Big companies are interconnected, think big, try small steps

The interconnection among major manufacturers is the trend, and consensus will be reached step by step through small trials.

As the Spring Festival approaches, Spring Festival-themed advertisements have begun to appear on WeChat Moments.

This is not surprising, but what is special is that this year, Taobao and Tmall’s advertisements have also entered the circle of friends.

Since February 2, many people have seen Taobao’s short video ads and Tmall’s big-brand day ads on their WeChat Moments. As of press time, the Taobao short video has received 74,000 likes and 29,000 thumbs-up.

The entrance to the Taobao App’s Spring Festival event page is also embedded in the short video interface, and clicking on Tmall’s big-brand day ads will take you directly to the Tmall event page, which means that WeChat has begun to “direct traffic” to Taobao and Tmall.

Previously, the two had been "blocked" from each other for eight years. Since 2013, it has been impossible to open Taobao links in WeChat, and the only way is to "go around" by using "Taobao password" or "copy link". It was not until 2021 that Taobao links in WeChat chats were able to jump directly to Taobao.

Now, the opening of Moments ads to Taobao means that the interconnection between the two major companies has been further deepened.

In fact, this advertising exchange was launched in June last year. In September of the same year, the two parties expanded the scope of advertising from Moments to video accounts and mini-program scenarios.

Not only that, the open cooperation between the two major companies has also extended to more businesses. For example, on January 25, the Xianyu WeChat applet was launched; for example, Alibaba's Ele.me, Youku and other businesses have been connected to WeChat Pay.

Openness is not only the consensus of Alibaba and Tencent, but also of other large companies.

Recently, Tik Tok and Tencent Games also ushered in the "century reconciliation".

Tencent's flagship games "Honor of Kings", "Game for Peace" and "League of Legends" were officially announced on January 13, January 21 and January 31 respectively, to be fully open to Douyin live streaming; in November last year, HEMA Fresh announced its entry into JD.com and participated in JD.com's official Double 11 activities; in December last year, Xiaohongshu announced the establishment of the "Grass Planting Data Alliance", which will connect Xiaohongshu's grass-planting data with the transaction data of other platforms through open data cooperation. Currently, platforms such as JD.com, Vipshop, Douyin, Qunar, and Meituan have joined.

Hema enters JD.com

However, it will take some time for the "ice and snow to melt". At this stage, the interconnection between major manufacturers is still being tried in small steps and has not been fully opened.

For example, in the interconnection between Alibaba and WeChat Pay, only Alibaba's businesses such as Ele.me, Youku, Damai, Kaola, and Shuqi have been connected to WeChat Pay, but Taobao, Taote, and HEMA have not yet supported it.

But no matter what, this "thawing journey" is a positive win-win choice for users, regulators, and even the big companies themselves.

1. Forced by the situation and driven by interests

The shift in relations between large companies, from closed to open, from confrontation to cooperation, is driven by the “coercion” of antitrust policies.

In 2021, the Ministry of Industry and Information Technology required Internet companies to rectify issues such as blocking URL links. At that time, App advertisements such as Tencent Video and Tencent News, as well as WeChat point-to-point chat boxes began to support direct jumps to external links such as Taobao.

On the other hand, it lies in the trend of interests - the Internet situation is no longer what it used to be. In the past, "it took time to become king by building high walls", but now open cooperation is more beneficial.

Take Taobao and WeChat as examples. In 2013, both were in the early stages of their growth. Openness would trigger user mobility and make the competitive landscape more variable, while closure would bring a sense of security.

Moreover, at that time, Taobao was the only dominant player in the e-commerce field. According to iResearch data, the size of the online retail market reached 1.84 trillion yuan in 2013, with Alibaba accounting for 78.5%.

But now, the competitive landscape has changed - the internal competition in e-commerce has become increasingly fierce, and the offensive and defensive momentum of the cat-dog competition has changed in an intertwined manner.

According to the New Maobang estimates, Alibaba's GMV in 2023 will be approximately 7.2 trillion yuan, Pinduoduo's GMV will be 4 trillion yuan, and Douyin's e-commerce GMV will be 2.2 trillion yuan - the GMV of the latter two will be more than 90% of Alibaba's.

Under such circumstances, Taobao must be eager for growth. In the current Internet stock market, WeChat, with more than 1.3 billion monthly active users, is a rare traffic "treasure trove". Taobao has the opportunity to gain growth by cooperating with it.

After all, both JD.com and Pinduoduo have witnessed the blessing of WeChat traffic. Taking JD.com as an example, according to a research report by Guojin Securities in May 2022, at that time, active users from WeChat Nine-square Grid accounted for about 6% of JD.com App, and GMV from JD.com WeChat Mini Program was about 10% of JD.com App; and in July 2018, Liu Qiangdong said in an interview with foreign media that WeChat brought in 1/4 of the new customers.

Alibaba is eager for openness . In 2022, Zhang Yong, then chairman of the board of directors of Alibaba Group, said at the Q1 earnings conference that the social value generated by the large cycle between platforms must be far greater than the small cycle within a single platform. If the platforms can be interconnected, it will definitely bring new reform dividends.

As for how much growth Taobao can get from WeChat, e-commerce analyst Li Chengdong believes that this depends on the volume of Taobao's advertising on WeChat. Moreover, this growth may not necessarily be new customers, but may also be the activation of old customers to complete transactions. After all, Taobao's user base is already quite high - according to QuestMobile data, Taobao had 877 million monthly active users in June last year.

Of course, the basis of cooperation is win-win. Tencent will not suffer any loss by opening up advertising to Taobao. This can directly increase Tencent's advertising revenue and have the opportunity to improve the slowdown in Tencent's revenue growth in recent years. Financial reports show that in the first three quarters of last year, Tencent's revenue grew by 11% year-on-year, a drop of more than 80% compared to the growth rate of about 59% in the same period of 2017. According to foreign media The Information, in the first half of last year, Tencent's revenue of approximately US$41.4 billion was overtaken by ByteDance's US$54 billion.

Source: Tencent Financial Report

The same is true for the cooperation between Tencent Games and Douyin.

Since 2019, ByteDance's Lightyear has been planning game research and development, which is in direct competition with Tencent Games; at the same time, Tencent is also "supporting" Huya, Douyu and Kuaishou, competing directly with Douyin's game live broadcast business; in the social field, Douyin also launched Duoshan backstabbing WeChat in 2019.

Now, after years of exploration, the "winner and loser" has been decided. Both companies have "faced reality" and the other's territory is not easy to grab - ByteDance has basically given up game development. On November 27 last year, ByteDance publicly stated that it would shrink the business of Chaoxi Guangnian on a large scale. According to a report by LatePost on January 8, Chaoxi Guangnian is negotiating with Tencent to sell multiple games. At the same time, Duoshan also started high and ended low, fell into silence, and has stopped maintaining the old version of the App.

Huya and Douyu are also "outshined", and their user scale has been far less than that of Douyin game users for many years. In the third quarter of last year, Huya and Douyu had 86 million and 51.7 million monthly active users respectively, while the head of the content consumption business of Bytedance publicly stated in January this year that Douyin game users covered more than 400 million people last year.

In short, in the general trend of reducing costs and increasing efficiency, the two major manufacturers began to streamline their choices and focus on their own areas of strength. The direct overlap of businesses has been reduced, and as a result, the previous antagonistic relationship has loosened.

After opening up cooperation, Douyin can help Tencent Games in its publicity and promotion, while Tencent Games can enrich Douyin's game content ecology, thus achieving a win-win situation.

2. Take small steps and explore

Breaking down barriers is a long-term task, and interconnection among large companies can only be achieved step by step.

On the one hand, the ecological rules of different platforms are different, and they cannot be connected in a one-size-fits-all manner, which requires time to run in.

In the 2021 Q2 earnings conference call, Tencent President Martin Lau said that interoperability between platforms is a "very complex issue" and that some platforms have different rules from Tencent, including large subsidies for users and commissions for merchants. There are also problems such as counterfeit goods and piracy. "It may take time to discuss and resolve in a very cautious manner."

On the other hand, there is competition among large manufacturers after all, and the impact of interconnection on their own ecosystem is difficult to accurately estimate. Therefore, it is necessary to make small steps step by step within a controllable range, and it is even necessary to maintain a certain "firewall".

The interconnection and interoperability between Alibaba and Tencent has gone through a long period of exploration.

In terms of the cooperation between Tencent Advertising and Taobao, Tencent first started with businesses such as Tencent Video. In 2021, the advertising traffic of Tencent Video, Tencent News, and QQ began to be connected to Alimama UD (Unidesk, a digital marketing traffic platform). In these apps, advertisements can jump directly to Taobao.

Later, the cooperation was expanded to WeChat, and the interoperability between WeChat and Taobao also went through a period of exploration: in June 2022, Moments ads began to be tested on a small scale directly to the Tmall flagship store; in August 2022, Tencent and Alibaba’s federated learning bilateral algorithm interaction capabilities were launched (federated learning is a secure computing technology); in June 2023, Moments ads were able to jump directly to the Taobao site; and in September of the same year, Alimama and Tencent Advertising joined forces to, on the one hand, expand the advertising delivery scenarios from Moments to video accounts and mini programs, and on the other hand, expand the jump scenarios to merchant stores, live broadcast rooms, and product detail pages.

In fact, the openness and interoperability between the two is not complete at present.

For example, although the current WeChat Moments ads can directly jump to Taobao stores, it does not seem to be open to all merchants. In June last year, according to the Science and Technology Innovation Board Daily, some merchants said that if they wanted to divert traffic to their stores, they had to apply for a whitelist from Tencent, and the ads could not have the Tmall logo, otherwise they would not pass the review.

As for whether whitelist restrictions still exist, "Financial Story Collection" consulted relevant persons in charge from Alibaba and Tencent, but no response was received before press time.

However, a senior e-commerce practitioner told Caijing Story that if you want to jump directly from an ad to a Taobao store without a second jump to the landing page, you still need to apply for a whitelist, and the review rules for different categories are different. Considering this factor, many merchants will insert a second or third jump landing page during the jump process.

For another example, the communication between Moments and Taobao is limited to advertising scenarios. When individual users share Taobao Tmall store links in Moments, they cannot jump directly and can only use the method of "copying the link to access the browser".

In addition, in some business areas, the communication between the two is not completely smooth, and there are many collaborations that come to an abrupt end, part of which may be due to the active withdrawal of the business end.

In 2021, Tmall launched the "Tmall Supermarket Xiaodangjia" mini program on WeChat, but to date, the mini program only has a static introduction of Maochao Card and no substantial e-commerce services; in the same year, the Taote mini program was also launched, but the service was soon suspended, and now only the official account with the same name can be seen.

Similarly, the cooperation between Tencent Games and Douyin also had a "trial" process.

Tencent did not "sacrifice" the Douyin live broadcast rights of its own ace games such as "Honor of Kings" and "League of Legends" at the beginning, but first entered the market by placing advertisements on games such as "Dream Star" and "Metal Slug: Awakening" in the ByteDance system.

In April last year, when Metal Slug: Awakening was launched, Tencent placed a large number of advertisements on ByteDance's Tomato Novel, Douyin, Xigua, Toutiao and other platforms;

The new game "Meta Dream Star", which was launched at the end of last year, also re-invested in ByteDance advertising. DataEye data shows that in the nearly 30 days from mid-November to mid-December last year, about 38% of "Meta Dream Star" advertisements were placed on ByteDance's online advertising aggregation platform Pangolin Alliance, while Tencent only invested 12% of its advertising resources on Tencent's own advertising aggregation platform Youlianghui.

In terms of authorizing Douyin live broadcasts, Tencent's ace games finally made the final appearance - in December last year, in the Douyin live broadcast debut launched by the well-known game anchor Zhang Daxian, Tencent Games granted authorization for the new game "Meta Dream Star". It was not until January this year that it granted authorization for old games such as "Honor of Kings".

3. The “little brother” suffers, and the public benefits

The interconnection of large companies affects not only the large companies themselves, but also various roles in the platform ecosystem and other peers. However, this impact is differentiated. Depending on the role, some people may benefit while others may suffer.

First of all, there is no doubt that after interconnection, the user experience will be smoother.

According to a 2021 survey conducted by China Consumer News, about 70% of respondents believed that bans between platforms would infringe upon their legitimate rights and interests, including the right to choose, the right to fair trade and the right to know; more than 40% of respondents believed that platform bans brought inconvenience to consumers.

After the platform opens up to cooperation, the above problems will be improved to a certain extent.

Secondly, it is also beneficial to merchants on the platform.

Taking the interconnection between WeChat and Taobao as an example, for Taobao merchants who have the ability to place advertisements, it is equivalent to adding a new channel for tapping into rich traffic - Tencent's third-quarter financial report shows that the combined monthly active account numbers of WeChat and WeChat are 1.336 billion.

Some Taobao and Tmall merchants have tasted the sweetness. The aforementioned senior e-commerce practitioner told "Financial Story Collection" that many Taobao small and medium-sized merchants are currently directing traffic to Taobao stores through WeChat.

According to an article published on the Alibaba Mama official account in September last year, many brands such as moodytiger and Longrich are also leveraging Alibaba Mama UD and Tencent Video to expand new business.

Among them, a beauty brand used gift box sets and other popular products to continuously expose them in the circle of friends during the Chinese Valentine's Day last year, achieving an exposure of more than 500 million and a Taobao transaction ROI of 7+ within 15 days; a clear brand achieved daily sales of more than 100,000 through a combination of WeChat Moments and video accounts, and a Taobao transaction ROI of 5+ within 15 days.

Content creators also benefit from connectivity.

Taking the interconnection between Douyin and Tencent Games as an example, with the support of Tencent's ace games, creators in the Douyin game field can produce more attractive content, thereby attracting fans and generating revenue.

This is the case with the well-known game anchor Zhang Daxian. After "Honor of Kings" opened the Douyin live broadcast permission, Zhang Daxian was invited to broadcast for 3 consecutive days. In the first trial broadcast without streaming, the broadcast lasted only 80 minutes, and the cumulative number of viewers has broken his top three historical records in the four years of Huya Live.

Earlier on December 2, when Zhang Daxian made his Douyin live broadcast debut, he live-streamed games such as Tencent's "Meta-Dream Star" and Valve's "DOTA2". According to Sina Technology's estimates, the revenue that night may have exceeded 400,000 yuan.

Another "Honor of Kings" anchor Menglei also benefited a lot. In the live broadcast on January 21, the number of likes exceeded 50 million within 30 minutes of the broadcast. He and Zhang Daxian took turns to be the anchor of the Douyin top 100 list.

However, after the big companies cooperate, in the situation where "the strong get stronger", the "little brothers" of the big companies may not have an easy time.

For example, after Douyin and Tencent Games are interconnected, game live streaming platforms such as Kuaishou, Huya, and Douyu may face a series of challenges.

On the one hand, based on the combined appeal of Tencent's ace games and Douyin's traffic, some game anchors may switch from platforms such as Huya to Douyin.

This situation has happened before. In the past year, top game anchors such as Zhang Daxian, Xu Xu Baby, Feng Timo, Sky Li Xiaofeng, and Leng Yanhua have all jumped from Huya or Douyu to Douyin.

Chen Ze, a well-known game anchor of Kuaishou, also recently switched to Douyin and started his first live broadcast on Douyin on January 12. He was willing to breach the contract in order to change jobs, and was sued for 100 million yuan by Kuaishou.

And with the job-hopping of game anchors, the loss of platform users and the decline in revenue may also be inevitable.

In recent years, the business status of Huya and Douyu has not been optimistic, and the situation may be exacerbated. Huya's financial report shows that in the third quarter of last year, Huya's total revenue was 1.65 billion yuan, a year-on-year decline of 30.7%. The revenue from live broadcasting fell from 2.017 billion yuan in the same period last year to 1.532 billion yuan. At the same time, the number of paying users fell from 5.5 million to 4.2 million.

Douyu's revenue has continued to decline since 2022. In the third quarter of last year, its revenue was 1.359 billion yuan, a year-on-year decrease of 24.4%, of which live broadcast revenue was 1.151 billion yuan, a year-on-year decrease of 32.5%.

In the capital market, the situation of Huya and Douyu is also worrying . Since the official announcement of the cooperation between Honor of Kings and Douyin on January 13, the market value of Huya and Douyu has declined. Huya fell from US$816 million on January 12 to US$761 million on February 2; Douyu fell from US$277 million to US$238 million. At the same time, Douyu’s stock price has been below US$1 for several months and faces the risk of forced delisting.

In summary, although the scope and pace of opening up can only be gradual, the trend of interconnection among large companies is set, with win-win results for all parties, benefits for users and encouragement from regulators. This is worthy of recognition and anticipation.

Author: Wang Shuran Editor: Wan Tiannan

WeChat public account: Financial Stories