JD.com (JD -4.13%) recently partnered with SINA (SINA), one of China's top portal sites, to pool the two companies' user data and resources together. JD.com will help SINA optimize its algorithms to match its readers with more relevant content -- which could help its portal sites lock in more users.
In return, SINA will help JD gain clearer insights on consumer behavior via its analytics platform. SINA will also craft more targeted ads with that data, many of which will link back to JD's marketplace. This could be a win-win situation for both companies, and it's clearly aimed at tackling JD's top rival, Alibaba (BABA -3.15%).
Understanding the rivalry between JD and Alibaba
JD is the second largest e-commerce player in China after Alibaba, but the two companies' businesses aren't exactly the same. JD generates most of its revenue from a tightly controlled B2C (business-to-consumer) platform, in which it takes ownership of the inventory and handles the deliveries through its own logistics providers. A smaller percentage of its revenue comes from a B2C marketplace which directly connects companies to consumers.
Alibaba's Taobao is a C2C (consumer-to-consumer) platform, while Tmall is mainly a B2C marketplace. Between 2014 and 2017, Tmall's share of China's B2C market fell from 55% to 51%, according to Analysys International Enfodesk.
Yet JD's share surged from 18% to 33% during the same period thanks to two big catalysts. First, Tencent (TCEHY -1.39%), JD's top investor, integrated JD's marketplace into WeChat, the top mobile messaging app in China. Second, the collapse of smaller B2C marketplaces boosted JD's market share.
Together, JD and Tencent enlisted a growing list of companies -- including Vipshop, Baidu, Qihoo 360, NetEase, Sogou, Jinri Toutiao, and Walmart -- to counter Alibaba's growth. Companies that joined this "alliance" usually shared their data with each other, integrated JD's marketplace into their websites or apps, used Tencent's WeChat Pay platform, and offered mutual discounts and perks. The aim was simple -- to take down Alibaba via a thousand cuts.
Why the SINA partnership was surprising
Nonetheless, SINA's decision to partner with JD was surprising, since SINA is Alibaba's ally. Alibaba owns nearly a third of Weibo (WB -7.77%), the microblogging site that generates the lion's share of SINA's revenues. SINA spun off Weibo in 2014, but still owns nearly half of its shares along with a majority voting stake.
SINA and Alibaba formed a "strategic alliance" in 2013, which closely resembles JD's new deal with SINA. The following year, Weibo integrated the Alibaba-backed Alipay into its platform for product purchases, and expanded that integration in 2015 to cover public services like traffic fines, immigration issues, and marriage registration. Alibaba also integrates its streaming video platform, Youku Tudou, into SINA's portals and Weibo's network.
Alibaba is clearly invested in Weibo's growth -- that's why it boosted its initial stake of 18% in Weibo (at the time of its IPO) to over 31.5% in late 2016. That interest constantly fueled speculation that Alibaba could acquire either SINA or Weibo to counter JD and Tencent's growth. Therefore, Alibaba can't be happy that SINA teamed up with JD.
Is SINA trying to stay neutral?
The escalating war between JD and Tencent's alliance and Alibaba -- which now spans various tech markets, e-tailers, and brick-and-mortar retailers -- is forcing companies to take sides. Some companies want to remain neutral by offering both WeChat and Alipay, or by avoiding exclusive deals with JD, Tencent, and Alibaba.
However, staying neutral might not be a viable option for SINA and Weibo. SINA's alliance might force Alibaba to boost its stake in Weibo, pursue a takeover of SINA or Weibo, or even threaten to part ways with both companies. Those moves might seem extreme, but I doubt Alibaba wants to lose the hundreds of millions of users within SINA and Weibo's ecosystems to JD and Tencent.