One industry. Two strategies.

 One industry. Two strategies.

The technology industry is a different monster compared to traditional boring companies in my existing portfolio. The more I read about Tencent and the technology industry in general, the more it seems to digress from traditional value principles. Instead of hoping to succeed in a monopoly position in a state of no change, technology industries seek to expand and capture market share aggressively and create fundamental changes to stay ahead of the pack. Even the strategies it adopt are vastly different from the traditional companies I am holding. Here is a break down of the competitive strategies in the china scene (BAT) between Alibaba and Tencent 

1) Underlying monetization strategy

Alibaba - online mall REIT. Able to raise the rental of internet storefronts. High dependent on MAU and continual visitor inflow to be viable. Or else, vendors can uproot and shift to competitors.'

Tencent - focus on platform as revenue generator. Subscription fee required to utilise a super platform that empowers the users and the vendors.

In the first half, Tencent provided users with high-quality services by connecting people. In the second half building from this foundation, we will support industries and consumers to form more openly connected ecosystems.

2) Retail strategy

Alibaba - New Retail. providing technology and services to traditional retailers, including grocers, department stores, and even mom-and-pop. The program brings this small operator modern tools like inventory-management software and sensors to monitor foot traffic as well as camera-generated heat maps to show where customers are spending their time. Essentially, it is selling hardware (under subsidy?)  and the cost of implementation is unknown.

It has opened its own line of grocery stores called Hema, where affluent shoppers can choose a live fish from a tank and have it prepared for lunch. And it has bought outright Ele.me, a leading food-delivery service. Each is a customer for Alibaba’s cloud and other technology services, as well as a way to expand the customer base for the marketleading Alipay. 

Tencent - Smart retail. Not diwosifying into retail sector. Merely be the supplier of platform services to enable them to have online (we chat) exposure. Concept of an internet utility rather than ownership of the discrete retail storefronts. 

3) Acquisition strategy
Alibaba - buy controlling stakes in business that should create synergies with e-commerce (operational stake). Seek to install it's own managers to operate those business to value add but may incur significant opex and capex, or operating beyond its circle of competence. 

Tencent - buy minority stake in many tech companies to gain access to their technology and establish partnerships. (technology fund) .There might be lack of synergy between acquisitions for operational purposes as it is more of an investment fund intiative. Laissez-faire policy may allow performers plenty of freedom to run but may lead to unsustainable performance. 

4) Tencent initiatives 

Prevailing problem
Multiple businesses using discrete and cluttered company apps and payment systems  instead of being streamlined to a central platform. 

Solution
Use of miniapp to create a pseudo App Store to encourage developers / businesses to use we chat as a base to market their games, products and services. Use we chat super app to access everything they ever need in exchange for subscription fee. 

Problem
Limited expansion of Mau in China. Monetization cannot be rushed, or else drive away users. 

Solution
Instead of expanding into heavily contested red markets in Europe and US,  focus on SEA and emerging countries and create first mover network externalities. Those countries have underdeveloped payment system and retail sector, yet with strong smartphone penetration potential and could bypass VISA / credit card tech. 

Problem Bureaucracy. As companies grows to a certain scale, significant red tape, bureaucracy will result. Many merger and acquisition fails as promising acquisitions are forced to adapt the the acquirer's company culture and lost its original touch that makes it great in the first place.


Solution
The core of the new set up was built around “autonomy”, giving the heads of each business group the greatest authority in business development. Business units that can generate large amounts of revenue or have the potential for development do not need to consider the synergy between the various businesses, they only need to focus on rapid growth. Flat team structure and lean team size.

This strategy is surprisingly similar to the management methods exposed in the book Common Stocks and Uncommon profits. This is in sharp contrast with Alibaba, which prefer to displace existing management with its own chosen member.

Links
https://www.google.com.sg/amp/amp.timeinc.net/fortune/longform/alibaba-tencent-china-internet?espv=1

https://chinachannel.co/tencent-ceo-pony-ma-talks-smart-retail/

https://chinachannel.co/tencent-report-2018/
http://fortune.com/longform/alibaba-tencent-china-internet/