Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Alibaba Widens Its Moat by Partnering with Salesforce

By Leo Sun - Jul 30, 2019 at 1:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

But can the two tech giants counter Tencent’s Wechat and its efforts to control China's cloud-based CRM platform for small-to-medium-sized businesses?

Alibaba ( BABA -8.23% ), the top e-commerce and cloud platform player in China, recently became the exclusive seller of Salesforce's ( CRM -1.10% ) cloud-based customer relationship management (CRM) software suite in the Greater China region.

Salesforce led the global CRM market with a 19.5% share in 2018, according to Gartner, but only generated about 10% of its revenue from the Asia Pacific region last quarter. That percentage could rise significantly as Alibaba sells Salesforce's CRM services to its massive base of merchants and cloud customers. Salesforce's multinational customers would also gain localized CRM support in China.

Alibaba doesn't offer its own cloud-based CRM platform for small-to-medium-sized businesses, so Salesforce's tools could fill that gap. It could also widen Alibaba's moat against ecosystem rivals like Tencent ( TCEHY -4.94% ).

CRM connections with a laptop in the background.

Image source: Getty Images.

Catching up to Tencent

Tencent is Alibaba's biggest rival in China. It owns WeChat, the country's top messaging platform with 1.1 billion monthly active users and an ecosystem that includes over a million Mini Programs. Those programs let users buy things, pay bills, hail rides, order food, play games, and perform other tasks without leaving the app.

WeChat Pay, the digital payment platform linked to the app, holds a near-duopoly in the market with Alibaba-backed Alipay. Tencent owns the second-largest cloud platform in China after Alibaba Cloud, it's the top video game publisher in the world, and it's a top investor in Alibaba's e-commerce rival

Tencent is connecting all those dots with "social CRM" services. Many companies already used WeChat to sell products, accept payments, communicate with customers, and track business trends. But third-party developers subsequently launched CRM apps that add additional features to WeChat -- including digital coupons, loyalty programs, and integration with social networks like Weibo. Tencent invested in several of those CRM apps, including Xiaoshouyi and EasyRetailPro.

Simply put, WeChat is already an all-in-one e-commerce and CRM platform for companies doing business in China. That's a big problem for Alibaba, since merchants could focus more on doing business on WeChat instead of opening new stores on Tmall. Big brands like Chanel, LVMH, and Nike have already turned their WeChat accounts into "social shopping" platforms, and many more merchants could follow suit.

A young woman sells products through a live video.

Image source: Getty Images.

Widening its moat against Tencent

WeChat is an effective CRM platform for big brands with large social followings, but it's less effective for smaller businesses with fewer loyal customers. That's why Alibaba needs Salesforce.

Alibaba realizes that smaller merchants still need to set up shop on Taobao or Tmall to appear in its search results. It also likely realizes that its marketplaces, which let customers communicate with merchants via Tencent's QQ and WeChat, passively strengthen its top rival's messaging platforms.

Partnering with Salesforce addresses those problems. Alibaba can promote Salesforce's CRM suite (which include its Sales Cloud, Service Cloud, Commerce Cloud, and Salesforce Platform services) as an all-in-one tool for maintaining customer relationships and analyzing business trends. That strategy could gradually wean Alibaba's merchants away from Tencent's messaging services, but it could be tough to completely sever those ties.

Alibaba will also store all of Salesforce's data from Chinese customers on its domestic cloud servers to comply with government regulations, which bar the data of Chinese users from being stored on overseas servers. If Alibaba helps Salesforce gain more customers in China, it would feed the growth of its cloud platform and widen its moat against Tencent Cloud.

But will it move the needle for either company?

Alibaba and Salesforce's partnership sounds like a win-win, but its overall impact could be limited. Tencent already dominates the social CRM space with WeChat, and support from third-party developers could help it pump out better localized features than Alibaba and Salesforce, at a faster pace. It was smart for Alibaba and Salesforce to team up, but it's more of a defensive play against Tencent than an offensive one that will significantly move the needle for either company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, inc. Stock Quote, inc.
$258.32 (-1.10%) $-2.88
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$111.96 (-8.23%) $-10.04
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$56.76 (-4.94%) $-2.95

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.