In the fantasy online game world, role-playing is fun. Online retail, however, is not play time. It is an expensive business. Tencent, the $147bn Chinese internet company with exposure to both areas, has decided to get more serious about ecommerce by paying $215m in cash for a 15 per cent equity stake in another online retailer, JD.com. This comes ahead of the latter’s upcoming listing in the US; Tencent will then buy another 5 per cent.
Expansion into an area which generates gross margins about a tenth of Tencent’s average 55 per cent may raise eyebrows. The benefit to JD.com seems clear: Tencent’s large user base in instant messaging via its WeChat and QQ platforms. These get investors’ attention now. QQ alone had more than 800m mobile active users as of June.
Tencent’s online games segment (over half of revenues) has shown signs of slowing down in recent years. Online business-to-consumer retailing in China still has plenty of life left by contrast, according to Barclays: it should triple in size from last year to more than $350bn by 2017.