China

A possible breakthrough in China’s vicious platform wars

Nudged by new rules, arch rivals Alibaba and Tencent may finally be making up.

A possible breakthrough in China’s vicious platform wars

SHENZHEN, CHINA - AUGUST 19: A woman walks outside the headquarters of Tencent on August 19, 2020 in Shenzhen, Guangdong Province of China. (Photo by VCG/VCG via Getty Images)

VCG / Contributor/ Getty Images

Just a little over a month after Alibaba quietly and temporarily launched within WeChat, Jack Ma's ecommerce behemoth is on the cusp of returning to China's largest social media platform.

Bloomberg reported on Tuesday that Alibaba's low-price platform, Taobao Deals, is planning to set up shop on WeChat in the form of a "mini program" (小程序) embedded within WeChat's ecosystem, and has already invited merchants to participate. A screenshot of an agreement between Taobao Deals and merchants widely circulating on the Chinese web indicates sellers would be able to accept payments via WeChat Pay.

If WeChat approves Alibaba's mini program, it will be huge news for both tech giants. The introduction of an Alibaba product into a (once hostile) WeChat ecosystem could mark the beginning of the end of China's vicious platform wars. The move comes as Beijing is clamping down on Big Tech with tighter antitrust regulations. On Monday, Chinese ruler Xi Jinping called for enhanced oversight of the platform economy and "enriching the anti-monopoly regulatory force" at a meeting with the Central Financial and Economic Affairs Commission.

Fed up with cutthroat tactics between tech giants and their mega app ecosystems, Beijing is actively writing new rules to bring the private sector in line. Last November, Beijing issued draft rules aimed at preventing monopolistic behavior by internet companies like Tencent and Alibaba. In December, China's powerful State Administration for Market Regulation launched an antitrust investigation into Alibaba for monopolistic practices like prohibiting vendors from selling on other platforms.

Prior to this week's news, Taobao Deals had made a fleeting appearance on WeChat that got the internet buzzing. In early February, WeChat users noticed that Taobao Deals had quietly launched a mini program within WeChat and even allowed them to use WeChat to pay for goods. "Taobao's 'setting up shop' on WeChat is a big deal for both platforms," one observer said. But within days, the mini program had vanished.

The reason WeChat gave for the removal was ambiguous: The sales categories Taobao's mini program picked didn't match its "operational content." It's unclear whether WeChat removed Taobao's mini program or Taobao yanked the project itself. Tencent, the parent company of WeChat, didn't respond to Protocol's request for comment; Alibaba declined to comment.

Alibaba and Tencent have an acrimonious, often petty rivalry that dates back to 2013, when WeChat saw explosive user growth and Taobao and WeChat blocked content from each other. An Alibaba statement at the time claimed it blocked WeChat links in order to protect Taobao users. Inconvenienced Taobao and WeChat users and businesses alike have long complained that the practices ultimately hurt the interests of both small merchants and customers.

Given the long-running rivalry, Alibaba has lacked a presence on WeChat. By contrast, the use of the mini program , a key WeChat feature launched in 2017, has given a huge edge to Pinduoduo, a latecomer to the ecommerce space that's nevertheless amassed more annual active users than Taobao. Another Tencent-backed ecommerce site and Taobao competitor, JD.com, also thrives as a mini program.

The competition between the two companies has grown fiercer as Alipay and WeChat Pay have established themselves as China's two dominant digital wallets. Taobao doesn't support WeChat Pay, while WeChat doesn't support Alipay. WeChat users are not able to directly access links to items sold on Taobao; to open a Taobao link sent via WeChat, users have to copy and paste the URL in a browser themselves.

Alibaba's not the only one beefing with Tencent. On Feb. 2, ByteDance-owned Douyin filed a lawsuit against Tencent. The complaint alleged that for the past three years, Tencent's WeChat and messaging app QQ have prohibited the sharing of Douyin and other ByteDance content. Douyin said in a statement that WeChat's behavior violated anti-monopoly laws.

This type of behavior is rife in Chinese big tech. On Douyin, users can't buy products linked from a third-party platform during livestreams. Social commerce platform Xiaohongshu started allowing users to link to products from Taobao last year, but a Xiaohongshu influencer told Protocol that linking to items on other sites hurts traffic. To avoid being punished, savvy users won't even mention the word Taobao on Xiaohongshu. Instead, they use a peach emoji (in Chinese, pronounced "táo") to refer to the competing platform.

Legal experts in China believe such behavior will likely be curbed by new regulations. According to finalized anti-monopoly guidelines for the platform economy, released early February, dominant platforms violate antitrust rules if they use technical barriers, algorithms, traffic restrictions or other punitive measures to limit transactions involving competitors.

"The digital economy's boom is due largely to the free flow of data," Zhai Wei, an associate professor at East China University of Political Science and Law who specializes in competition law, told Protocol. "If big tech companies block each other, then the whole digital economy will be divided up. That is not going to do any good for the country or for individuals."

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