Alibaba Eyes Selling $1 Billion O2O Stake

Alibaba is looking into selling its stake in the largest Chinese online-to-offline (O2O) service provider, whose platform serves on-demand services, restaurant reservations and movie ticketing.

The move, which would likely put about $1 billion in Alibaba’s coffers, comes as the company works on developing its own food delivery platform called Koubei. The new platform, which is being launched in collaboration with its financial arm, Ant Financial, got a jump in funding after the two companies invested close to $1 billion in it, The Wall Street Journal reported.

The selloff of its partnership in the O2O service provider, which is a merger between Meituan.com and Dianping Holdings Ltd., will not only strip Alibaba’s 7 percent stake in the venture but will essentially also mean sidestepping for its rival, Tencent Holdings, to take broader control in the venture.

In February last year, Tencent reportedly bought a 20 percent stake in Dianping Holdings, which offers a review and discounting platform. Now, with Alibaba out of the picture, the Shenzhen, China-based company is looking into investing $1 billion in the venture.

A mainstream entry of the two eCommerce giants in China is expected to further drive out small and emerging players as the market has been riddled with intensive discounting schemes that offer merchants razor-thin profits.

Earlier last month, WSJ reported that an estimated 30 to 40 percent of O2O startups in China had shut down after they burned through VC cash too fast. While as many as 71 percent of Chinese consumers were found to use O2O apps, the slowing Chinese economy has driven discount pricing-based competition among such services, which explains their rapid downfall from narrowing profits and increasing competition.

Now, with Tencent’s increased stake in the venture and Alibaba’s own platform, the biggest threat might not be for small O2O businesses after all but for Chinese search engine giant Baidu, which is reportedly heavily investing in this market.