Alibaba, Tencent and Baidu earnings calls took place last week against a backdrop of a general slowing down of the Chinese economy and an ongoing trade war with the US. Their saturation of the world’s largest domestic market means these platforms have to look to global expansion or new services for growth—both of which are costly endeavors.
In this sense they have a tougher job than their Western equivalents, something that’s driving these businesses to new lengths in terms of innovation and customer experience.
Alibaba is often compared to Amazon, a comparison that does it no justice. In reality, and at a bare minimum, it’s like eBay, Amazon, PayPal, FedEx and Google rolled into one. Similarly, Tencent’s WeChat is wrongly compared to WhatsApp, when it’s actually a whole operating system of services from people’s favourite brands. You can message people, read the news, shop online and make payments through it.
Some of the most profitable parts of Tencent’s business are its music and entertainment services. The closest Western equivalent would be if Apple purchased both Disney and Spotify.
Chief executive Pony Ma has made an incredible business out of franchising his most profitable gaming titles to create movies and TV shows, a model that has been copied and lauded as an incredible stroke of commercial genius in the West with franchises like The Lego Movie. For Tencent, its whole business functions as a system of brands that power one another.
What Western platforms can learn from this approach is to put the customer at the centre of their thinking, as opposed to the advertiser. The BAT companies (Baidu, Alibaba and Tencent) are famously sensitive about how over-indexing on ads could ruin the user experience.
Tencent in particular, is under-represented compared to Facebook or Google in the global advertising market given its social footprint (there are more Tencent accounts than actual devices in China, as people hold multiple accounts). But it makes this up in a booming paid subscriptions business. And the customer experience of these services benefiting from a cautious approach to advertising.
Alibaba relies more heavily on advertising. According to the company, it has an artificial intelligence (AI) tool that can write 20,000 lines of advertising copy per second and has passed the Turing Test.
But it does so in a way that supports the brands on its platform rather than killing them—because ultimately that’s a better end result for customers. Where Amazon does not share data with its partners, Alibaba does. The platform exists more as a white-labelled e-commerce offering that powers consumer demand, because the goal at the Alibaba brand level is to think about the entirety of a customer’s digital experience and connect the entire supply chain.
This approach is also driving innovation at a technological level. AI and machine learning play a crucial role in this, with Alibaba’s AI-powered chatbots not only dealing with customer queries, but actually understanding and reacting to customer emotions.
Alibaba is in the business of everything from using AI to predict sales on Singles Day (allowing its merchants to stock accordingly) to developing smart city tech to and helping bricks-and-mortar retailers get up to speed with its “digitalisation in a box” service. Similarly, in 2018 Baidu was the most active corporate investor in AI at a global level, and drove the most autonomous miles of any business in the world.
Duncan Clark, author of ‘Alibaba—The House That Jack Ma Built’ and chairman of Chinese ad firm BDA China, said in 2018, “only in the past year have I felt on returning to London or Silicon Valley that I’m going backwards in time”.
It’s clear that Western firms are falling far behind, and if they want to catch up they must look to the East, as they’ll inevitably run into the same market challenges as their Chinese counterparts before long or (even worse still) find their audiences drifting towards these superior services.
Felix Koch is the regional chief executive of EMEA & APAC at C Space.