Posts

In a not-so-shocking move last month, retail giant Target acquired a grocery delivery startup for more than half a billion dollars to better compete with Amazon in the US.

Given the latter’s influence on the state of retail over the last decade, there has been a wave of excitement and fear sweeping the industry on a global scale.

The gradual consumer preference for digital has forced traditional businesses, predominantly in developed markets, to restructure internally or shut down. Case examples include retail leaders Macy’s, Sears, and American Apparel, whose legacies are now read about in bankruptcy stories.

Today’s headlines are revealing retail behemoths getting pushed to a corner by a new breed of entrants shaking up the retail status quo with business models revolving around ecommerce, omni-channel, click and collect. These new companies also tend to execute faster, reach further and understand how to utilize the goldmine that is the internet.

But understanding that “digital disruption” or “retail innovation” is needed within a traditional corporation isn’t merely enough to bring about real change.

The speed at which businesses incorporate digital channels will determine their chances at survival and relevancy to the next generation of consumers.

But by the time they come around to asking, “am I moving fast enough to catch up to my competitors?”

It’s already too late.

Shopping sprees in the West

Companies in the US felt heat from the Amazon Effect much earlier than India or Southeast Asia did, ensuing panic in direct competitors like Walmart, Target and Home Depot and forcing them to act quickly.

In the last two years alone, large corporations like the above invested over $5 billion in acquiring digital companies to beef up their portfolios.

While most of these companies have the capacity to carve out resources to build their own ecommerce operations in house, the pace at which the internet industry moves doesn’t wait for employees to learn “Digital 101”.

Not to mention the additional pain points such as internal resistance, lack of ecommerce talent and channel conflicts. Large corporations in general tend to struggle when venturing outside of their core competencies. The quickest way to patch up your business is to buy what you don’t have.

In regards to Walmart’s total $4 billion acquisition spree,

“Walmart is buying a new consumer base — upper-middle-class people who normally wouldn’t shop at Walmart — and these new relationships would bring higher margins.” — Jim Cusson, president of retail branding agency Theory House

And the “buy what you don’t have” trend is prevalent across the industry as more traditional players gobble up digital startups. In the last eight months alone,

Walmart [retailer]: acquires Bonobos for $310 million in cash and last mile delivery startup Parcel
Sodexo [food management]: acquires majority stake in Paris-based online restaurant and food delivery startup FoodCheri
Home Depot [retailer]: acquires online business of retailer of textiles and home decor products The Company Store
FTD [flower delivery giant]: acquires on-demand flower startup BloomThat
Target [retailer]: acquires same-day delivery startup Shipt
Luxico [luxury home rentals]: acquires US-based text messaging platform for hotels Hello Scout
Albertsons [grocery retailer]: acquires meal kit company Plated
McKesson Canada [healthcare supply chain]: acquires marketplace for natural healthcare and beauty products Well.ca

“Quality exits like this don’t stem from a ‘for sale’ sign tacked to the door.” – Chris Arsenault, board member at Well.ca

Of course, the enormous price tags of these acquisitions could be spent on buffing up the in-store experience but the returns would take a long time to see whereas Target’s own online sales growth from Q1 2015 to Q3 2017 show how successful the company has been able to leverage ecommerce.

Target ecommerce growth from 2015 to 2017. Source: Bloomberg

While an acquisition may seem like a quick, easy solution, there are numerous factors to consider to avoid backlash such as price point adjustments and consistent branding. Without understanding how digital can compliment the current business model, it’s likely the new asset will simmer and die in a couple of years. Simply put, don’t buy ecommerce for ecommerce sake.

Absorbing a digital company on the other hand brings about mountains of data, new customers, a solid brand, fresh talent and a seat at the hippest place where everyone hangs out, the internet.

Movement in the ASEAN region

As with most trends, they eventually infiltrate markets on a global scale and Southeast Asia is no exception. Even a couple of years before Amazon’s lackluster entry in Singapore, a few traditional retailers took the acquisition route to capture digital opportunity early.

Sephora bought online beauty retailer Luxola in 2015, Central Group acquired fashion e-tailer Zalora Thailand in 2016 and last year announced a joint venture with Chinese internet giant JD.com.

What has driven this flurry of activity by corporations across the world?

It is avoiding what Jeff Bezos describes as “Day 2”. An idea explained nicely by Bezos in his letter to stakeholders:

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.” – Jeff Bezos

Which day does your company operate in?

Here’s what you should know:

1. JD.com rumoured to acquire Tokopedia

Alibaba’s biggest rival JD.com is rumoured to have acquired majority stake in Tokopedia.

If the rumour is true, Tokopedia will be another Indonesian startup that reach unicorn status after Go-Jek and Traveloka – which has just received $350M investment from Expedia.

The rumour about Chinese ecommerce giants’ interests in one of Indonesia’s biggest ecommerce site has been surfacing for months. Last month, Alibaba is the one that reportedly in talks to invest $500 million in Tokopedia.

Read the full story here

2. Online marketplace Pinkoi launched in Thailand

Taiwan-headquartered online marketplace Pinkoi is officially launched in Thailand. Pinkoi is a cross-border curated marketplace for original design products.

Inspired by the weekend market, Pinkoi seeks out niche designers throughout Asia to appeals to specific demographics. Pinkoi support the designers through workshops covering various topics related to ecommerce.

The marketplace is focussed on China, Hong Kong, Japan, the US, and now Thailand. But it has presence in 88 countries with 1.6 million members.

Read the full story here.

3. Sinar Mas Land and Samsung to host Indonesia Next Apps 4.0

Sinar Mas Land and Samsung will collaborate to host Indonesia Next Apps 4.0, an app-creating competition across eight cities in Indonesia.

Sinar Mas Land is challenging participants to create apps that will be useful in the field of transportation, marketing, and community.

The eight cities where the competition will be held are: Jakarta, Medan, Bandung, Semarang, Yogyakarta, Surabaya, Malang and Makassar. A road show in these cities is expected to draw more participants.

Read the full story here

When ecommerce first boomed in Indonesia around 2014, Albert Lucius saw many companies racing to serve the top 20% of the urban population while ignoring the rest.

“What about the people unfamiliar with the internet, let alone shopping online? And what about those living in rural areas?” Lucius mused. “Ecommerce players at that time were doing almost nothing to educate this demographic.”

Seeing this gap, Lucius teamed up with a fellow schoolmate from the University of Berkeley’s Haas School of Business, Agung Nugroho, to build Kudo – the online to offline (O2O) technology platform that connects online merchants with offline customers and was acquired by Grab in April. TechCrunch estimated the deal is worth $80 – $100 million but no confirmation has been made by either party.

Lucius acts as CEO, while Nugroho takes care of operations as COO and through its platform, Kudo wants to ensure all Indonesians are included in the online revolution and benefit from an economy that boasts a $157 billion potential.

Product-market fit: Tales of trial and error

Currently, the company is using individuals, mom and pop shops, and small store owners as Kudo agents to act as medium between online merchants and hard to reach customers.

Through these agents and a tech platform, the company enables the unbanked or those with low financial literacy to perform digital transactions. How?

  • The agent invests capital into their Kudo agent account, which can be as low as IDR 10,000 or $0.75
  • The customer views a list of products on the Kudo platform on mobile or a tablet provided by the agent
  • The customer chooses what they want to buy and pays the agent in cash
  • The agent makes a commission based on the product category sold (3%-20%) – the more they sell, the more they make

Although currently a well-functioning system, this was not how things were always done at Kudo. The company pivoted two times before finding a model that complemented Indonesians buying behavior.

kudo micro-entrepreneur indonesia

Kudo platform, facilitated through its agent, is bridging the gap between offline customers and online merchants.

 

Kudo is an acronym for ‘kios untuk dagang online’ or ‘kiosk for online trading’, and funnily enough, the business’s first model was literally a kiosk.

The company installed machines loaded with the Kudo platform in office complexes, shopping centers and convenience stores in Indonesian suburbs, as well as second-tier malls in the city, in hopes people would use it to place orders for various things such as food, tickets, and other goods.

They soon discovered that majority of citizens are wary about using unknown machines, afraid to break it seeing as they didn’t know how to operate it.

Kudo later redefined its business by creating a tablet-friendly platform and employed the help of sales promotion girls (SPG) to educate the people about its buying process. The second attempt worked well but hiring so much (wo)man power was not sustainable nor scalable.

The two broken models taught the founders a valuable lesson.

“Most Indonesians still need the element of trust in order for commerce to work. They need the personal and social touch in order to purchase something.”

Kudo’s agents of change

Through its present-day network of more than 500,000 agents across 500 cities and rural areas in Indonesia, offline customers once disconnected from the digital world now have access to products from Kudo partners like Lazada, BukaLapak, Berrybenka and Unilever to name a few.

The platform not only offers commerce but also facilitates bill-payments, phone credit top up, and purchase of financial products such as insurance.

The most popular transactions are top-ups that make up 30% of total transactions, followed by purchase of goods, especially cheap electronics, fashion, and bill payments.

kudo micro-entrepreneur indonesia

Kudo’s team explaining how the platform works to potential agent.

 

There are millions of customers that have used Kudo in Indonesia and the company credits its Kudo agents for partially solving three main roadblocks commonly encountered in emerging ecommerce markets like Indonesia – trust, payment, and logistics.

“Our agents are all familiar faces in the neighborhood, so even if initially the community does not understand nor trust the internet, they’re more willing to try out a new technology if it comes from someone they know,” explain Lucius.

From a logistics perspective, agents act as the drop-ship points for ecommerce players who can either have pick ups from their store or deliver straight to the customer. This highly reduces the chance of failed deliveries.

Kudo agents also decrease shipping costs for retailers when they order customer purchases in bulk.

“We know it’s not the most sophisticated system in the world and it’s not perfect, but it works for our market as it utilizes Kudo’s network of agents to solve a real logistics problem in Indonesia,” remarks Lucius.

Grooming a generation of micro-entrepreneurs

By taking a traditional route and using real people to educate and share new technology within communities, Kudo is not only speeding up the race to e-retail adoption but empowering individuals to dabble in “micro-entrepreneurship”.

“People only need a smartphone to become an agent and it doesn’t need to be an expensive one because our app works on every Android phone,” said Lucius.

There are two kinds of agents in Kudo’s network right now; store-owner agents and non-store agents, with the share of 40% store owners and 60% non-store agents or individuals. On average, the store owners agents could doubled their normal income through Kudo.

Building an inclusive economy with a giant

The company’s principle is and has always been to improve the lives of people.

Under its current model, Kudo aims to slowly convert more people to try online shopping by maturing the country’s payments literacy and understanding of ecommerce.

Its acquisition by Grab takes the company’s mission a step further as the Kudo platform will be integrated with Grab’s mobile payments platform, GrabPay and both companies are invested in a collaborative R&D lab in Kudo’s office called Kudoplex.

Kudo’s agents are also offering services like GrabPay credit top-ups and recruiting drivers for Grab to interconnect the two already-large networks into one expansive and all-encompassing payments infrastructure.

“We are very excited to work with Grab as we share the same mission to empower the unbanked to benefit from the rapid growth of digital economy,” closed Lucius. “There are a lot of good things to come.”

 

 

kudo micro-entrepreneur indonesia

Left to right: CEO Kudo Albert Lucius, CEO Grab Anthony Tan, and COO Kudo Agung Nugroho

Here’s what you should know today.

1. Grab is in the process of buying Indonesian payment firm Kudo

Uber’s Southeast Asia rival Grab is in the process of buying up Indonesia-based online payment startup Kudo in its first major acquisition.

Payments are a central focus to Grab’s push, as it is a way to differentiate itself from Uber and local rival Go-Jek, which raised $550 million last year, but also because it can help win business from millions of unbanked citizens and provide a solution in the market.

Not only is Kudo focused on Indonesia, but it directly enables those without a credit card, bank account or event internet access to buy online. Initially it used point-of-sale kiosks located in public areas, but it later broadened its focus to support an agent model.

Read the rest of the story here.

 

2. Vietnam’s Tiki looks to raise $60m in series D funding

Vietnamese ecommerce major Tiki is looking to raise a series D round of $50-60 million which is expected to close this year. Founded in 2010 as a book selling platform, Tiki did not comment when asked on the proposed Series D funding.

Part of the fundraising  is expected to be used to pare its loss. The company has recorded VD255 billion in losses since VNG Corporation’s investment until the end of last fiscal.

Read the rest of the story here.

 

3. Recommended Reading: With cloud, Alibaba follows the ‘build it and they will come’ approach

Alibaba quietly announced that Alibaba Cloud service has already doubled the capacity of its Hong Kong based data center in order to meet fast increasing demand in the Asia-Pacific region. The company said that the expansion in Hong Kong is part of its master plan to eventually expand into providing cloud services the world over.

 The worldwide cloud services market was projected to grow 16.5% in 2016 to total $204 billion, up from $175 billion in 2015. Alibaba Cloud has operations in 14 global economic centers including mainland China, Singapore and the U.S, in addition to Hong Kong.

 

Read the rest of the story here.

 

What is Foodpanda? 

Foodpanda is Rocket Internet’s global food delivery service, present in 22 countries, 500 cities with a strong footprint in Asia. The company has raised $318 million in funding since its inception and will now be sold to rival Delivery Hero.

The company had already shut down its Indonesian arm a few months ago and sold its branch Vietnam in 2015 after struggling to compete with local rivals.

What does Rocket Internet get for Foodpanda? 

Stock in Delivery Hero, which gives the German conglomerate a total of 37.7%. They previously paid $586 million for a 30% stock in February of last year.

If calculations are done backwards:

  1. $586 million for 30% = 19.5% million per 1%
  2. Foodpanda sold to Delivery Hero for 7.7% additional stake roughly equals $150 million
  3. The company was sold for half the price of its total $318 million funding

Rocket Internet SE said the combined business will process more than 20 million orders a month and operate in 47 countries.

What is Delivery Hero?

Delivery Hero Holding GmbH is an online food-delivery service based in Berlin, Germany. The company launched in 2011 and now operates in 33 countries internationally in Europe, Asia, Latin America and the Middle East and partners with 300,000 restaurants.

Why did they sell Foodpanda? 

According to TechCrunch source,

Foodpanda has slashed the asking price for its Indonesia operations to basically zero after more than a year of unsuccessfully trying to offload it.

The company is reevaluating its entire business across [Southeast Asia], and it has already made tentative efforts to sell in some countries. The company expanded in Asia via a series of acquisitions, which, in many cases, ironically leaves it without obvious suitors.

With more on-demand services like Go-Jek and LINE Man offering delivery services, how will the combined company fare? Tweet us with your answer @ecomIQ.

alibaba-southeast-asiaIt’s been several months since Alibaba’s blockbuster acquisition of Lazada, the leading ecommerce platform in Southeast Asia.

When the news broke, pundits and critics debated whether or not each side got a good deal, how it would impact rivals like MatahariMall, Tokopedia and Orami, and how the region would be flooded with cheap Chinese products.

Elsewhere, startup founders and VCs high-fived each other as the move put the region on the global map and they hoped it would lead to more funding and exits in the future.

However, everyone has failed to go beyond superficial observations. Alibaba’s acquisition of Lazada is much more than simply growing retail GMV, proving exactly why Jack Ma is Jack Ma and why he’s always been several steps ahead of the game.

Those celebrating the news, especially those in the retail space, may end up biting their tongues.

Peter Thiel, PayPal and Why Distribution Matters

In his book ‘Zero to One’, Peter Thiel talks about how PayPal almost didn’t survive were it not for their lucky break stumbling onto what would become their biggest distribution channel, growth engine, and eventual acquirer: eBay.

PayPal focused on targeting eBay’s Power Sellers — those responsible for the bulk of volume going through eBay — and then amplified it by paying for user sign ups and invites to friends, effectively turning PayPal into a mainstream payments platform.

No wonder Peter Thiel has been such a fervent proponent of distribution, beyond just building a great product.

“Poor distribution — not product — is the number one cause of failure. If you can get even a single distribution channel to work, you have great business. If you try for several but don’t nail one, you’re finished,” Thiel writes.

eBay accelerated PayPal’s growth thanks to its reach and velocity of transactions — high usage kept the payments company thriving. Distribution is exactly what Alibaba needs Lazada for. But for what? Most definitely not cheap Chinese products.

Inside The Belly of The Beast

Around the same time that Peter Thiel’s PayPal was acquired by eBay, the latter company was attempting to grab market share in China through an investment into — and eventual acquisition of — EachNet in 2002, at that time the leading Chinese C2C marketplace.

In response to this, Alibaba launched Taobao in May 2003 and eventually beat EachNet to become China’s largest consumer-to-consumer e-commerce marketplace. In a timespan of 3-4 years, eBay’s C2C market share plummeted from 72% to 8% and caused them to throw in the towel while Taobao’s share continued to climb, reaching over 80% by 2007.

Shortly after Taobao’s launch, Alibaba introduced Alipay, a third-party online payment platform, in 2004 to help facilitate transactions on Taobao. Today, Alipay is China’s largest third-party payment platform with 70% market share, boasting over 400 million users and generating over 80 million transactions per day (compared to PayPal’s 9 million).

Whereas PayPal was primarily a peer-to-peer (P2P) online payments platform based on email and linked to credit cards, Alipay was connected to bank accounts and incorporated features tailored to the Chinese market, such as escrow services.

alibaba-sioutheast asia

According to Jack Ma, Chinese culture, despite being one that traditionally values trust and integrity, lacked a system that enforced it. As a result, Alipay’s escrow feature was a perfect solution to the trust gap and shifted China’s e-commerce behavior away from cash-on-delivery (COD) towards one that is seeing 68% of transactions today.

With Taobao’s massive reach and distribution — 423 million annual active buyers and over 90% of total C2C ecommerce GMV in China — Alipay was able to cement its position as the leading third-party payment method.

Leveraging its 400 million users and reach through Alibaba e-commerce platforms, Alipay has grown beyond being an Internet-based payment platform into a finance and banking behemoth to the extent of threatening the old financial guard.

In 2011, Alipay spun off Alibaba to become Ant Financial Services Group, covering everything from online payments to microlending to banking and credit scores. Based on its recent funding round of $4.5 billion earlier this year, the group is now valued at $60 billion, making it the second most valuable non-public tech company behind Uber.

With this new war chest, Ant Financial looked to expand into new markets and for a while had been trying to get a foot into Southeast Asia. The company set up a Singapore entity as early as 2010 but lacked a proper distribution channel. Ant Financial’s lucky break seems to have arrived earlier this year.

Eyeing The Payments Opportunity in Southeast Asia

In many ways, Southeast Asia e-commerce is like China e-commerce but 8 years younger. Back in 2008, cash-on-delivery (COD) was still the dominant payment method in China making up over 70% of payments. Today, Southeast Asians rely heavily on COD when shopping online, attributing to roughly 70% of transactions.

To wean customers off a high dependency on COD, many well-funded startups and established conglomerates have been trying to solve the payments bottleneck, including Omise (Thailand), Doku(Indonesia), LINE Pay (Thailand), and True Money (Thailand).

Despite the PR and media hype, these homegrown solutions have yet to shift consumers away from COD because a lot of these heroic efforts have been “technology for technology’s sake” — building a faster car when what is really lacking are more roads

The Product Challenge

  • Platforms like Omise and 2C2P are basically payment gateways and don’t offer a viable solution for the massive C2C and P2P space that Google and Temasek peg at ‘several billion dollars’. These payment gateways still primarily process credit cards and, with credit card penetration across emerging SEA standing at single digits only, doesn’t really address the core of the issue. In addition, these solutions do not offer a fix for the trust issue often hindering C2C and P2P transactions — namely escrow.
  • 2C2P and Omise also face getting ‘pushed out’ as they don’t own any ties to the end consumer. Meaning if a cheaper and better alternative was to present itself, there is nothing stopping a merchant from swapping them out. Taobao got users to sign up to Alipay, making it much easier to convince non-Taobao e-commerce platforms to adopt Alipay as well.
  • Rabbit LINE Pay, previously LINE Pay, never captured much market share despite its association with LINE, the popular messaging platform reaching 33 million users in Thailand. LINE Pay’s limitation is that it only supports credit cards, stumbling yet again into one of the fundamental payment obstacles in Southeast Asia – lack of credit card penetration.

The Distribution Challenge

  • Although good attempts at providing shoppers with a second payment method, fintech startups like Digio and Deep Pocket are building mobile wallets before solving their chicken-and-egg problem.
  • It is difficult for mobile wallets to become widespread when awareness is low and users don’t have a strong (often financial) incentive to adopt it. User acquisition then becomes an expensive play without an inherent distribution channel.

The (Lack of a) Use Case Challenge

  • One of Thailand’s leading mobile wallets, Ascend’s True Money, connects with major banks in Thailand and has distribution access to companies in the CP conglomerate portfolio, including over 19 million mobile subscribers.
  • Yet, True Money is reported to have as little as 100,000 active monthly users out of 6 million registered users as of 2014. True Money’s current use cases are limited to mobile phone top up, online game top-up, and bill and over-the-counter payment, typically at CP-owned 7-11 stores.

Ecommerce is a more obvious and natural use case and therefore True Money is also used as a payment gateway on Ascend’s ecommerce properties WeMall and WeLoveShopping. However, with only 26% of Lazada’s traffic, Ascend still has a long way to go before taking a page out of Peter Thiel’s playbook and turning its ecommerce properties into a fertile breeding ground for its payment solutions.

The Lazada Acquisition: A Trojan Horse Strategy?

Alibaba’s foray into Southeast Asia has never really been about growing retail GMV. In the long run, it’s not so much about beating Lazada’s direct rivals or tapping into new growth markets outside of China; it’s about securing access to a massive end user base in a market whose lack of commerce infrastructure is eerily similar to early days China. Jack Ma’s endgame is to introduce and monetize his other products and services, starting with Alipay.

alibaba-southeast asia

Adopting Alipay would be pivotal for the region’s e-commerce growth and that of Lazada in particular. Widespread adoption of a convenient payment platform that bridges the trust gap between buyers and sellers will lead to more transactions overall as witnessed in China, now the world’s biggest e-commerce market in terms of GMV and penetration.

Alibaba’s (ironic) 20% stake in Ascend Money, the parent group of True Money, coming just a few months after the Lazada deal, shows Jack Ma’s master plan for Southeast Asia gradually coming to fruition.

But it’s much more than just Alipay and facilitating marketplace payments. As highlighted earlier, Ant Financial, Alipay’s parent company, operates an entire digital finance ecosystem in China consisting of but not limited to: Yu’e Bao, the biggest mutual fund in China in terms of investors with $108 billion in assets; Zhaocai Bao, a P2P lending platform with $32 billion in transactions in its first year; and Sesame Credit, a credit-scoring system based on — you’ve guessed it — ecommerce data.

And finance is only scratching the surface. Jack Ma, in his 2015 letter to shareholders, hints at much more to come:

“Alibaba group’s strategy is to build the infrastructure of commerce for the future. Ecommerce is only the first step. […] Around half of Alibaba Group’s workforce and our affiliated companies, including Ant Financial and Cainiao, are working on important areas of our ecosystem, including logistics, Internet finance, big data, cloud computing, mobile Internet, advertising and the so-called double H industries — Health and Happiness (the big data-based healthcare and digital entertainment businesses which will take 10 years to become data-driven).”

Hence it shouldn’t be retailers like MatahariMall or Central that should be worried about increased competition; instead, banks, insurers, hospitals and everyone else should start preparing for some ass whoopin’

For a preview of what could be coming up in Southeast Asia one only needs to look at what happened to Uber recently in China.

Learnings From China or How Alibaba’s Trojan Horse Strategy Killed Uber China

“Uber didn’t lose in China in 2016. They lost in 2014 when they got in, and found out 2 years later.” — Wang Di, Quora User

Alibaba, partnering up with long-time frenemy Tencent, adopted a similar strategy in China to take out Uber.

Outsiders often point to the classic textbook “why-foreign-Internet-companies-fail-in-China” excuses like lack of localization (culture/language barrier), lack of connections/guanxi, government protection, and lack of IP law enforcement. Although these do apply to a certain degree, none of them get to the core of why Uber failed in China.

Uber failed because it thought it was competing against Didi in the smart transportation space. Little did they know that Didi’s majority shareholders, Alibaba and Tencent, were playing according to an entirely different set of rules.

For Alibaba (and Tencent), Didi wasn’t just a ride-hailing app; Didi’s strategic and hidden purpose was to serve as a scalable user acquisition channel for Alipay Wallet, Alipay’s mobile version, as well as Tencent’s WeChat Wallet, according to this brilliant Quora answer:

Around 2012, WeChat’s super success helped many Chinese IT companies shift their focus to the mobile app market. Meanwhile, though with occasional suspensions, the government started encouraging mobile payment development. All was set for Tencent and Alibaba to launch their mobile payment app to be a booming big thing. All except for the Chinese user habits.

The Chinese were not familiar with mobile payment at that time. In fact, no large group of people in the world were significantly better than the Chinese either. Moreover, the Chinese were mostly quite cautious when paying online, and a lot of them are not exactly fans of novelty gadgets.

But how they love discounts or kickbacks! A dollar saved is a dollar earned.

The cab-calling apps Didi and Kuaidi became perfect for user traffic introductions.

Users could tap Didi to call a cab and pay 30 yuan in cash, but if they paid the cabbie by Tencent Wallet (redirected from Didi), they would only have to pay 10. Were users willing to save 20 yuan—3 or 4 US dollars—by using an already built-in feature in another app? Just a few taps here and there? Hell yeah.

And then they were hooked-up with WeChat Wallet. Which was what Tencent really wanted.

With Didi as a key distribution channel for Alipay Wallet, Alibaba was able to acquire more users into its ecosystem of services including Taobao, Tmall, Ant Finance and much more, leading to monetization across different products. Uber only had transportation.

Tencent and Alibaba have been throwing unthinkable amounts of money to pay for all the unbelievable kickbacks. Unthinkable for a cab-calling app, but totally reasonable if you want to mark your territory in the biggest market in the world that is most advanced in mobile payment.

What The Future Holds for Southeast Asia

alibaba-southeast-asia

With Southeast Asia being hailed as the next big and untapped ecommerce market in the world, we are seeing many players subsidizing their way into growth through discounts and coupons. Not surprisingly, critics often look at this as a race to the bottom for everyone.

Not entirely true. As the Uber China example has shown us, this will only be the case for companies that fail to look at the bigger picture and are unable to monetize through a diversified set of products or services, whether now or in the future.

With all this in mind, one could argue that Alibaba got a pretty good deal with Lazada, especially given the long-term opportunities in SEA beyond retail ecommerce. A quick look at Alibaba’s stock confirms this—Alibaba’s share price jumped after the April 12 acquisition announcement and has increased by 35% ever since (as of October 3, 2016).

Alibaba’s acquisition is widely considered a victory for the growth of ecommerce in SEA but how many of us here are ready to face the fact that whatever trophy we hauled in may not be a shiny unicorn but perhaps something else?

THIS ARTICLE ORIGINALLY APPEARED IN TECH CRUNCH ON NOVEMBER 7. WRITTEN BY SHEJI HO, CMO AT aCommerce