Tencent deal heats up rivalry in China's e-commerce market

Tencent is joining forces with JD.com, another top Chinese e-commerce player

Alibaba Group's hold over China's e-commerce market is facing a new challenge from rival Tencent, which is joining forces with a local online retailer to expand in the nation's growing mobile Internet market.

Tencent, the maker of China's most popular messaging products, is partnering with JD.com, another e-commerce player that competes with Alibaba's online retail sites. The deal, announced on Monday, gives JD.com access to Tencent's vast user base, numbering in the hundreds of millions.

As part of the deal, Tencent is acquiring a 15 percent stake in JD.com for about US$215 million. The company will then buy another 5 percent of JD.com shares after its initial public offering in the U.S.

Alibaba has long reigned over China's e-commerce space, with its Taobao and Tmall sites. But both Tencent and JD.com have managed to carve out their own online retail presence, in spite of the stiff competition.

In the fourth quarter, Alibaba's Tmall site had a 50 percent share of China's business-to-consumer market, according to Beijing-based research firm Analysys International. Trailing in second place was JD.com with a 19 percent share, while Tencent's own e-commerce sites ranked third at 7 percent.

JD.com has already gained a reputation as an online retailer that offers speedy delivery, and low prices on products. But Monday's deal will turn the site into an even bigger e-commerce player, giving it access to Tencent's WeChat app, a popular mobile messaging product in China with e-commerce features and close to 300 million users.

In addition, JD.com is acquiring two of Tencent's online retailing businesses.

The partnership comes at a time when China's Internet giants have all been scrambling to make investments to shore up their mobile Internet products. The country is already the world's largest market for smartphones, and increasingly more of its users are relying on their handsets to go online.

Tencent's own WeChat app has turned out to be a major hit among China's consumers. But while the product provides messaging functions much like WhatsApp, it has also become a social networking platform to share posts and pictures.

To expand on WeChat, Tencent has been incorporating e-commerce features in the app, turning it into a platform to make online payments. Users can already buy movie tickets, or order taxis through the app.

Rival Alibaba has also been aggressive on the mobile Internet front. In February, the company announced it would spend $1.1 billion to buy one of China's leading online mapping providers. The e-commerce giant has also launched its own messaging app, called Laiwang, to compete with WeChat.

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Tags business issuese-commerceAlibaba GroupTencentinvestmentsinternet

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