Paying for diversity
In its latest move to bolster its non-core businesses, Alibaba Group Holding has teamed up with telecommunications equipment maker Huawei to enhance the mobile payment function of Alipay, its online payment arm. Alibaba has invested in many businesses outside its core business of e-commerce in an effort to leverage its user base and cash hoard to boost profits and satisfy investors, experts said. However, the company also faces many challenges from the risks brought by the diversified businesses, as well as fierce competition from additional market players.
Alipay is trying to make itself a little more like Apple Pay and Samsung Pay.
The online payment arm of domestic e-commerce giant Alibaba Group Holding, which has dominated China's third-party payment service since it was launched in 2004, has teamed up with telecommunications equipment giant Huawei to make its mobile payments a bit faster and more convenient when used with the new Huawei P9 mobile.
The goal is to give its users a better experience than they could get with other payment tools, according to a news release that Alibaba sent to the Global Times on April 15.
Currently both Apple Pay and Samsung Pay are available in China, which are the mobile payment services of Apple Inc and Samsung Electronics Co respectively.
The upgraded Alipay allows Huawei P9 users to jump right to the code- scanning screen when they activate the phone's fingerprint scanner. Then users just have to get the code scanned at checkout to complete the transaction.
Before the upgrade, mobile users had to go through the rigmarole of opening the Alipay app and hitting the pay button to bring up the code.
"The deal between Alipay and Huawei enables Alipay to simplify its payment process to further improve the customer's experience," said Hao Zhujing, an industry analyst with Beijing-based market research firm Analysys International.
The Alipay enhancement is Alibaba's latest move to bolster one of its non-core businesses. In recent years, Alibaba has invested in a lot of businesses outside of its main business domain e-commerce. Some have a clear relationship to e-commerce, others less so.
The question is why? Experts said the purpose of the diversified investments is to leverage Alibaba's trove of user information and massive amounts of cash to boost profits and satisfy investors.
But diversifying comes with its own share of risks and challenges, such as exposing oneself to fierce competition and risking long-term goals for short-term gains.
Turning users into cash
Alibaba has been closing in fast on becoming the world's largest retailer. For the fiscal year ending in March, it projected total sales of 3 trillion yuan ($475.9 billion), up 23 percent from 2.44 trillion yuan in the previous year, according to another news release Alibaba sent to the Global Times on March 21.
By comparison, US-based retailer Wal-Mart Stores Inc reported $482.1 billion in revenue for the fiscal year ending January 31.
As its core business continues to grow, Alibaba has expanded into a variety of sectors both at home and abroad. It has invested in industries connected to e-commerce, such as cloud computing. For instance, its cloud computing unit has been ramping up investment in data centers in countries across Asia, such as Japan, Singapore and India, as well as in the Middle East and Europe, the company said in July 2015.
It has also invested in entertainment. Alibaba Pictures Group, Alibaba's film studio, recently announced that it had agreed to invest in two films being produced by Paramount Pictures Corp. For some industry watchers, its connection to e-commerce wasn't entirely clear.
"Alibaba wants to make good use of its abundant cash and accumulate more users through diversified channels," said Chen Wei, an analyst with Beijing-based investment consulting firm China Venture.
"Alibaba's platforms Taobao and Alipay have helped the company gain a steady stream of users, and now it needs to develop some new sources of revenue,"Chen noted.
Alibaba has a lot of active users to leverage. In the fourth quarter of 2015, the company's annual active buyers grew 5.4 percent from the previous quarter to 407 million.
"In the early stages, Alibaba spent a large amount of money to get users," Xu Zhipeng, an independent industry analyst in Beijing, told the Global Times on Tuesday. "Now, it's time to leverage that huge database to make more money through diversified businesses. As a US-listed company, Alibaba needs to generate high returns for its investors, which is another reason why the company must diversify its businesses. It needs to find new ways to turn its users into cash."
Diversifying risks
Alibaba's experience with Alipay shows that dominance can't be guaranteed, even when you get into a business early.
The e-commerce giant has seen Alipay losing market share as the competition for China's mobile payment market has grown increasingly fierce.
Alipay's share of the market shrank to 68.4 percent in 2015 from 82.3 percent in 2014, according to data released by Beijing-based market research firm iResearch in March.
Meanwhile, Alibaba's rival Tencent Holdings, which runs the competing platform Tenpay, has increased its market share to 20.6 percent in 2015 from 10.6 percent in 2014, iResearch said.
Other third-party payment companies such as Lianlianpay, Yeepay and 99Bill also managed to expand their shares of the market in 2015.
"More players want to enter the fiercely competitive third-party payment market in China while the market is still growing fast," the Analysys analyst Hao told the Global Times on Tuesday.
Even with its dominant position in a business that it helped pioneer, Alibaba has been challenged. It begs the question of how it might fare in businesses where it is less experienced.
Alibaba has invested a lot of money in unfamiliar sectors, said Chen, the China Venture analyst. Although the company has hired talented professionals to run those businesses, several risks remain.
"For instance, some managers might undertake risky ventures to prove themselves, but these businesses might not be good for the long-term development of the company," Chen told the Global Times on Wednesday.
It will not be easy for Internet giants like Alibaba or Baidu Inc to turn themselves into multi-industrial giants because they can't maintain their advantages in every sector, said Xu, the independent analyst.
"Like Microsoft and IBM, Alibaba also faces huge risks," company founder Jack Ma Yun said at a conference on Saturday, according to a report on Sunday by the financial news website caixin.com.
Ma said the situation must change in two or three years. He also said he has a lot of pressure on him to maintain Alibaba's development because there are too many new players, according to the report.
