use has been relatively light – until now.
The huge ramp-up in investment is the latest salvo Alibaba has fired in the competition with other Chinese online merchants for the local services sector, also referred to as “O2O,” for online-to-offline. One of Alibaba’s chief domestic rivals, Tencent Holdings, recently made substantial investments in other food-delivery O2O services, such as Dianping, Ele.me and 58.com, leaving Alibaba to play catch-up.
“The joint venture, Koubei, will integrate the convenient aspects of mobile commerce and big data to transform and upgrade China’s local services sector,” said Alibaba and Ant Financial, in an official statement.
The revived Koubei service will coordinate food and beverage orders and merge with Alibaba’s Taodiandian food delivery service to follow through on the offline delivery, the companies said. Orders will also be processed using Alibaba’s mobile Taobao app, as well as Ant Financial’s Alipay portal, a PayPal-like service that manages roughly 80 percent on online payments in China. Over time, Ant Financial’s merchant services in offline retail, healthcare and vending machines will be rolled into the joint venture, the company said.
Another competitive arena is taxi-hailing smartphone apps, much like Uber in the United States. In China, the two firms have waged a fierce battle in the taxi sector, pitting Alibaba-backed Kuaidi Dache against Tencent’s Didi Dache and expanding each app to provide other O2O services, such as food and leisure deals. In February, however, both companies said they plan to merge both announced in February a plan to merge both services into one.
It is estimated that China now has more than 500 million smartphone users who are ordering an increasing amount of products and services via mobile apps.