Pony MA: Why Tencent Is Spending so Much Money Purchasing Shares of Offline Retail Enterprises?

Tencent works on new retail mainly to promote the expansion of three businesses: financial payment, cloud computing, and advertising.

By

Pony MA: Why Tencent Is Spending so Much Money Purchasing Shares of Offline Retail Enterprises?

On 25th March, Pony MA, Chairman of board of directors and CEO of Tencent, gave a speech titled “Opportunities and exploration of Digital China” at the 2018 China (Shenzhen) IT Leaders Summit. He said that digital transformation is a major opportunity and challenge, while Internet+ is the means and digital economy is the result, Digital China or a powerful network nation is the goal.

From the end of 2017 to the beginning of 2018, Tencent frequently betted on offline retail. It carried out investments or strategic cooperations with entities such as Better Life (步步高), Carrefour (家乐福), Yonghui Superstores (永辉超市), etc., at the same time facing a serious arms race with Alibaba. In his speech, Pony MA emphasized the reason why Tencent is working on new retail is mainly to promote the expansion of three businesses: financial payment, cloud computing, and advertising. Concurrently, he has great hopes for the role of WeChat Mini Programme in new retail, regarding it as a major achievement for the independent development of China’s IT industry.

Image by KrAISA.

The following are the contents of Pony Ma’s speech on new retail, edited by Ye Cao Xin Xiao Fei:

After the year 2015, we have been talking about Internet+. It means using internet information technology to transform all walks of life and to have a look at what can be combined and innovative. In the past, people thought that the new economy and the traditional industry conflicted and mutually exclusive. People later gradually realized that they are complementary and can be integrated in depth.

Let’s talk about the latest smart retail.

Many people expressed their confusion as to why Tencent spent so much money buying shares in offline retail businesses, and was carrying out all kinds of cooperation in the last few months. With regards to our recent announcement, many analysts and friends also asked the same question, but I don’t think that the outside analysis of this matter is in place.

Frankly speaking, we do notice a lot of changes in demand. For example, nowadays many businesses such as retail stores and supermarkets have started using new technology and the solutions we had provided them with. For instance, people can directly enter the online store and complete an order through the WeChat Mini Program, or scanning the QR code in the subscription account, which is very convenient.

Even a lot of intermediate service providers use this tool to provide related services to offline shops. This also helps small and medium-sized enterprise as it is an alternate solution to complex applications.

Why are our solutions more open and compatible? For Tencent, the important point for us is that we hope that WeChat users will be able to connect with more and more offline services.  It is my greatest aim for it to be connected and well-used.

What is the merit in this?

Firstly, it is good for payment and for subsequent financial services.

Secondly, to promote the development of the cloud. Cloud computing is used to support the physical industry of the future. After having more data, we can use AI to deal with it in the cloud. I think this is a must for all businesses. If we connect them well, then our cloud will be of great advantage.

Thirdly, a very important part of it is advertising. So many offline brands used to carry out traditional ways of advertising such as through leaflets, etc. It is inefficient and most of the money spent on advertising then had gone to waste. In the future, if advertising is digitalized and runs in Tencent’s social system, the returns of the ad scheme will be better. This determines whether the future of Tencent’s internet platform can rely on the advertising revenue stream, which is very important.

That is why we value the opportunity for smart retail. Because of this, we have an open mindset, and we do not work on retail businesses by ourselves. We tell people that we do not work on retail businesses or even business, we only make connectors and work on things at the bottom, using cloud, AI and other infrastructure to help all of you.

I can almost say that we can give the system integration to all partners, as the system integrator can still cooperate with us. Many years of your efforts, many systems will not be wasted. If we add our spare parts, we can make beautiful plans.

Mini Program

Currently, there are a large group of developer ecologies that are slowly growing, including mini-programs. I also said to the company that mini-programs are a great innovation from surpassing our high threshold. I used to be a programmer and had written codes for years. The programming languages I learnt are from the United States, whether it’s C language or JAVA, whereas the mini programs that we write now are becoming a study of programming language for Chinese programmers to learn enthusiastically.

You can go to the online bookstores and search for mini-programs. A large number of books related to the development and application of mini-programs have been published. Maybe the outside world does not feel anything, but as a programmer, I am very excited and proud. I particularly value this piece because this is a result of China’s IT industry.

In fact, there are many examples of industries where vertical integration takes place: retail being one of them. There is also industrialization, which many industrial enterprises integrate manufacturing and the Internet.

The auto industry also hopes to transform from being just car manufacturers to service providers as well. They are unhappy with only just car production. If the sharing economy becomes well-developed in the future, it may reduce the usage of cars by 10%, and increase car sharing services by 10 or 20 times. The demand for new cars will be small as people will simply go to work using such services.

This requires an internet connection and the knowledge on how to operate travel services. Companies, including the production of excavators by Sany Group (三一重工) that we mentioned earlier, have all become service-oriented. Internet connection can be charged according to the time of use, hence there is no need to buy such heavy machinery. It promotes the transformation and upgrading of manufacturing industry by using technology such as the internet of things, big data, cloud computing, etc.

There is also high demand in agriculture. As there is an increasing number of middle-class populace, everyone wants agricultural products to be more reliable. In addition to tracing the source, the quality requirements have also been raised. For example, JD sells uncaged chicken set to run with transparent indicators showing how many steps it really ran, therefore it is sold at a reasonably higher price. After the upgrading of consumption, many people have personalized demands. When agriculture, the industry and consumers are connected, the satisfaction of these differentiated demands will become feasible.

These are some of the cases in depth combined with numbers that I would like to share with all of you. Thank you all!

This article comes from the WeChat subscription “Ye Cao Xin Xiao Fei” (ID: tecaoxxf), by the author Chang Ge, and is compiled and published by KrASIA with authorization.