Alibaba and Tencent compromised

China Entrepreneur Magazine (ID: iceo-com-cn), Author: Deng Shuanglin, Editor: Yao Yun, Cover Image: Visual China

Four years ago, Meituan removed Alipay as an option on its payment interface. Faced with speculation from the public, Wang Xing questioned on Fanfou: "Why doesn't Taobao support WeChat Pay yet?"

At that time, Meituan wanted to enter the payment and financial sectors, while Alipay was also expanding into local services. The two sides delved into each other's territories, leading to a tense relationship. Meanwhile, Taobao and WeChat had already been blocking each other for many years. In order to maintain a competitive advantage, internet giants at the time were accustomed to using closed traffic entry points to suppress their competitors.

Interestingly, Wang Xing's boomerang has finally returned after four years—on September 4th, Taobao announced plans to add WeChat Pay capabilities, fully integrating WeChat Pay, with the adjustment covering all Taobao and Tmall merchants. On the same day, Meituan's core businesses such as Meituan Waimai and Meituan Hotels officially joined Alipay.

This is a historic breakthrough moment, as the giants have finally reached the most critical barrier between them.

In December 2020, the State Administration for Market Regulation initiated an antitrust investigation into Alibaba Group's abuse of market dominance in the online retail platform services market in China based on the Anti-Monopoly Law. Four months later, the penalty decision was announced, ordering Alibaba Group to cease its abuse of market dominance and imposing a fine of 4% of its 2019 domestic sales revenue of 4557.12 billion yuan, totaling 182.28 billion yuan, while also issuing an administrative guidance letter to the group, requiring comprehensive rectification. In September of the same year, the Ministry of Industry and Information Technology publicly stated that blocking website links was one of the key issues targeted in the internet industry's special rectification campaign launched in July.

Subsequently, the barriers between internet giants began to loosen: in 2021, Taobao first integrated with Tencent Video, followed by Alibaba's applications such as Ele.me, Youku, Damai, Kaola Haigou, and Shuqi starting to accept WeChat Pay; by the end of the same year, WeChat relaxed its restrictions on external links, no longer completely blocking Taobao product links; Tencent Video, Tencent News, and QQ's advertising traffic connected to Alibaba's Alimama. Last year, Tencent ByteDance fully resumed business cooperation, Meituan's payment options were reintegrated into Alipay, and its shared power bank, ordering, and bike-sharing services also launched on Alipay Mini Programs.

However, this is not yet a true interconnectedness. On one hand, the giants have not opened up their core territories to each other, and on the other hand, whether it is using WeChat Pay on Taobao's Taote APP or opening Taobao links on WeChat, the steps are still quite cumbersome.

At the end of August this year, the State Administration for Market Regulation announced on its official website that Alibaba had completed its three-year rectification. With this, Alibaba's rectification has ended, and normal operations have resumed. Taobao's introduction of WeChat Pay is an olive branch extended by Alibaba to its old rival, and it is also a key step in truly breaking the monopoly of platform ecosystems Founder of Lens Consulting, Kuang Yuqing, analyzed to "China Entrepreneur" that "Alibaba has set a good example, the ecological barriers of the Toutiao system and the Tencent system may also face breakthroughs in the future." In his view, Alibaba's move provides a high possibility for the future integration of Taobao e-commerce into WeChat Mini Programs.

Reconciliation is Inevitable

The reason why Alibaba and Tencent's move is called a "century-old reconciliation" is because the two sides have long-standing conflicts and deep grievances. Even their rivalry has given rise to more opportunities for new giants like Pinduoduo and Meituan.

In August 2013, WeChat released version 5.0, adding a bank card binding function, starting to enter the e-commerce and payment industry, which undoubtedly touched on Alibaba's core interests.

In the same year in November, WeChat users found that clicking on any Taobao link within WeChat would automatically redirect to the download page of the Taobao APP. Upon discovering Taobao's actions, WeChat immediately stopped redirecting Taobao-related links to the Taobao website and informed users that the address had been blocked.

In response, Taobao stated: "Many users have reported that clicking on links sent through WeChat Moments or marketing accounts led to fake Taobao stores, falling into traps of losing money and goods. Some users even fell into phishing links, where payment account and password were stolen, funds in bank accounts were emptied, threatening the personal privacy and security of consumers."

Thus, Alibaba and Tencent officially closed the channel.

Against the backdrop at that time, it is not difficult to understand these actions: with the rapid growth of mobile traffic dividends, as leading internet giants, both Alibaba and Tencent hoped to complete their business closed-loop on their own territory as much as possible, forming ecological barriers. However, their boomerangs also hit their future selves—Pinduoduo relied on WeChat social traffic to become the biggest competitor of the Taobao e-commerce; Taobao, in order to gain traffic, linked with content seeding communities such as Douyin, Kuaishou, and Xiaohongshu.

If, 11 years ago, Tencent and Alibaba were each other's biggest rivals, then today they are surrounded by competitors: in addition to the old rival Tencent, Alibaba must resist attacks from Pinduoduo, as well as defend against JD.com, Douyin, Kuaishou's encroachment on e-commerce business; ByteDance also attracted most of Tencent's firepower midway, from Zhang Yiming and Ma Huateng's indirect confrontation, to Tencent's high-profile announcement of suspending all business cooperation with ByteDance, tensions escalated at one point.

The change in the competitive landscape, as well as the nearing ceiling of user growth for WeChat and Taobao, breaking barriers and seeking cooperation have become inevitable.

According to 36Kr's report, after Taobao cooperated with Tencent to enable WeChat Pay this year, analysts estimated that the daily new DAU of Taobao is expected to be in the millions, with the main groups being elderly users over 55 and young users aged 18 to 26. For Tencent, the most direct benefit of this cooperation is a new source of income.

However, Alibaba and Tencent have only taken a crucial step, and whether there is more room for greater cooperation in the future, such as the integration of Taobao e-commerce into WeChat Mini Programs, requires further consideration.

Competition and Cooperation

Alibaba and Tencent are "breaking walls" in payments, which, on the surface, may not be favorable for Alipay. Alipay and Taobao e-commerce are almost inseparable, and their biggest competitor in the payment field is WeChat Alipay has 1 billion users and 800 million monthly active users, but its user penetration in lower-tier cities is significantly lower than WeChat. Official data from WeChat in 2020 showed that WeChat Pay's preference rate in county towns reached 83%, and 78% in townships and rural areas, both higher than the 76% of urban users.

"The sinking market" has always been a keyword that Alibaba cannot avoid. Due to the neglect of sinking users in the past, it objectively provided a growth environment for Pinduoduo. Now Alibaba is eager to acquire users in lower-tier cities, and integrating WeChat Pay into Taobao is an effective approach.

However, this move is not bad news for Alipay, but rather a "liberation".

By providing transactions and traffic import through various platforms within the Alibaba ecosystem, Alipay has achieved sufficient growth. But also due to deep bundling, in the current context of Alibaba's anxiety about traffic, Alipay's previous advantages and bundling have become constraints.

High walls can defend against external enemies, but they can also limit development.

In early 2023, Ant Group adjusted its voting rights structure, eliminating any situation where any direct or indirect shareholder singly or jointly controls Ant Group, with Jack Ma no longer being the actual controller; a year later, Alipay changed to having no actual controller. At the same time, Alibaba also underwent a major transformation of "1 split into 6", giving greater independence to various business groups and further decoupling from Ant Group in terms of business and settlement.

It can be said that today's Alipay is a completely independent platform. Although it cannot directly access data from the Alibaba ecosystem as before, it has gained a more open and autonomous environment.

"In terms of actual effects, Taobao has actually introduced more payment companies before, and Alipay has also connected Taobao to new payment channels more than once. Taobao's payment page still prefers Alipay, and in the future, Alipay will continue to provide services to Taobao. Considering the historical origins and familiarity, some future innovative payment methods will probably still occur between Taobao and Alipay." Wang Pengbo, a senior analyst at Botong Analysis in the financial industry, stated.

Wang Pengbo's analysis believes that considering the increasing openness and product innovation of Alipay's online and offline businesses in recent years, the proportion of non-Taobao businesses in Alipay's transaction volume should be increasing year by year.

In fact, Alipay is no longer just a simple payment platform. Over the past year or two, Alipay has been cultivating content ecology: upgrading public accounts, creating graphic and video content, entering the live streaming e-commerce field, etc., to commercialize traffic. Further opening up and interconnection among major internet companies means that Alipay may also break the ice and cooperate with more competitors in the future.

On the same day that Taobao announced the full introduction of WeChat Pay, Meituan's core businesses such as Meituan Waimai and Meituan Hotels officially joined Alipay Mini Programs. Earlier, Meituan's bike-sharing and power bank rental services had already cooperated with Alipay.

Alipay and Meituan were once "enemies". In 2011, Alibaba led a $50 million investment in Meituan's Series B financing, which greatly helped Meituan win the "Thousand Group Battle". In 2015, Meituan and Dianping completed a merger, and the relationship between the two seemed to deteriorate from then on: Alibaba began to withdraw investments on a large scale, while Tencent added $1 billion in investment and participated in Meituan multiple times Alibaba did not give up on local life after withdrawing from Meituan. In 2016 and 2017, Alibaba made two consecutive rounds of investments in Ele.me, totaling USD 2.25 billion. In April 2018, Alibaba Group, together with Ant Financial, completed the full acquisition of Ele.me for USD 9.5 billion. Subsequently, the two former "comrades" officially became competitors.

According to E-commerce Daily, in 2016 and 2018, there were reports of users unable to use Alipay on Meituan. In 2020, the battle between Meituan and Alipay reached its peak. Afterwards, Meituan completely removed Alipay payment, retaining only Meituan Pay, WeChat Pay, etc.

In 2017, Wang Xing predicted in an interview with "Caijing" magazine, where is the real endgame? Endgame was originally a term in chess, but the actual situation now is that the chessboard is still expanding, "everyone has to accept cooperation in the second half as the new normal."

Competition and cooperation between enterprises are also stages. At the end of 2019, Douyin reached a music copyright cooperation agreement with Tencent Music; in January 2021, Tencent Games' new brand "Spark More" also placed a brand advertisement on Douyin's splash screen to enter short videos. In June 2023, many users found that they could directly use Meituan power banks and Meituan ordering through mini-programs by searching for Meituan in Alipay.

The "breaking down of walls" is accelerating, and the situation on the chessboard continues to change. In the past two years, internet companies have been continuously making peace with each other, such as Dangdang and JD.com, Douyin and Ele.me, Kuaishou and Meituan