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What We Can Learn from the Breakup of Alibaba and Meituan

Sep 26, 2018 by Rebecca Zhang
What We Can Learn from the Breakup of Alibaba and Meituan

Meituan Dianping (美团点评), China’s local customer services platform, made a solid debut at the Hong Kong Stock Exchange last Thursday. The company that raised USD 4.2 million in its IPO saw a 5% jump in stock prices at the end of its first day at the bourse.

Since being founded in 2010, it has been a journey from strength to strength for Meituan Dianping. Starting out initially like Groupon, the American e-commerce marketplace connecting subscribers to local merchants, Meituan Dianping soon expanded to a broad range of services including food delivery, movie ticketing, ride-hailing and travel booking.

By 2015, it had become one of the most valued internet companies in China following its merger with Chinese tech giant Tencent-backed Dianping, then a major rival of Meituan.

The merger severed its ties with the powerful tech giant and e-commerce conglomerate Alibaba (阿里巴巴) and turned the former investor into a sworn rival.

In fact, following Meituan Dianping’s IPO, Alibaba announced the merger of ele.ma, its food delivery platform with Koubei, its local commerce platform. Alibaba plans to inject USD 6 billion into the new entity.

Meituan founder Wang Xing knows that this is a battle cry and must gear up for the ensuing tussle.

Alibaba and Meituan go a long way back. In 2011, Alibaba led a USD 50 million capital injection into Meituan’s Series B fundraiser. The money saved Meituan from the fierce competition but this was also the beginning of its problems with Alibaba.

Zhang Hongping, who served as vice president at Alibaba Group and managing director at Alibaba Capital Partners from 2011 to 2015, recently recalled how Alibaba and Meituan eventually fell out.

Alibaba actively invests in startups to build an ecosystem supporting its core business operations. Alipay, the electronic payment platform affiliated to Alibaba became an important hinge connecting online and offline retail.

“The (Alibaba) group hoped that Meituan would only connect with Alipay as their exclusive payment channel, but how could Wang Xing agree on that?” Zhang recalled.

From Meituan’s perspective, having Alipay as the exclusive payment partner would blunt its competitiveness, especially when rivals offered multiple payment options.

When TenPay, Alipay’s rival developed by Chinese tech giant Tecent offered favourable rates, Meituan positioned Alipay inconspicuously in the payment options list, aggravating the brewing tension between Alibaba and Meituan.

The two parted ways finally in 2015 after Meituan’s merger with Dianping, which brought in Tencent as a shareholder. With 20.14% shares (before IPO), Tencent is currently Meituan’s largest shareholder.

Miffed by the merger with Dianping, Alibaba and Ant Finance set up their own local service joint venture called Koubei in June 2015.

Early next year, Alibaba sold most of its Meituan shares for USD 900 million. Meituan responded by boycotting Alipay.

In a public show of fury, seldom seen among Chinese businessmen, Meituan founder Wang Xing minced no words complaining about his disappointment with Alibaba.

“(Alibaba) sold our shares to disturb our fundraising. If you are not optimistic about this company, please sell them all”, Wang Xing complained to Caixin, a Chinese magazine in 2017.

In April this year, Alibaba bought the full control of ele.me at USD 9.5 billion, gearing up for the fight against Meituan Dianping.

According to a report released by Trustdata, a Chinese data service provider, Meituan held more than 46.1% of the food delivery market and ele.me occupied 39.5% of it in 2017.

The tussle between Meituan and Alibaba reflects the contest for controlling the enterprise, Zhang said.

Alibaba sought for engaging in the business much more deeply than just being a financial investor whereas Wang Xing was determined to keep his independence and decision-making power in the venture, he explained.

“You should not invest in a company for the sake of controlling a payment scenario”, Zhang said. Compared with such a resource-consuming strategy, Alibaba should relax, just hold the shares and let the company grow on its own, he believes.

Zhang added that the aggressiveness of Alibaba’s investment strategy became the main reason for many startups to turn to Tencent finally.

Alibaba still held about 1.48% shares in Meituan before its HK IPO, media reports said.

Rebecca Zhang

Rebecca Zhang is a Washington DC-based journalist who focuses on fintech, e-commerce and online education. She can be reached at Rebecca_Zhang@hks18.harvard.edu

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