You see, when you have cash, and cash to the tune which only a few folks like Alibaba and Apple posses, you go on a buying/funding/investing spree worth billions, and expand business. And the best time to do it ? Well, when you have loads of cash and the ‘startup market’ isn’t particularly looking good for companies to raise funds.
That’s exactly what Alibaba seems to be doing.
In what would be yet another major multi-billion dollar round for the Chinese ecommerce-to-everything behemoth, Alibaba is now looking to lead a $1 Billion plus round in Ele.me, one of the largest players in a rather crowded Chinese food-delivery service arena, according to a Bloomberg report. This deal will value Ele.me anywhere in the vicinity of $5.5-$6 Billion.
So why exactly is Alibaba doing this ? Well, for the same old reason why companies actually do this — fight off competition, which in this case, comes from Tencent, Alibaba’s fiercest (and possibly the only one with that much gamut) rival in China. Tencent has backed a similar upstart called Meituan Dianping, working in the local services domain.
Interestingly, Alibaba is already the biggest shareholder of Ele.me. The company is also smartly deploying Ele.me’s services to complement a separate service called Koubei that provides restaurant bookings and spa treatments.
Another fun fact. Alibaba and Ant financials had infused $1.25Bn in Ele.me last year, diluting Tencent’s stake in the company. In fact, a merger between Ele.me and Tencent-backed Meituan Dianping was also on cards last year, but talks fell apart.
Exciting space in China, but not enough takers in India
This space — both in China and India — is particularly interesting. Both countries are seeing a massive growth in number of new users switching to smartphones, largely driven by the excessively low-priced market created by Chinese companies.
However, the market is much more matured in China as compared to India, largely due to the sheer difference in number of smartphone users — 717 Million users with 51.7% smartphone penetration for the former, while ~300 Million users with 22% penetration in the latter. And it is perhaps this maturity in the market, that is helping companies like Ele.me and Meituan Dianping raise massive investments. Indian companies working in this domain are seeing the exact opposite, at least for now, as most big names in the local services domain near a closure.
What also sets China apart, is a different mindset. While most companies globally in the food services sector fail to derive any profits whatsoever, Alibaba and Tencent are investing in these companies heavily, so as to promote their own digital payments services. The logic is pretty simple, and well proven.
As more and more consumers order food online, it will result in much more usage of the digital payments solutions provided by both Alibaba and Tencent. The same has been proved, considering the fact that growth in domestic food and restaurant transactions also outstrips many other retail segments in the world’s second largest economy.
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