by It’s been decades since conglomerates were the toast of American commerce. Many that formed in the 1960s and 70s broke up in the decades that followed, as the trend of diversification gave way to specialization. But in China in 2016, enthusiasm for the conglomerate form is at an all-time high, particularly among Internet companies. Last year, web titans Baidu, Alibaba, and Tencent invested a total of billion in 134 businesses. Alibaba has been the most aggressive of the three, investing more in 2015 than Tencent and Baidu combined through acquisitions and minority stakes in companies ranging from a language translation site to a home rental service. But they’ve surely bumped into each other outside some conference rooms. Alibaba and Tencent invested .25 billion and 0 million, respectively, in minority stakes in the food delivery site ele.me and billion each in Didi Kuadi, China’s largest car-hailing app. Alibaba isn’t abandoning its core e-commerce business, but its e-commerce strategy is evolving. One of its biggest deals last year was a .6 billion investment in the brick-and-mortar electronics retailer Suning. Suning’s distribution network will help deliver Alibaba’s orders and stock some Alibaba products in its stores, while Alibaba will host Suning’s first online store on its Tmall shopping portal.
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Alice Gomstyn considers the following as important: Alibaba, Baidu, China, conglomerates, Investing: Features, M&A, Tencent, Tmall
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It’s been decades since conglomerates were the toast of American commerce. Many that formed in the 1960s and 70s broke up in the decades that followed, as the trend of diversification gave way to specialization. But in China in 2016, enthusiasm for the conglomerate form is at an all-time high, particularly among Internet companies. Last year, web titans Baidu, Alibaba, and Tencent invested a total of $29 billion in 134 businesses.
Alibaba has been the most aggressive of the three, investing more in 2015 than Tencent and Baidu combined through acquisitions and minority stakes in companies ranging from a language translation site to a home rental service. But they’ve surely bumped into each other outside some conference rooms. Alibaba and Tencent invested $1.25 billion and $350 million, respectively, in minority stakes in the food delivery site ele.me and $2 billion each in Didi Kuadi, China’s largest car-hailing app.
Alibaba isn’t abandoning its core e-commerce business, but its e-commerce strategy is evolving. One of its biggest deals last year was a $4.6 billion investment in the brick-and-mortar electronics retailer Suning. Suning’s distribution network will help deliver Alibaba’s orders and stock some Alibaba products in its stores, while Alibaba will host Suning’s first online store on its Tmall shopping portal.
Alibaba’s other significant 2015 deals were in media: a $3.5 billion takeover of online video platform Youku Tudou, and a $2 billion deal to buy the assets of publisher SCMP Group. The company’s growing media empire also includes recently purchased stakes in China’s largest private film company and an online animation platform, as well as a wholly owned TV and film production company and an online music platform.
Why all the media investments? Because Chinese residents have growing disposable income to spend on entertainment, and the country’s “culture industry” is expected to contribute 7 percent to GDP — about 6 trillion renminbi ($930 billion) – by 2020. Alibaba also sees media as a way to drive business back to its e-commerce sites. Consumers could buy movie tickets through an Alibaba site, watch an Alibaba-produced film, and buy movie-themed merchandise on Tmall.
Tencent also has a foothold in media – including a new $100 million stake in a movie ticket app – but it has devoted the most attention to the O2O space. Short for “online to offline, ” O2O businesses attract online users to purchase services for use in the real world, which includes the above investments in Didi Kuadi and ele.me. In 2015, the company also invested in a ridesharing service, a housekeeping service, and a group deals site with a food delivery subsidiary.
Tencent tends to form partnerships rather than making outright acquisitions. As a result, it completed more deals than Alibaba in 2015 – 68 to Alibaba’s 45 – while spending $10 billion less. Its foray into O2O food delivery may prove particularly lucrative. The food delivery market has grown from 58.6 billion renminbi ($9 billion) in 2010 to 216 billion ($33.5 billion) in 2015, and online orders are expected to account for more than 12 percent of all food delivery in 2017, up from just 0.15 percent in 2010.
Baidu has also entered the food delivery business – not through M&A, but by developing its own platform, Baidu Food. That’s just one of several homegrown Baidu businesses that Credit Suisse analysts say are indicative of a more organic growth strategy. Other examples include an autonomous car business, an education business, and an online bank developed in partnership with a brick-and-mortar bank, China Citic Bank.
Baidu, like Tencent, limited itself to minority stakes last year, its largest being a $1.2 billion investment in Uber China. But Baidu is also pouring money into a major acquisition from 2014: the group-buying site Nuomi. The company announced last June that it would spend $3 billion to make Nuomi more competitive in the O2O space. In doing so, Baidu has an advantage others don’t: it is China’s dominant search engine.
The Internet giants are cash-rich, and Credit Suisse analysts expect their investment boom to continue despite macroeconomic headwinds. They may also face less competition than in recent years. Though the Chinese government directed some $231 billion to venture capital funds last year, Credit Suisse analysts say the funds have grown more cautious. Consumer spending growth, however, is outpacing GDP growth. That’s good news for the Internet giants, who are increasingly prepared to sell just about anything consumers want to buy.