China's leaders have been trying to shift the economy to one
powered by consumption instead of relying on exports and
investments. Alibaba Group's and Tencent Holdings' financial results are one
example of how the transformation is happening -- in part, through
spending online. Alibaba's revenue for the quarter ended in March
2017 jumped 60% to $5.6 billion; the company takes commissions on
online shopping purchases and sells ad space on its platforms.
Tencent, the maker of all-purpose app WeChat, is mostly fueled by spending on
online games like smartphone title "Honor of Kings," though it's
getting an ever-larger share of revenue from advertising. Its
quarterly revenue rose 55% to $7.2 billion. Despite concerns about
a softening of some economic indicators, online sales were up 32%
in the first four months of the year, and total retail sales rose
10.2%, according to the National Bureau of Statistics.
Digital video in big demand
Alibaba owns online video platform Youku-Tudou, while Tencent also
has its own similar platform. Both have been pouring money into
licensing content as they try to compete against each other and
against the No. 3 Chinese internet giant Baidu, which owns a video
site called iQiyi. Offering compelling video content is one way for
internet giants to keep people hooked on their ecosystem.
In a call with analysts, Alibaba Vice Chairman Joseph Tsai said
that competition for licensed content was "fierce," though the
company is working on its own content, so the price should come
Tencent Chief Financial Officer John Lo told analysts that it
expects video to be "loss-making for the foreseeable future,"
though it's seeing growth in traffic, ad revenue and
Massive stores of data
"You're really starting to see Tencent and Alibaba's vast banks of
valuable data coming through in their strategies, enabling them to
pick winners and promote them through their powerful channels,"
said Mark Tanner, managing director of marketing and research
company China Skinny. That's helping Tencent and Alibaba grow even
more dominant, and as Tanner says, makes "the rich get richer."
"It's not unlike the consolidation happening everywhere online,"
Tanner said. "Those with the data are able to really understand
what Chinese consumers want, and then they can deliver it through
their established channels."
Both are using consumer data for more ad targeting. Tencent
Chief Strategy Officer James Mitchell said, for example, that more
offline retailers were buying ads on mobile app WeChat to target
customers nearby their shop locations. Its quarterly ad revenue was
up 47% from a year earlier.
Alibaba, meanwhile, said its marketing service revenues for its
China shopping business grew 46%. Alibaba Chief Financial Officer
Maggie Wu said user growth and the ability to deliver more relevant
content led to higher average spending by more brands and