Tencent, Alibaba now dominate online food delivery space in China

Baidu's exit from food delivery implies that it's tired of being caught between larger rivals

Last month, Baidu sold its O2O food delivery service, Baidu Waimai, to Ele.me. This means that now, the Alibaba-backed Ele.me and Tencent-backed Meituan dominate the space.

This deal speaks volumes about the state of Chinese internet in 2017. Here are the three big trends:

Convergence is continuing

China’s internet giants- Alibaba, Tencent, and Baidu- are continuing to move into each others’ spaces. This is a big change from a few years ago when Tencent mostly stayed in gaming and messaging, Alibaba in e-commerce, and Baidu in search. 

As Alibaba and Tencent now dwarf Baidu in market cap, the latter’s exit from food delivery implies that it’s tired of being caught between much larger competitors.

China-specific solutions weigh more 

The Chinese O2O food delivery trend created an army of delivery people on scooters. They race around streets, alleys, parks, and sidewalks and congregate outside storefronts and subways.

What all of these have in common is that they all offer China-specific solutions. 

The Chinese market is so big that creative solutions in small niches can mean big businesses. 

Money wars dominate internet space

The online delivery business that Baidu just exited has been notorious for its brutal money war. Companies that can raise capital in larger amounts more inexpensively tend to win these money wars over time. Baidu’s decreasing ability to compete with the much larger Tencent and Alibaba is noteworthy in this regard.

Conclusion

As user growth slows, customer acquisition and retention costs usually increase. The fight for an open, growing market is replaced by a fight to steal customers from competitors. Many smaller companies find they can’t afford to play this game and eventually merge or sell. So, you naturally get consolidation.
This article was first published in Tech In Asia. You can read the full article here.