Two digital giants dominated the Chinese market list in Campaign's recent survey of consumer opinions, Asia’s Top 1000 Brands, conducted in partnership with Nielsen IQ. Alibaba and Tencent's expansive ecosystems cover a range of industries—the below image shows the brands that featured in our list of China's top 100 brands.
Tencent is known as an "investment powerhouse", having invested in many Chinese high-tech companies from Pinduoduo to JD, from Kuaishou to Sogou, from Meituan to iQiyi. The Chinese conglomerate is also deeply involved in the gaming industry at home and abroad.
Meanwhile, Alibaba has shares in five Chinese private courier service companies—with SF express as the only exception—as it seeks to build out its Cainiao express logistics network for its ecommerce behemoths, Tmall and Taobao. Fast-growing Chinese furniture brand Macalline used to cooperate with Tencent. Since Alibaba became its second-largest shareholder two years ago, Macalline made significant progress on both the overall Asia’s Top 1000 Brands list and the Chinese top 100, winning support and popularity from Alibaba's ecommerce platform Tmall.
Alibaba and Tencent have stakes in several of the same companies. Didi Chuxing and Bilibili are major brands that both Alibaba and Tencent have invested in. Red (Xiaohongshu or Little Red Book), valued at US$10 billion as a unicorn, is a rising-star social-media app and seed-planting ecommerce platform in China that both giants have financed.
But they are also fiercely competitive. Over the past decade, they have built their own walled gardens, preventing any interoperability for consumers and marketers. For example, Tencent prevents consumers from sharing links from Taobao or Tmall in the WeChat ecosystem. Consumers cannot use Tencent’s WeChat payment system on Alibaba platforms, and they cannot use Alipay for Meituan.
However, with Chinese regulators taking a much more active stance on monopolistic practices in the market, the two giants are reportedly considering a possible opening-up of their walled gardens.
Even simply reducing some of the virtual barriers between the two giants could change the internet in China significantly. Campaign asked marketing and branding experts for their thoughts on the duopoly and how an opening up of their ecosystems could affect both consumers and marketers. Joining us are:
- Greg Paull, co-founder and principal at R3
- Kaitlin Zhang, founder and CEO of Oval Branding
- Arnold Ma, founder of Qumin
- Florian Muller, consulting director at Artefact
Campaign: In the Chinese market brands mostly face two choices: working with Alibaba or Tencent. Is this restrictive for marketers, brands and consumers?
Florian Muller, Artefact: Historically, Alibaba was trying to develop some exclusivity partnerships with brands. Given the fast evolution of the ecommerce and social landscape, these exclusivity agreements are getting fewer and fewer. It is important for brands to play on different platforms according to their value proposition and target audience. For example, Alibaba has a core strength in commerce, while Tencent is focusing on social and entertainment. The brands must strategically play with different platforms to drive users and clients along the AIPL (awareness, interest, purchase, loyalty).
Greg Paull, R3: It has been a duopoly for over a decade, but the option has never been either/or. Brands need to have a presence on both Alibaba and Tencent platforms, and this has come at a cost for marketers. However, the strength of social commerce is changing retail dynamics. Social platforms like WeChat, Douyin, and Kuaishou are making ecommerce easier—consumers prefer shopping this way because they can interact with multiple touchpoints without having to leave a single app. As a result, marketers are paying more attention to these social platforms and increasing their investment.
Kaitlin Zhang, Oval Branding: For most Chinese consumers, it means switching between the two services seamlessly, in the palm of their hands. As an example, almost everyone in China uses both Alipay and WeChat Pay. Although there are different consumer habits and preferences attached to each platform. The consumers will always choose what is the most convenient and useful to them. Many marketers and brands are highly aware of the battle between Alibaba and Tencent. It can cause a headache sometimes, especially for foreign brands who want to enter the Chinese domestic market. New brands need to conduct in-depth market research to understand the difference.
Arnold Ma, Qumin: Alibaba or Tencent do dominate, but it’s not restrictive. Some of the largest platforms are owned by these two tech giants. However, more and more, there are alternative choices for brands. For example, Bytedance’s Douyin (Chinese Tiktok). In my opinion, it is the single best platform right now for building awareness in China, especially for brands starting from a zero base. Platforms like Douyin and Little Red Book are also fantastic for social and live commerce. Especially Red, where it has the highest social commerce conversion rate compared to Douyin and Kaishou, which is 2-3 times higher.
How expansive are Alibaba and Tencent's ecosystems?
Zhang: Almost all the apps a Chinese person will use throughout the day will be linked to Alibaba or Tencent. They permeate in every aspect of life such as education, health, transportation, food, finance. Even products and services that are seemingly unrelated to them could have been developed by them or have received investment from them. Brand extensions that are distinct from the parent brand can protect the parent if the new brands fail. Distinct new brands are useful for testing in a fast-changing and fast-failing marketplace like China.
Muller: Alibaba, Tencent, Baidu, Bytedance... have all developed multi-platform strategies to increase users and revenue streams but more importantly to bring a sticky ecosystem of platforms that is generating a wide range of user data. Eventually, the core value of these companies is to get a comprehensive profiling of their users through wide data generation (socio-demographic, transaction, behaviour, social) in order to provide brands with very accurate marketing tools.
Paull: Most of China’s platforms are owned by four big giants. Alibaba and Tencent are the Top 2.
Ma: [They own many brands but] this is changing very quickly. Not just because competitors are innovating, but also the state is looking to curb the oligopoly created by Alibaba and Tencent by putting in place policies—such as the recent anti-monopoly law—to stop the tech giants from further market manipulation.
Consumers and marketers have been blocked from operating across their two ecosystems for many years. If Alibaba and Tencent were forced to be interoperable, what could this mean for consumers, brands and marketers?
Ma: This can only be good news for brands and marketers. One of the biggest issues in China is the lack of data attribution, so being able to build cross channel funnels between the biggest platforms is a benefit. This will open the doors to much better attribution modelling and spend efficiency. More so, this will start to create opportunities for other platforms, to spur more innovation in the tech/service design sector in China.
Paull: Opening up walled gardens helps both Alibaba and Tencent consolidate their current market position and user base. As a result, it will create a more even competitive field. Consumers can expect greater convenience. For example, they will no longer be constrained to pay within single apps. We could even see more innovation in this space as emerging companies and start-ups will have greater opportunities to grow.
Zhang: Another thing we have observed with our Chinese clients is that venture capital firms and start-ups that have received investments from one of the tech giants have to be careful to use the services in that platform’s ecosystem. This can range from the obvious choice of ecommerce, payment, social media platform to less obvious connections such as hiring celebrities and influencers (KOLs) that are affiliated with the right ecosystem. If the platforms do consider opening up, marketers and brands would have more options to choose from to grow their businesses. However, that same advantage would also be available to all their competitors. Perhaps Alibaba and Tencent would have new incentives for ecosystem loyalty for brands. We’ll wait and see.
Muller: When we talk about opening up we need to consider two aspects: the omnichannel experience and the data. The opening may occur on the first aspect to create a more seamless consumer journey between platforms. This will aim at breaking platform siloes and reducing some monopolistic behaviours. This would not change drastically the brand approach, it should rather accelerate the multi-platform strategies where brands could easily build unique and efficient consumer journeys. On the data angle, it is highly unlikely that platforms will open up given that data is their main asset and given enforcement of new regulations for better control of data collection and usage.
What is one of the trickiest aspects of operating under a duopoly that you would ideally like to fix?
Ma: I think the biggest issue, in my opinion, is the lack of option to build a proper marketing/sales funnel with seamless conversions or optimisation based on understanding how your customers are moving through your marketing funnel. More often than not, when there is a duopoly, such it is in China currently, each of the larger platforms/groups would have their own strengths. One may be amazing at ecommerce (Alibaba), and the other would be fantastic at social and content (Tencent/Bytedance). Without proper cross-platform pollination, you would have to pick which platform, or rather, which stage of the funnel you would like to focus on—as you will not be able to properly convert your awareness on one platform to sales on another platform seamlessly.
Zhang: The Chinese market is a massive piece of pie for any duopoly to compete over. At the same time, the companies can be fixated on fighting over smaller slivers of the remaining pie, rather than expanding the pie outside of China. Many of our foreign brand clients would like better partnerships with either tech company but sometimes they find the cumbersome process and bureaucracy to be a hindrance. Some even wait years to form a partnership. Clearer policy and better customer support can help build long-lasting partnerships with foreign brands.
Muller: Talking about marketing data we should always consider two types of data: marketing performance (CTR, views, ROI) and consumer data. Actually, the main impact will come from the new PIPL (Personal Information Protection Law) regulation where brands may face limitations on data that they can collect and how they can use them.
Paull: Consumer ID match continues to be an issue for both ecommerce and traditional retailers with extended digital offerings. With the growth of O2O, addressing this issue will be top-of-mind with marketers.
Are there any potential downsides of increased regulation of tech platforms like Alibaba and Tencent and the possible breaking up of their ecosystems?
Paull: There will be a level of market uncertainty, but consumers can expect the digital ecosystem to evolve in their favour. The great thing about technology is its ability to adapt. Limitations that drive innovation and change will only create opportunities for new applications and services.
Muller: The opening up would be an opportunity for brands to propose better consumer journeys. Brands must quickly adapt their digital journey not to miss this opportunity. The main area of attention should be on the compliance and adaptation of brands' practices on data usage. One of the biggest challenges on which we help our clients is to implement data governance programs to create proper data management rules in order to build a sustainable and valuable data asset in full control.
Ma: We must understand these regulations are to restrict them from becoming too large and forcing exclusivity and/or stifling innovation from smaller players. So, in my view, there is very little downside. In fact, the opening up of these platforms could create much better cross-platform understanding. Or new players will pop-up that are open to better integration with each other. The strength of the close ecosystems does not out weigh the potential of open and competitive tech platforms/service design in China.