Mobile Internet Challenges BAT

Since last year, the oligarchy of Baidu, Alibaba, and Tencent (the BAT) in the Internet sector has been challenged by the rise of the mobile Internet. Mobile technology is expected to provide the online gateway to the offline market worth tens of trillions of yuan and transform the landscape of the domestic Internet industry, which came into being 20 years ago.

In the last couple of years, BAT has made separate acquisitions in nearly every segment, in an effort to maintain and expand their monopoly positions in PCs to mobile devices and the offline market. There have been more mergers and acquisitions (M&As) made and partnerships formed since 2011 than in the entire first decade of the 21st century.

Publicly available data show that over the past three years, Alibaba acquired or bought shares in 30 companies, Tencent took stakes in 40 companies, and Baidu purchased shares in more than 30 companies. Nearly every major acquisition featured a scramble between two or three Internet giants, which drove up the end purchasing prices. The target companies have also expanded from start-ups to large platform companies.

Since BAT all pursue a strategy of large platform, the ultimate winner among the three will be the one with the best mobile portal and ecosystem.

Alibaba overtook Tencent to be China's most profitable Internet company, with 18.5 billion yuan of net profit on 41.2 billion yuan of total revenue in 2013. However, compared with the other two BAT companies, Alibaba is more eager to purchase and consolidate.

Tencent's WeChat has been generating massive traffic; in contrast, Alibaba has yet to choose its core product among three main applications, Alipay, mobile Taobao, and Laiwang. Consequently, Alibaba's wireless business unit has experienced frequent leadership transitions. In addition, it is still unclear as to how Alibaba will integrate its platform portals, including mobile Taobao, Laiwang, a social networking service, and Amap.

Alibaba claims it will become the infrastructure linking online and offline commerce, which will need the ability to integrate from entrance to backstage. Luckily for the

company, the mobile era has just begun, which means it still has a lot of time to identify portals and complete the integration process.

Rival Tencent has a head start in implementing the open platform strategy Alibaba has been trying to achieve. Former Tencent Vice-president Wu Jun said that Tencent has the strength and status of a telecom operator, as the company's wireless products generated over one third of China's total wireless traffic.

WeChat alone was valued at US$64 billion by brokerage firm CLSA. Tencent has abandoned its old practice of expanding its product line based on its massive user base; instead, the company is now willing to trade its WeChat portal and its own business in exchange for a 15 to 20 percent stake in any vertical giant, in order to achieve its strategic goal of building a large platform.

Baidu, which used to attract the largest traffic in the PC era, now risks being marginalized by the increasingly fierce competition between Tencent and Alibaba as China moves into the mobile era. So far, Baidu has focused on portal companies in its acquisition efforts, with little investment in leading players in vertical fields. However, it is not enough for a platform company to form an ecosystem simply out of travel, video, and group-buying websites.

Unlike the PC Internet, the traffic in mobile Internet is inherently dispersed, which offers plenty of opportunities for companies to innovate and grow. BAT companies' risks and weaknesses are second-tier Internet companies' opportunities and room for growth. Segment leaders such as Xiaomi, 360, Meituan and dianping.com, which are better at integrating resources offline and on mobile devices, are set to change the landscape of the Internet industry.

Independent start-ups in the Internet sector, which are adept at using mobile tools, will gradually come into the spotlight, though we may not know them yet.

And data, instead of capital, are becoming a critical asset for Internet companies that will determine the ultimate outcome of their competition.