Do Groupon, Tencent Have Alibaba/Taobao In Their Crosshairs?

Over the past few days, Groupon announced a major initiative to enter the Chinese market.

From the perspective of those who have experience with the brutally competitive Chinese market where virtually no non-Chinese companies have succeeded, Groupon’s management seemed to make all the wrong moves.

Instead of hiring local Chinese who had rich experience in the local Chinese market, it instead went to Harvard recruiting MBA graduates. From what everyone had seen, Groupon was setting itself up for a fall in China.

But then, Groupon announced that it would partner with Tencent to develop the social buying market. Tencent, based in Shenzhen, has long been the instant messaging and virtual currency leader in China, with more than 600M registered users in China.

It is listed on the Hong Kong stock market, and its share price just recently passed the HK$200 mark. In China, it has a reputation for being a tough partner, and in many ways is the company everyone loves to hate, enjoying the kind of reputation Microsoft had in the US during the browser wars with Netscape.

In the field of e-commerce, it has not been notably successful. This is why the deal with Groupon looks particularly interesting. 

But there is more to the Groupon partnership with Tencent than meets the eye. MIH, the leading South African media investor in the Internet in developing countries, also holds 35% of Tencent. Along with DST, these companies hold varying chunks of Facebook, Groupon and The signs are that they are putting together a loose federation of leading Internet companies. 

Driving all this has been Goldman Sachs, which recently gave a valuation of US$50B to Facebook for 1% of the company. After turning down a US$6B offer from Google, Groupon has been getting ever more aggressive in heading to a major liquidity event in the US, which would most likely take the form of a IPO. The hasty manner in which Groupon has announced its deal with Tencent suggests that Groupon’s management is in a mad rush to reach the IPO, and that Goldman agrees with this strategy. Significantly, Tencent’s president, Martin SY Lau, previously served as Goldman’s executive director in charge of telecom, media and technology in Asia. So aggressive has Groupon been about growing that in discussions on Quora, some have gone so far as to question the integrity and motives of the Groupon management. 

Another unmentioned player is Alibaba/Taobao, led by Jack Ma, which is the undisputed leader in e-commerce in China. For many in China, Jack Ma is a marketing genius, regularly inviting former US presidents and business leaders to major marketing events in China at the company’s headquarters in Hangzhou. In addition, he has a close and cordial relationship with China’s premier Wen Jiabao. For the Chinese government, Taobao’s business platform has the advantage of being able to provide important leading information about the state of China’s exports, in a way which is even more accurate and reliable than the government’s own Bureau of Statistics. Without a doubt, Taobao/Alibaba would take a dim view of Groupon and Tencent’s attempt to elbow in on their e-commerce space. Jack Ma has a famously long memory, and while he may not seek to hit back at Tencent and Groupon immediately, he may well wait for the right opportunity. 

Looking at it this way, it looks as though Groupon wants to make a major splash in China, setting the stage for its own IPO in the US. However, it’s unlikely that its presence in China will be long; it is much more likely that Taobao/Alibaba will come with a variation which is more successful in the long run. At the same time, the stage is set for long-term confrontation between Tencent and Alibaba/Taobao in the e-commerce space in China.

How will they fight it out? When Taobao drove eBay China out of the market, its management positioned Taobao as the local Chinese company, fighting the big outsiders who wanted to take advantage of Chinese. This nationalistic strategy worked. This time, Alibaba/Taobao is likely to use a similar strategy, questioning the Chineseness of Tencent, Groupon and their non-Chinese management and supporters.

The stage is set for a clash of the titans in the Chinese e-commerce market.

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