Insight
Tencent integrates and expands e-commerce platform
Last Updated:2013-04-12 13:47 | CE.cn
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By Chen Jing


As China's most profitable internet company, Tencent, who rakes in RMB 30 million yuan daily, also has its sore point: ecommerce. Ma Huateng, CEO of Tencent, has said frankly that the company had gone through many setbacks.

 

 


As early as in 2006, Tencent had introduced Paipai, a C2C platform similar to Taobao's marketplace; later, it launched shop.qq.com and buy.qq.com, and invested in several ecommerce sites including 51buy.com and gaopeng.com. However, all of them have been operating separately, failed to integrate into a more powerful unity. According to the 2012 Financial Statements published by Tencent recently, its ecommerce revenue in the whole year was merely RMB 4.428 billion Yuan. Even with the transaction volume of RMB 16 billion Yuan from its open platform, its revenue still lags significantly behind 360buy's RMB 60 billion.


Integration is therefore considered the most important keyword for Tencent's ecommerce undertaking. On March 26, Tencent merged the shop.qq.com into the buy.qq.com, rallying up loose efforts into a focus punch. Henceforth, Tencent's overall ecommerce strategy of surfaces: "seizing the big and letting go the small" and "self-operation + openness".
Seizing the big and letting go the small as an effort to boost popularity


For most consumers, they can hardly notice the merging of buy.qq.com and shop.qq.com. For one thing, Tencent has adopted "imperceptible" upgrade of automatic skipping technology, and more importantly, there is hardly any difference between buy.qq.com and shop.qq.com in terms of commodity category and presentation method, despite that, internally, shop.qq.com is a platform for sellers, whereas buy.qq.com is connected to B2C platforms like Vancl and Dangdang, more like a "platform for platforms". 


For sellers on the platform, the merging is indeed a matter of life and death. Tencent disclosed that the number of sellers on buy.qq.com would be significantly reduced after the merging of buy.qq.com and shop.qq.com. Only the best 30 percent of the original sellers would be retained, and sellers with bad commodities and service would be weeded out. 


Tencent's "seizing the big and letting go the small" aims to improve its user satisfaction and its popularity, as well as to prevent its myriad of traffic resources from scattering loosely so as to achieve better focus. Wu Xiaoguan, a senior vice president of Tencent in charge of ecommerce, said that Tencent's ecommerce will increase subsidy to its high-quality sellers this year, with a reward fund of RMB 600 million Yuan of traffic subsidy. 


If the new buy.qq.com is compared to a left hand that represents Tencent ecommerce's aspiration for opening up its platform, then yixun.com is the another hand that focuses on self-operated business. Compared with Tencent's "biological children", yixun.com is an adopted child acquired by Tencent. Now the foster child is receiving concentrated capital and resources investment from Tencent. In 2011, yixun.com was a regional online retailer operating mainly in northeastern China. It began to expand northward and southward since the beginning of 2012, establishing 6 major warehousing and logistics centers in Shanghai, Shenzhen, Beijing, Wuhan, Xi'an, and Chongqing. Song Yang, assistant general manager of Tencent's ecommerce business, said early that: "as of the end of 2012, less than one year later, yixun had secured more than 20,000 orders daily".


Focus efforts required the cooperation of both hands. According to personnel from Tencent's ecommerce business, the backstage systems of buy.qq.com and yixun.com will be fully integrated. By then, about 100,000 kinds of commodities from the first group of sellers will enjoy unified high-standard delivery by yixun's self-constructed logistics, and by the end of July, the order system, account system, and payment system, among others, of buy.qq.com and yixun.com will be seamlessly integrated, achieving tight synergy between the self-operated platform and the open platform.


An ecommerce dream of RMB 200 billion Yuan


According to Li Chengdong, an independent ecommerce observer, what underlies Tencent's "seizing the big and letting go the small" strategy is its pursuit for control, beneath which lies Tencent's huge ambition in exploring the ecommerce market. In 2012, Wu Xiaoguang set a target for Tencent's ecommerce business: RMB 200 billion Yuan in 5 years, which is 10 times its current size. Despite the rapid growth of Tencent's yixun.com, whose revenue was RMB 750 million, 860 million, 1.13 billion, and 1.68 billion Yuan respectively in the four quarters of last year, there is still a whopping distance from the goal of RMB 200 billion Yuan.


Why is Tencent so anxious? What are the powerful props for the target?


The first thing is online traffic. The intensifying competition in ecommerce means rocketing online traffic cost, and Tencent, having 800 million active QQ users, is the undisputed "king of online traffic". Ecommerce is apparently the most direct way to convert traffic into cash. It has been reported that Tencent ecommerce's revenue from traffic advertisement had surpassed its conventional commission income. Wu Xiaoguang said that: "In the future, Tencent ecommerce will commercialize its internal traffic, making sellers pay for the traffic and value traffic more. In the meantime, Tencent ecommerce will establish an outstanding ecosystem, offering sellers more free traffic to create effective growth".


The second thing is the mobile internet. According to statistics, as of the end of 2012, the user population of mobile ecommerce in China amounted to 149 million, up 62 percent compared with 2011. WeChat, which has 300 million users, represents the future of Tencent. How to integrate ecommerce with Wechat is one of the most promising directions for achieving breakthroughs in WeChat's various business models. At present, WeChat has begun to try membership card, transferring sellers' relation networks onto the mobile phone through the IT application of scores, discount, and sales. However, making it bigger requires ecommerce platforms to provide commodity and service supports. 


Besides, ecommerce's challenge on the real economy and traditional manufacturers' transitioning to the internet have led Tencent, who used to be considered lacking ecommerce gene, to make up its mind to take a share in it. Wu Xiaoguang said that: "20 or 50 years later, maybe all retail will be conducted via the IT application of the internet of the mobile internet".

 

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