A shopping 'war'

The Economist has an article about a 'war' in China:

11 November is a day of remembrance in the West, but in China it is Singles Day, a national holiday and the biggest shopping day of the year. On Singles Day, online retailers encourage single men and single women to treat themselves, and they do. China’s e-commerce giant Alibaba reported transactions worth nearly six billion dollars through its payment system Alipay on 11 November 2013—more than the e-commerce sales of all US retailers on Cyber Monday and Black Friday combined.
That Alibaba owns a holiday celebrating self-indulgence underscores how it controls eighty percent of China’s e-commerce market and why its US flotation may value the company as high as a quarter trillion dollars. But the future lies in mobile commerce, and there Alibaba faces formidable competition from Tencent, whose WeChat messaging app boasts four hundred million users. Together with its partner JD.com, Tencent is racing to build a nationwide logistics network to challenge Alibaba’s. At stake is the next wave of online shoppers in China’s interior, the reason that the world’s largest e-commerce market is predicted to double to over six hundred billion dollars in 2020, according to McKinsey.
Alibaba’s distribution partners shipped five billion packages last year, more than half the country’s government-recognized total. It still isn’t enough. Last Singles Day, retailers tried to push over a hundred and fifty million packages through its network, more than ten times the typical daily volume. The real concern is what will happen when those volumes become the norm as the overall market explodes. This is leading Alibaba’s CEO, Jack Ma, to describe logistics as the area he was “most concerned about ”.
Alibaba earns most of its profits from its online marketplaces, including Taobao and Tmall, where it charges merchants for advertising and occasionally pockets commissions on transactions. Unlike Amazon, which manages its own inventory— and hence distribution centers— Alibaba must orchestrate millions of third-party transactions across multiple carriers. Last year, it announced that it would spend sixteen billion dollars over the next eight to ten years, creating a single logistics network with five of its largest partners, with the aim of reducing average shipping times from three days to one.
Its closest, but still distant, rival, JD.com, has taken the opposite approach, building its own network of nearly two thousand delivery centers, from which it can promise same-day delivery in over forty cities and next-day delivery in nearly three hundred others. JD.com raised nearly two billion dollars in its IPO last month on NASDAQ— cash it intends to spend on building out its network. But it’s JD.com’s deal with Tencent, announced in March of 2014, that poses an existential risk to Alibaba.
Tencent’s WeChat service has swiftly evolved from a messaging app to an all-in-one gaming, payment, social media, and consumer-to-consumer shopping platform. Its twenty percent investment in JD.com includes moving the retailer to a headline slot on WeChat and incorporating it into its payment system, which is swiftly gaining ground on Alipay. Alibaba was sufficiently alarmed to note “user behavior on mobile devices is rapidly evolving, and if we fail to successfully adapt to these changes, our competitiveness and market position may suffer”, under the heading of “risk factors” on its IPO prospectus. It has retaliated with an alliance of its own, banning WeChat on its marketplaces in favor of the micro-blogging service Weibo (Alibaba owns eighteen percent of Weibo’s parent company).
The race is now on to see whether Alibaba can build its logistics platform faster than Tencent and JD.com can integrate theirs— all while Tencent inevitably eats into Alibaba’s lead in mobile. The winner receives the business of the millions of Chinese yet to log on, as e-commerce is projected to make up twelve percent of China’s retail consumption by 2016, up from eight percent today.

Rico says that Amazon would do well to get into this, big time...