Internet Giants Are Tearing Down Barriers for Interconnectivity Marking New Phase of Co-Opetition (AI Translation)
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文｜财新周刊 关聪 包云红 孙嫣然
By Caixin Weekly's Guan Cong, Bao Yunhong, Sun Yanran
2024年开年，腾讯（00700.HK）主力游戏终于进了字节跳动的流量池，《王者荣耀》开始在抖音直播，这对法庭上缠斗多年的“冤家”化解了在游戏渠道上的对立，分别以游戏开发商和宣发平台的身份合作。在字节跳动仓促出售游戏业务时，腾讯甚至成了惟一的买家。
At the beginning of 2024, Tencent (00700.HK) finally integrated its flagship game into ByteDance's traffic pool, with "Honor of Kings" starting live broadcasts on Douyin. This move resolved the longstanding legal disputes between the two companies in the gaming channel, as they collaborated with each other in their respective roles as game developer and promotional platform. When ByteDance hastily sold off its gaming business, Tencent even became the sole buyer.
互联网巨头之间，正以不同合作形式“冰释前嫌”，纷纷拆除长期以来为阻挡流量分享而屏蔽网址链接等竞争壁垒。2023年4月初，阿里巴巴（NYSE：BABA/09988.HK）旗下协同办公软件钉钉宣布微信用户可直接加入钉钉会议，无需单独下载钉钉客户端；2023年9月，通过阿里巴巴广告平台阿里妈妈在腾讯微信体系投放的效果广告，已可直接跳转淘宝生态。
Internet giants are thawing their previous animosities through various forms of collaboration, dismantling long-standing competitive barriers such as blocking URL links to prevent traffic sharing. In early April 2023, Alibaba (NYSE: BABA/09988.HK) announced that its collaborative office software, DingTalk, would allow WeChat users to join DingTalk meetings directly without needing to download the DingTalk app separately. By September 2023, performance ads placed on Tencent's WeChat ecosystem through Alibaba's advertising platform Alimama could directly link to the Taobao ecosystem.
自2021年9月以来，监管部门就积极推动互联网行业的“拆墙”行动，但市场阻力颇大，互联网巨头们虽在长短视频版权合作、支付等部分垂直领域陆续开放，但仍坚持扎紧各自核心生态与流量池的“篱笆”。
Since September 2021, regulatory authorities have actively promoted the "breaking down of walls" initiative within the internet sector. However, the market has shown significant resistance. Although internet giants have gradually opened up in certain vertical areas such as long and short video copyright cooperation and payments, they still firmly maintain their core ecosystems and "fences" around their traffic pools.
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- Chinese internet giants like Tencent, Alibaba, and ByteDance are breaking down competitive barriers and collaborating in areas such as gaming, advertising, and office software amidst regulatory encouragement for "wall-breaking" to foster a more interconnected digital ecosystem. This shift comes as companies face economic pressures, stricter regulations, and the need to focus on core businesses for sustainable growth.
- The internet sector is experiencing a slowdown with traditional high-growth areas like e-commerce and advertising under pressure due to macroeconomic challenges and changing consumer behaviors. Companies are refocusing on their main revenue drivers, shedding less successful ventures, and streamlining operations to adapt to the new market realities.
- Despite overall market challenges, platforms like Pinduoduo and ByteDance's TikTok (and its e-commerce platform Temu) have shown remarkable growth by capitalizing on low-price strategies and international expansion. This has led other companies to adjust their strategies towards more cost-effective offerings and explore new opportunities for growth outside of China.
In 2024, major Chinese internet companies like Tencent, Alibaba, and ByteDance have shifted their strategies towards collaboration and focusing on core businesses amidst a challenging macroeconomic environment and regulatory changes. Tencent integrated "Honor of Kings" into ByteDance's Douyin platform, marking a significant step in resolving disputes and leveraging each other's strengths in game development and promotional platforms [para. 1]. This move is part of a broader trend where internet giants are dismantling competitive barriers, such as Alibaba allowing WeChat users to join DingTalk meetings directly, indicating a thawing of previous animosities [para. 2].
Regulatory authorities have been promoting interoperability within the internet sector since September 2021, encouraging companies to break down walls that prevent traffic sharing. Despite resistance from the market, there has been gradual opening up in areas like video copyright cooperation and payments [para. 3]. The industry faces pressures from consumption contraction and downgrading trends due to pessimistic future income expectations among consumers. This has led to layoffs and adjustments across various companies as they transition from rapid growth to competing over existing market share [para. 4].
E-commerce giants like JD.com and Alibaba have experienced slowing revenue growth rates due to nearly saturated market penetration levels among mobile internet users in China. For instance, JD.com saw its retail business grow by only 1.66% year-over-year in 2023 [para. 5][para. 6]. In response to these challenges, companies are emphasizing focus on their core businesses while scaling down or abandoning underperforming side projects. For example, Tencent placed more emphasis on the WeChat ecosystem, while ByteDance attempted to cut off its gaming arm [para. 7].
Despite the overall downturn in the internet sector's growth rates, Pinduoduo and ByteDance have maintained high growth rates. Pinduoduo's revenue growth rate reached 90% in 2023, significantly outpacing peers like Alibaba and JD.com [para. 8]. ByteDance's total revenue for 2023 exceeded $100 billion with a year-over-year growth rate surpassing 40%, making it the third-largest internet company in China by revenue size [para. 9].
To overcome domestic development bottlenecks, Chinese internet companies have expanded into overseas markets. Pinduoduo advanced its low-cost e-commerce platform Temu in Europe and America through aggressive investment models. Despite facing potential bans in the United States, TikTok achieved $10 billion in user spending with monthly active users exceeding 1 billion [para. 10].
Focusing on core businesses has become crucial for survival and competitiveness. Companies like Tencent have concentrated on expanding live-streaming e-commerce through WeChat's "Channels," while JD.com adjusted its strategy towards offering lower prices to attract more merchants [para. 11][para. 12][para. 13]. Meituan prepared for competition with Douyin by cutting staff costs and focusing on core services like food delivery and hotel bookings [para. 14][para. 15].
The article also highlights how new forces emerge within the sector despite challenges. ByteDance set goals for organizational management improvement while downsizing operations in areas like VR hardware business Pico and gaming division [para. 16]. Meanwhile, Douyin's e-commerce GMV for 2023 is estimated at approximately 2.5 trillion yuan, posing significant competition to traditional e-commerce platforms by attracting young consumers through low-price offerings [para. 17][para. 18].
Overall, Chinese internet giants are navigating through economic pressures by fostering collaborations across previously competitive lines, focusing intensely on their core businesses for sustainable growth amid regulatory normalization of platform monopolies and data security concerns[para. 19][para. 20].
- Tencent
腾讯 - Summary： According to the article, Tencent, a major player in the gaming industry, has seen significant developments and strategic shifts in its operations. At the beginning of 2024, Tencent's flagship game "Honor of Kings" started being broadcasted on Douyin (TikTok's Chinese version), marking a collaboration between Tencent and ByteDance after years of legal disputes. This partnership dissolved their previous standoff in the gaming channel, with Tencent acting as the game developer and ByteDance serving as the promotional platform. When ByteDance hastily sold off its gaming business, Tencent emerged as the sole buyer.The article highlights that internet giants like Tencent are moving towards cooperation by dismantling long-standing competitive barriers such as blocking web links to share traffic. For instance, in early April 2023, Alibaba announced that WeChat users could directly join DingTalk meetings without needing to download its app separately.Regulatory bodies have been pushing for more openness within China's internet sector since September 2021. Despite some resistance from these tech giants, there has been gradual progress in areas like short and long video copyright cooperation and payments.Tencent is refocusing on its core businesses amid a broader trend among internet companies to streamline operations due to economic pressures and regulatory tightening across various sectors including e-commerce and gaming. The company has made significant adjustments within its gaming division due to intense competition and challenges in launching successful new titles. In 2023, games contributed 1799 billion yuan in revenue for Tencent, with domestic games growing by only 2%, which is lower than their international counterparts at an 8% growth rate.CEO Ma Huateng emphasized focusing on core businesses during Tencent's annual meeting at the end of January 2024. He expressed satisfaction with WeChat’s short video feature "Video Number" and aimed to expand into live-streaming e-commerce to boost advertising business performance.Furthermore, Tencent has taken steps to conserve limited game license resources by scaling back teams within key game studios such as Timi Studio Group and Lightspeed & Quantum Studios. This move indicates a strategic shift towards prioritizing efficiency over expansion.In summary, amidst challenging market conditions and regulatory changes, Tencent is strategically narrowing its focus on core areas like gaming while exploring cooperative ventures with former rivals like ByteDance to adapt and thrive in China’s evolving internet landscape.
- ByteDance
字节跳动 - Summary： According to the article, ByteDance has been making significant moves in the internet industry. In 2023, ByteDance's total revenue exceeded $100 billion (approximately 7237 billion RMB), marking a year-over-year growth rate of over 40%. This impressive performance surpassed Tencent's total revenue from advertising and gaming, which was 6090.15 billion RMB with a growth rate of only 10%. As a result, ByteDance emerged as China's third-largest internet company by revenue size, following JD.com and Alibaba.ByteDance also made strategic adjustments by focusing on its core businesses and divesting or downsizing less successful or peripheral ventures. For instance, it scaled back its VR hardware business Pico by laying off 23% of its staff and shut down all unlaunched game projects while seeking to sell some of the launched ones. Additionally, ByteDance reduced the scale of its enterprise service business "Lark" (also known as Feishu in China) amid a broader cooling in the SaaS (Software as a Service) sector.Despite facing challenges in gaming and other areas, ByteDance continued to excel with TikTok globally. TikTok became the first non-gaming mobile app to reach $10 billion in user spending worldwide and maintained a monthly active user base of over one billion people. However, even though Temu and TikTok had not yet turned profitable at that point, ByteDance managed to achieve profitability at the group level, distinguishing itself from other internet giants by still having financial resources to challenge competitors' market shares.In terms of strategic focus for 2024, ByteDance aimed to enhance organizational management culture by fostering a sense of crisis awareness and continuous entrepreneurship while concentrating on fewer but more important tasks. This approach indicated an ongoing commitment to streamlining operations and focusing on areas with significant growth potential or strategic importance.Overall, ByteDance demonstrated robust financial performance and strategic agility in adjusting its business focus towards more promising or core areas while continuing to expand its influence both within China and internationally through platforms like TikTok.
- Alibaba
阿里巴巴 - Summary： According to the article, Alibaba (NYSE: BABA/09988.HK) has been undergoing significant organizational changes and strategic refocusing. In early 2023, Alibaba's co-working software DingTalk announced that WeChat users could directly join DingTalk meetings without needing to download the DingTalk client separately. By September 2023, advertisements placed through Alibaba's advertising platform Alimama within the Tencent WeChat ecosystem could directly link to the Taobao ecosystem.Since September 2021, regulatory authorities have been actively promoting the "breaking down of walls" within the internet industry, but resistance has been substantial. Despite some opening in areas like short and long video copyright cooperation and payments, major internet companies have continued to tightly guard their core ecosystems and traffic pools.Alibaba has faced challenges with its traditional high-profit-margin businesses like e-commerce and advertising due to macroeconomic pressures and changing consumer behaviors. In response, Alibaba underwent a new round of organizational restructuring after April 2023. Over three quarters (the last three quarters of 2023), Alibaba's revenue growth rates were 14%, 9%, and 5%, respectively. The core business Taotian Group (Taobao and Tmall) saw growth rates of 12%, 4%, and 2% in those same periods.In January 2023, Alibaba founder Jack Ma returned to lead a management overhaul under a new "1+6+N" organizational structure. A year later, Ma summarized that decisive choices had been made regarding what aspects of the business to focus on or discard. Cai Chongxin and Wu Yongming took over as chairman of the board and CEO from Daniel Zhang, marking a return to control by Alibaba's founding team. Under Wu Yongming's leadership, Alibaba focused on prioritizing user experience and AI-driven technology across its main internet platform business, tech business driven by AI, and global commercial network.By February 7th, 2024, during a financial report conference call, Wu further clarified that revitalizing growth in e-commerce and cloud computing was Alibaba’s highest priority.The article highlights how major Chinese internet companies like ByteDance (TikTok), Tencent (WeChat), JD.com (Jingdong), Meituan-Dianping (Meituan), Pinduoduo (PDD), Kuaishou Technology (Kuaishou), Zhihu Inc., Bilibili Inc., among others are adjusting their strategies amidst challenging economic conditions by focusing on core businesses or divesting non-core assets while also seeking
- JD.com
京东集团 - Summary： According to the article, JD.com (NASDAQ: JD/09618.HK) experienced a revenue growth rate of 3.67% in 2023, with its retail segment, which accounts for nearly ninety percent of its revenue, only growing by 1.66%. This indicates that JD.com's main business, e-commerce retailing, has seen a significant slowdown in growth. The company also underwent several adjustments focusing on its core business throughout the year. At the end of 2022, JD.com's founder Liu Qiangdong emphasized the importance of not abandoning low pricing strategies. This led to organizational changes aimed at embracing a "down-market" transformation by adjusting their organizational structure, introducing more third-party sellers, and launching various promotional activities such as "billion subsidies," "9.9 free shipping," and "flash sales." Additionally, JD.com lowered the threshold for free shipping to accommodate low-price orders and actively expanded into live-streaming e-commerce to attract more original creators and quality content institutions.In March 2024, Xu Lei retired as CEO of JD Group at age 49 during the "618" promotion period, and Xu Ran took over as CEO. This change essentially marked Liu Qiangdong's strong return to control and pushed forward JD.com's strategy of emphasizing low prices. In a financial report call on March 6th, 2024, it was stated that JD.com would focus on price competitiveness and improving its platform ecosystem in 2024 to attract more merchants, especially small and medium-sized sellers from industrial belts while continuing its low-price strategy to expand market share.These strategic moves reflect JD.com's efforts to adjust its business model amid slowing growth in China's e-commerce sector and increased competition from other platforms like Pinduoduo and ByteDance's Douyin (TikTok).
- Pinduoduo
拼多多 - Summary： According to the article, Pinduoduo experienced significant growth in 2023, becoming a beneficiary during a period of economic downturn. The company achieved a remarkable 90% increase in total revenue, reaching 2476.39 billion yuan, with its quarterly growth rates showing an upward trend: 58%, 66%, 93.9%, and 123%. On November 29, 2023, Pinduoduo's market value surpassed Alibaba for the first time, making it the largest Chinese concept stock in the U.S. market at that time, with its stock price increasing by more than seventy percent over the year. This growth positioned Pinduoduo as having a significant valuation advantage over traditional e-commerce platforms like Alibaba and JD.com.Pinduoduo capitalized on China's retail industry's latest round of de-stocking due to weak consumer confidence and noticeable trends towards consumption downgrade during the pandemic years. It became a key channel for merchants looking to clear inventory by offering lower prices for equivalent products and ensuring more traffic is directed towards these offerings.Furthermore, Pinduoduo's performance was mainly driven by an increase in transaction service income, significantly contributed by its cross-border e-commerce platform Temu. Since its launch in September 2022, Temu rapidly expanded globally and became one of the fastest-growing shopping apps by download volume in 2023 according to data.ai’s "2024 Mobile Market Report". Both Pinduoduo and Temu leveraged China's manufacturing efficiency and cost control in light industrial consumer goods to meet the demand for lower-priced products internationally amid high inflation periods.In response to Pinduoduo's aggressive pricing strategy and market expansion, other major e-commerce platforms like Alibaba, JD.com, and Douyin (TikTok) adjusted their strategies to compete for a share of the low-price segment market.
- Meituan
美团 - Summary： According to the article, Meituan, a leading local services platform in China, focused on combating Douyin (TikTok's Chinese version) throughout 2023. Douyin expanded into e-commerce, dining, transportation, hotel bookings, and ticketing services, directly threatening Meituan's core business areas. In response, Meituan implemented cost-cutting measures through layoffs while also seeking to innovate internally by reallocating human resources towards frontline customer service and sales positions to compete more effectively for merchants against Douyin.The user loyalty towards local life platforms like Meituan is significantly influenced by subsidies. To maintain competitiveness, Meituan launched monthly marketing campaigns such as "God Coupon Festival," discount sections for takeout called "God Grab Hand," and special price group buying sessions on live broadcasts in 2023. These initiatives led to a substantial increase in sales and research and development expenses by 47.48%, amounting to 58.617 billion yuan.To focus more on its core businesses of "to-store" and "to-home" services, Meituan undertook significant integration efforts within these segments to reduce operational silos. In February 2024, it merged its home-based business group, store-based business group, Meituan platform, and foundational R&D operations under the leadership of Wang Puzhong, who was previously responsible for the home-based business segment.Meituan also aimed to curb long-term investments that were not profitable or central to its main operations. It sought to minimize further financial losses in its community group-buying venture "Meituan Select" by increasing product prices and reducing subsidies. This move was part of an effort to shift the business goal from expanding scale and market share towards reducing losses.Overall, amidst challenging competition from new entrants like Douyin in the local life services sector and a broader push within the industry towards focusing on core competencies and profitability, Meituan made strategic adjustments throughout 2023 into early 2024 to strengthen its position in the market.
- September 2021：
- Regulatory authorities start promoting the 'breaking down of walls' initiative within the internet sector.
- Early April 2023：
- Alibaba announces that its collaborative office software, DingTalk, would allow WeChat users to join DingTalk meetings directly without needing to download the DingTalk app separately.
- September 2023：
- Performance ads placed on Tencent's WeChat ecosystem through Alibaba's advertising platform Alimama can directly link to the Taobao ecosystem.
- Early 2024：
- Tencent integrates its flagship game into ByteDance's traffic pool, with 'Honor of Kings' starting live broadcasts on Douyin.
- January 2024：
- ByteDance announces its withdrawal from the gaming business.
- January 2024：
- Tencent opens up live streaming of its flagship game 'Honor of Kings' to Douyin.
- March 2024：
- Alibaba's DingTalk supports direct forwarding for joining meetings in its new version, including WeChat friends who can join without needing to download the DingTalk app.
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