Internet giant's acquisition will allow it to integrate the website into a broad retail network to match that being built by Alibaba
Tencent Holdings has moved a step closer to narrowing the gap with e-commerce giant Alibaba Group in their race to build a highly integrated online-to-offline retail network on the mainland, following its US$736 million investment in 58.com.
That deal announced last Friday will provide Tencent, Asia's largest listed internet company, with a 19.9 per cent equity stake in New York-traded 58.com, which runs the mainland's biggest, Craigslist-like online classifieds site serving local merchants and consumers.
Development of the online-to-offline (O2O) market is widely seen as key to driving expansion in the mainland's retail industry because it involves closer ties between e-commerce and traditional bricks-and-mortar retailers and service providers.
A Barclays report viewed Tencent's investment in 58.com as a means to further strengthen the Shenzhen-based company's "mobile O2O e-commerce ecosystem".
Alicia Yap, the lead author of the report and head of China internet research at Barclays, said it was "highly likely that Tencent could offer and integrate 58.com services" on its popular WeChat mobile-messaging platform, which operates under the Weixin brand on the mainland and has more than 400 million users around the world.
"We believe 58.com may develop some tailor-made products and services specifically to fit the WeChat user base," Yap said.
Based in Beijing, 58.com's operations support both business-to-business and consumer-to-consumer transactions. The company's listings content - covering diverse categories such as housing, jobs, used goods, cars, pets and tickets for shows - is also highly compatible with online platforms designed for smartphones, such as WeChat.
In an earnings call in May, 58.com management said about 51 per cent of total traffic was already from mobile users.
Yap said Tencent's partnership with 58.com would not only broaden its coverage of "more high-quality local merchants in a relatively faster and efficient way", but also increase online payment service Tenpay's penetration into more small and medium-sized enterprises.
Data from Analysis International shows that Alibaba affiliate Alipay had a dominant 47.6 per cent share of the mainland's third-party online payment market in the first quarter of the year. It was followed by Tenpay, with an 18.9 per cent share.
In the first quarter, Tencent's aggressive promotion of its Didi Dache taxi-booking service also helped increase greater user awareness of WeChat's payment function and the company's ambitions in the O2O market, Barclays said.
But Hangzhou-based Alibaba, which is expected to soon go public in New York, has continued to boost its own investment in the O2O arena.
Last month, it forged a strategic cooperation pact with China Post to jointly develop a "smart" logistics network on the mainland. The two sides agreed to deploy resources in the areas of warehousing, processing and building a "public services platform" that would integrate China Post's massive infrastructure and Alibaba's more than 10,000 service outlets located across the mainland.
That followed Alibaba's US$692 million April investment in Hong Kong-listed Intime Retail, one of the mainland's largest operators of department stores.
That deal, which included the establishment of a joint venture between the two companies, will enable the development of a unified online, mobile and offline retail sales environment for merchants and shoppers across the mainland.