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The rivalry between Alibaba and Tencent is so intense that it has long divided the Chinese technology sector into two competing ecosystems and is forcing new companies to choose sides. But in recent months, the split has begun to look a little blurry.
Alibaba has become the third largest shareholder of China International Capital Corporation, although Tencent holds the second largest stake in the leading investment bank.
A month later, in March, Hangzhou-based technology giant invested $ 171 million in press release Qutoutiao, backed by Tencent, through a loan converted into a stake of 4% in the content platform.
In the same month, the two companies joined forces with other companies in a $ 1.5 billion financing transaction.
Sudden cooperation is a sign of the growing maturity of China's technology sector – Tencent and Alibaba celebrated their 20th anniversary – and the changing dynamics as capital tightens and consumer-centric applications focus on the world of business. l & # 39; company.
"In consumption, it's the winner who takes everything, so [companies backed by] Alibaba and Tencent are fighting and only one will survive, "said the head of a business technology company.
But in the commercial customer market, "many companies can survive and they will not necessarily fight. They have already wasted billions of dollars in the past. "
The scars of the deadly battle between companies are easy to see. In food delivery, Meituan Dianping, backed by Tencent, and Alibaba's Ele.me rack up losses in the battle for supremacy; in e-commerce, where Pinduoduo, supported by Tencent, is spending heavily to attract customers; and in payments.
But now, as the growth in the number of Internet users is slowing and investors are tired of the cost of acquiring expensive customers, the industry is fast becoming a business. Alibaba, the dominant player, and Tencent rely on their cloud capabilities to deliver software and other services to business users.
To do this, they rely on organic growth and acquisitions, at home and abroad: this is how Alibaba invested in the German Big Data Data Group and the Chinese productivity platform Teambition, supported by Tencent.
It also reflects the maturation of a sector that is currently experiencing its third generation of start-ups, said Seamon Chan, co-founder and managing partner of Palm Drive Capital and former investor at Alibaba. "The tech giants are maturing. Sometimes it makes sense to join forces against newcomers. Some of them become big so it is important to defend oneself and form alliances. "
For those just starting out, Tencent's support provides access to the billion users of its WeChat messaging platform and the technology giant's experience: its portfolio of more than 700 includes 122 unicorns and more than 60 listed companies.
"In the consumer space, the purpose of the investment is to gain access to the traffic of consumers, so they take the money from Tencent," said a person familiar with the transactions. "But once built, they must find a way to generate income. Since e-commerce is the most lucrative way of monetizing traffic, they then go to Alibaba. "
A fierce rivalry means that companies usually have to choose between the two when they are raising funds: an investment of one often prohibits investment, or even some types of cooperation, with l & # 39; other. But these conditions usually expire when the company draws up a list, he added.
With last year's outstanding list of technology stocks, including 16 from Tencent's portfolio, many of these links were cut off.
Recently listed companies wishing to use more investors and the recent popularity of convertible bonds are convenient gateways for Alibaba. In addition to Qutoutiao, she has acquired an 8% stake in the anime backed by Tencent and Bilibili's streaming game group.
These agreements are also a sign of the third factor behind joint investments: the fear that a great rival will gain a competitive advantage.
According to someone familiar with this problem, Alibaba had taken a stake in CICC. CICC, as the main Chinese investment bank and a regular insurer of both the owner and the holder of a banking license, is perceived as a price by both companies.
In the same way, both companies have invested in the project of strength, in part because "one and the other did not want the other to be the only investor in the company. 39, company, "he added.
China claims the world's largest car book market, estimated at $ 23 billion by Bain & Co. consultants. The lion's share goes to Didi Chuxing, who has dominated the market since its inception at the time of the merger. 2015 between Didi Dache and Kuaidi Dache. – and which also has interests held by Alibaba and Tencent, as well as by SoftBank of Japan.
The two men also met in ZhongAn, considered the pioneer of the insurance technology sector, but whose performance was well below the excitement aroused by its initial public offering in September 2017: Shares now account for half of the IPO price of HK $ 59.70.
For new businesses, the thaw provides a touch of warmth. As the Chinese tech bubble fades and access to capital tightens, the fight for money has become more difficult for many companies. But Alibaba and Tencent have both announced plans to continue investing.
"The founders have had a lot of weight over the past 18 months and conditions have become more relaxed," said a former financier who now runs a start-up. "It went wrong last quarter."
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