Baidu, Alibaba, and Tencent, collectively known as BAT, are China’s leading technology "ecosystems". They shape and dominate emerging areas of technology such as the internet, mobile, eCommerce, and yes, even, logistics.
Baidu (“search”) prides itself as China’s Google. Both are built around a power search engine, and supplement this with video players and cloud storage. One key difference is that Baidu diversifies into other areas including restaurant delivery, travel portals, even personal banking.
Alibaba (“commerce”), parent company of Taobao, is the world’s largest eCommerce operator. Similar to Amazon, in addition to the shopping portal, Alibaba hosts a very popular “AWS”-like service, Aliyun. Alibaba has dominated the area of mobile payment by total transaction value on Alipay with 43.39% market share. These transactions are derived primarily from the online portal.
Finally, Tencent (“social”) is the company behind WeChat, China’s leading mobile-based social app. Credited with taking the “cash out of the marketplace”, Tencent's platforms handle many person-to-person and offline payments, particularly WeChat pay. The social phenomena is more recent for Tencent, as previous, it was known for gaming and entertainment.
Combined, BAT has a market value of $473 billion and annual revenue of $20 billion.
China’s trillion logistics market is a natural evolution from online offline (O2O) commerce. In addition, having a comprehensive transport system is cornerstone of the government’s 10-year action plan named "Made in China 2025". For these reasons, BAT is scrambling to secure its place in logistics.
Each with ~200m monthly users, Baidu Maps and Alibaba’s Amap account for more than 80% of market share of maps. The websites/apps themselves are free and the two companies compete with each other for advertising and product optimization. Ultimately, it is a game of data and user acquisition.
The rivalry escalated in 2017, with Amap announcing the use of real-time data in the map production process and Baidu Maps responding with the release of a 3D map. In addition, Baidu plans to pursue a next generation of maps through AI. Executive Director Li Dongmin believes that the future of maps must provide intelligent traffic forecasting for, at minimum, 30-60 minutes, and factor in user travel time.
Both companies are working on upgrading existing data collection and data processing for current maps. This competition of Baidu Map and Amap is, in fact, a competition of future technologies including image analysis, impact analysis, data processing and so on.
Not to be left behind, in December 2016, Tencent announced a strategic investment in Here, an Open Location Platform owned by a consortium of leading German auto-manufacturers. This gives Tencent a technological foothold to potentially surge past the current market leaders.
General consensus favors slightly Amap, due to better accuracy and usability. For logistics, Amap settings allows for “truck routing”, making it a favorite with truck drivers. However, precedence does not determine the future and Baidu and Tencent certainly have more up their sleeves.
Among BAT, only Baidu is placing a heavy bet on self-driving trucks. In 2013, Baidu established its Institute of Deep Learning, an R&D center dedicated to achieving fully autonomous driving. Foundational to this is Baidu’s pursuit of artificial intelligence.
In November 2016, Foton, China’s largest truck OEM, and Baidu revealed a truck prototype at the Shanghai New International Expo Center. Since then, Baidu has also made a strategic investment in Velodyne, a key supplier LiDAR.
In partnership with China's largest automaker, SAIC Motor Corp, last July, Alibaba unveiled its first connected vehicle powered by YunOS, its proprietary operating system. YunOS, provides navigation and voice control features among other internet services. Drivers can use payment services directly from the vehicle and “Alipay”, simplifying parking and fueling.
In March 2016, Tencent announced that it was teaming up with Foxconn, and Harmony New Energy Auto, a Chinese luxury carmaker, to create Future Mobility. This initiative will build smart electric cars by 2020.
Neither Tencent nor Alibaba’s pursuits in autonomous driving are tailored for fleets. The implication is that they will strive to make cars autonomous before pursuing trucks. Such a first step itself is steep, implying that only Baidu, at least in the near-term, will make any contribution into logistics.
After years of operating online, BAT is beginning to expand into the offline market. O2O is defined as anything in the digital world that either brings customers to physical stores or “offline” store products to the home. O2O bridges bridge the gap between these two once separate economic sectors.
According to the recent report by McKinsey, O2O in China has been growing the fastest in 3 areas: dining, travel, and mobility. In Tier 1 cities, 66% of O2O consumers use online dining applications for reviews, discounts, and ordering. In this fierce battle, Baidu Waimai (Baidu), Ele.me (Alibaba) and Meituan-Dianping (Tencent) go toe-to-toe fighting to hire delivery personnel and secure discounts with restaurants.
Among BAT, Alibaba is growing at a significant rate through with its C2C e-commerce site Taobao, B2C retail site Tmall, and B2B wholesale sites Alibaba.com and 1688.com. These channels reach everywhere in China and have strong supply chain support. This means tinkerers, builders, entrepreneurs, and small businesses can order custom motors and parts from Chinese factories without having to travel there, scouting for suppliers, and forging relationships. In addition, it brings access to international products and services to traditionally unreachable people. Alibaba serves as the escrow, protecting buyers and sellers.
Tencent has not given up, however, having made a strategic investment in Jingdong (“JD”), the “Amazon of China”. Priding itself in same day deliveries, JD is Taobao’s biggest competitor.
Serving as BAT agents in different categories, rising startups face harsh competition, with billions spent on acquiring users and fostering user habits. BAT has begun consolidating existing resources through mergers and acquisitions with most top startups now either backed by BAT or connected to BAT via investments or partnerships. This expedites the process of building out services and gaining market reach.
Since 2013, according to an HSBC research report, BAT has made a combined US$75 billion of investments in acquiring strategic partners. And as BAT keeps expanding into offline businesses, more investments are expected to be made in 2017 to solidify the empire.
China’s inefficient and fragmented logistics network acts as a brake on e-commerce growth. To offset this, BAT is leveraging internet technology and connected services into all aspects of transport from the vehicle to dispatcher to fleet manager to shipper....
In 2013, Alibaba organized Cainiao Logistics, a consortium-run digital platform linking more than a dozen logistics providers, 1800 distribution centers and more than 100,000 dispatch points. In 2014, Baidu backed oTMS (open Transport Management System) to help suppliers and transportation companies streamline transport.
Tencent, meanwhile backed Truck Alliance Inc. (a.k.a. Huochebang), an Uber-type service for trucks. In addition, Tencent backed our company, G7 Networks, providing fleet management services.
While Baidu is aggressively building its logistics networks, they are primarily helping companies with marketing and solutions tangential to its existing information network.
While Alibaba has the lead in capabilities linked to its own e-commerce sector, Tencent is addressing the logistics sector as a whole. If BAT can shift into multi-modal transport, the three companies will dominate online and offline logistics in the near future.
Q2 of 2016 saw 4.65 trillion RMB in transactions. According to a Nielsen, 86 percent of Chinese consumers use mobile payments, topping other countries worldwide.
By the end of 2016, there were 100 million activated accounts in Baidu Wallet, an increase of 88% from the previous year. Like its main rivals Alibaba and Tencent, Baidu Wallet tries to be all-in-one mobile wallet for Chinese consumers. By binding bank cards to the app, users can transfer money to other users' accounts, top up SIM cards, pay for virtual goods in video games, purchase movie tickets, and buy goods from any vendor that accepts Baifubao, Baidu’s third-party payment solution. Finally, with its legacy in search and maps, Baidu will likely try to make inroads in payments through those avenues.
Nevertheless, Baidu has some ways to go before reaching the market penetration of Alipay which boasts 450 million users. Alibaba's strong link to eCommerce and rapid accumulation of users has made it a cornerstone of the O2O industry. Despite the user traffic of Baidu (Ctrip, Qunar, Baidu Waimai) and Tencent (58, Meituan, Dianping), neither is able to refuse Alipay as a payment method and as a result, Alibaba is also privy to all their transaction data as well.
Nevertheless, Tencent is certainly up and coming, thanks to WeChat, China’s leading mobile platform.
Alibaba’s Alipay was the undisputed leader in mobile payments with no second place, however, with Wechat, is (incredibly) Tencent catching up. While Alibaba’s portals cover all possible variants of online commerce, Tencent’s control all medium of messaging and entertainment. WeChat transactions are used for person-to-person payments as well as for small businesses. Most vendors now accept both Alipay and Wechat. Another Tencent platform, Tenpay is also innovating with platforms for financing to thousands of small businesses and partnerships major banks to enable them to directly serve their customers from WeChat.
It will come as no surprise that these platforms will become the banks of the new economy in China, something unimaginable in the western countries, where traditional banks dominate the online transactions market.
Baidu, Alibaba, and Tencent have strong footholds in the Chinese market with two, Alibaba and Tencent, not only dominating logistics, but also biting off chunks of the banking sector as well.
While, in the eyes of the common consumer, Baidu is losing market share, their bets on autonomous trucks and partnerships with leading global technology companies show they are taking a more high-tech approach.
Alibaba is relatively uncontested in eCommerce, leaving Tencent and Baidu its dust. However, the same could have been said of its payment platform, Alipay yet Tencent’s Wechat is now a serious contender particularly in the offline marketplace. While Alibaba can leverage Taobao for its own advantages in logistics, transports for brick-and-mortar stores still rely on traditional Transport Service Providers which are independent of the Alibaba ecosystem.
Of the three, Tencent boasts the highest market cap and revenue (although much of this is derived from its internet gaming and video platforms). It is challenging Alibaba in the online marketplace and logistics. However, without focusing on next generation R&D, like Baidu, it seems to be taking a more conservative approach.
One thing is for certain, though, as BAT pulls further and further ahead, new businesses will be forced to align or resign. More and more crucial businesses will also need to straddle alliances, creating links between the ecosystems.