Internet Business Thinking

Chapter 9 Giants lead the business model (6)
A matter of life and death M&A: Sohu acquires PPTV
Whether iQiyi and Youku Tudou will compete for hegemony in the future video industry, or whether Sohu Video will form a tripartite confrontation depends entirely on whether the merger of Sohu Video and PPTV can be realized.Judging from the characteristics of these two companies, Sohu Video and PPTV also have the complementarity of webpage and client-side video, but they lag behind iQiyi and PPS in the webpage and client-side markets respectively, and Sohu behind them has no similarity. Baidu has the same financial strength.Therefore, even if this acquisition comes true, its goal can only be positioned as "not falling behind", and there is no strength to compete for the top spot.

The merger of iQiyi and PPS has verified the chemical effect formed by the combination of web pages and clients.It can be deduced from this that Sohu and PPTV can both tell a beautiful story, but the problem is that Sohu Video has fallen behind in this competition.

More importantly, Softbank invested 2010 million US dollars in PPTV financing in 2.5, which pushed up PPTV's valuation bubble. This is also the fundamental reason why Suning, Baidu and other acquirers finally gave up PPTV in more than two years.Compared with PPS, which raised only 6000 million US dollars, PPTV obtained an equivalent market share with 4 times the funds. The advantage is only in the field of live sports broadcasting, and there is no PPS game business, and the acquisition value is too low.PPTV, which has burned through financing and is burdened with 2 million high-interest loans, is already close to negative equity. After the acquisition by Sohu, it will invest a huge amount of money to maintain operations.

PPTV's financial situation, inflated prices, and the strong attitude of investors Softbank and PPTV management, objectively coerce Sohu to continue the acquisition.In fact, Sohu has been passive in this acquisition.With the deepening of the negotiations, PPTV's data and funding problems continued to be exposed. In May 2013, news of multi-party negotiations with Suning, Ali, and Sohu broke out.It is generally speculated in the industry that PPTV is threatening Sohu to raise prices.Sohu can't wait anymore, but the acquisition of PPTV and the tickets for the next stage of competition are the real start.

Don't forget about the coveted Tencent

Once Sohu acquires PPTV, China's video will officially enter the era of three pillars.But there is still a pair of eyes coveting this market, and that is Tencent that no one can ignore.Tencent has the strength to occupy a place in the future video market, especially in the field of mobile video. Tencent, which owns QQ and WeChat, cannot be underestimated, and it does not lack the ambition of "returning the Three Kingdoms to Jin".

However, for Tencent, video is not yet its core business. It is not like Youku Tudou, which only has a video business, nor is it like Baidu, which is eager for video, nor is it like Sohu - the future story can only be told by video. QQ is still strong, WeChat has already got the only mobile Internet ticket, so Tencent is not in a hurry, but once it fully develops video, no one knows what kind of height Tencent can reach.

(Section VII) One giant's abacus, another giant's helplessness
Tencent’s calculations are not incomprehensible. Firstly, it has integrated its own e-commerce business by using this transaction with JD.com; secondly, it has raised the value of WeChat and mobile QQ in a disguised form by taking advantage of this transaction and JD.com’s high valuation; Coming to JD.com’s e-commerce business can also bring stable orders to Tencent’s WeChat Pay to compete with Ali’s Alipay.

In March 2014, it was a very beautiful spring. Tencent and Jingdong Mall jointly announced that they had reached a strategic alliance.

According to the agreement, Tencent spent US$2.146 million to obtain about 15% of JD.com’s equity, and subscribed for an additional 5% of JD.com’s equity when the latter went public, thus becoming JD.com’s third largest shareholder. Tencent President Liu Chiping will join JD.com’s board of directors.As a price, the QQ online shopping and Paipai physical e-commerce departments and distribution teams under Tencent e-commerce will be integrated into JD.com; Yixun will continue to operate independently, and will discuss with JD.com the implementation of in-depth cooperation in the future.JD.com will invest in Yixun to become a minority shareholder and obtain the right to subscribe for the remaining shares.

Collaborative

The rumors of Tencent's investment in JD.com were finally confirmed. All of a sudden, various analyzes and comments came flooding in.The views of all parties can be summarized into three points: 1. Facing the competition from the three BAT giants, JD.com finally started to vote with its feet and stood behind Xiao Ma;

2. This time standing in line will change the whole pattern of e-commerce and even the mobile Internet;

3. The combination of Tencent and JD.com will pose a huge threat to Ali.

But in my opinion, this logic does not make sense.Tencent's investment in JD.com is by no means what the outside world guessed, it is a drama of Shu and Wu uniting against Cao.The key to this transaction is that Tencent gave JD.com QQ Online Shopping and Paipai.com, but retained Yixun.com.In other words, Tencent did not bet all its treasures on JD.com, and Xiao Ma did not expect Liu Qiangdong to compete against Ali, but had his own calculations.

For Tencent, the status of JD.com and Didi Dache is not much different.If you have to say what is the difference between the two for Tencent, it is that Tencent has obtained a 15% stake in JD.com, which has a certain investment value.In addition, Tencent's stake in JD.com has more strategic significance in WeChat payment.

Tencent's Abacus

Tencent knows that it will never be possible to really recruit JD.com under its command. Under this premise, it still invests in JD.com mainly because of three considerations:

First, in this transaction, it is not so much a bargaining chip as Tencent took the opportunity to get rid of the two heavy burdens of QQ online shopping and Paipai.com. Everyone knows that QQ group buying and Paipai.com have sustained losses in the past three years and the growth of transaction volume has been weak.According to sources, Tencent Online Shopping has started a layoff plan, and the laid-off employees can get six months of salary back, but the condition is to wait for Tencent Online Shopping to be merged into JD.com, and to serve JD.com for one month.At the same time, the personnel department of Tencent e-commerce has also been frozen.Obviously, Tencent can't wait to get rid of these two burdens.

However, Yi Xun, the most high-quality e-commerce resource under Tencent, still operates independently.According to data from EnfoDesk Analysys Think Tank, as of 2013, in the B2C field, Tmall’s market share reached 49.08%, JD.com firmly occupied the No.18.16 position with a share of 2%, and Tencent’s B2C business also occupied the No. 5.68 position. 5.68% share, this [-]% share is mainly due to Yixun.com.

According to the agreement between the two parties, Tencent granted JD.com the option to acquire Yixun at a price of 8 million yuan or the fair price negotiated by the two parties, whichever is the highest value.The crux of the problem lies in the "fair price negotiated by both parties". That is to say, as long as Tencent raises the so-called "fair price negotiated by both parties" to an infinitely high value, JD.com will never be able to take Yi Xun into its pocket. Judging from the current situation, it has become extremely difficult for Jingdong to exercise this right again.

JD.com’s public response to Yixun’s issue also proves that it has no illusions about Yixun: only employees of Yixun Logistics will join JD.com.Obviously, for Yi Xun, Tencent just wrote a blank check.For e-commerce, Tencent has not given up.

Second, the most important reason is that Tencent needs a real platform to divert traffic for WeChat Pay. Tenpay cannot compete with Alipay by sending out red envelopes and taxi-hailing software for the rest of its life. Therefore, JD.com, the second largest B2C platform in China, is very Good choice.In the future, all self-operated businesses of JD.com and third-party sellers on the open platform will be connected to the WeChat port, and the number of merchants paid by WeChat will continue to grow steadily.For Tencent, which is eager to build an O2O ecosystem, the importance of this is self-evident.

中国电子商务研究中心的数据显示，腾讯电商旗下的易迅网自2013年8月16日全面接入微信支付后，易迅PC及手机客户端微信支付订单量迅猛增长。8月31日的微信支付订单较8月中旬增长超过500%，达到约3000单。仅仅占据电子商务市场5%份额的易迅就为微信支付带来了如此之多的交易量，如果是占据电子商务市场18%的京东，又会给微信支付带来怎样的飞跃呢？

Third, not to mention the strategic layout, but only from the perspective of investment, Tencent has also made an investment with almost zero investment and high output.What Tencent pays is only two tasteless e-commerce platforms, QQ Online Shopping and Paipai.com, about 2.15 million US dollars in cash, and the so-called Tencent first-level interface.With the current situation of QQ online shopping and Paipai.com, it is difficult for Liu Qiangdong to produce any chemical reaction when he holds them in his hands.There is no doubt that accepting the terms of QQ online shopping and Paipai.com is the "price" JD.com paid for Tencent's stake.

As for the so-called "Tencent first-level interface", although some insiders refer to the cooperation between WeChat and Dianping.com and estimate the value of Tencent's first-level interface at US$4 million, the cost of this first-level interface is zero for Tencent.More importantly, it obviously does not have uniqueness and exclusivity, which means that JD.com can use it, Dianping can use it, and Yixun.com can also use it.

More importantly, if Tencent really agrees with the current market statement that JD.com is valued at more than US$200 billion or even US$300 billion, then in this transaction, Tencent should pay at least 200% of the US$15 billion, which is 30 billion. billion dollar chips.What Tencent actually paid was the so-called "Tencent first-level interface" except for the 2.15 million US dollars in cash and the basically worthless QQ online shopping and Paipai.com.In other words, if JD.com really goes public at a valuation of more than US$200 billion, the value of "Tencent's first-level interface" will not only be US$4 million, but at least US$20 billion.In the future, if Tencent lists WeChat separately, the market's current high valuation of JD.com will also become the support for Tencent's high valuation of WeChat.

Jingdong's helplessness

In short, Tencent's investment in JD.com is undoubtedly for the "trillion feast" O2O market.But Tencent's logic is by no means expecting to "recruit" JD.com.In an internal email of Tencent after becoming a shareholder of JD.com, Ma Huateng said: "In the future, through in-depth cooperation with JD.com, we will continue to participate in the fast-growing physical e-commerce business, vigorously develop payment platforms, and make every effort to build a mobile e-commerce business circle, including Continue to operate the e-commerce business of virtual goods, and make every effort to deploy the O2O business of life services.” Although this is still a very formulaic public relations rhetoric, it is not difficult to see from it that Tencent will continue to participate in the e-commerce business, rather than put the e-commerce business to a partner.

Tencent’s calculations are not incomprehensible. Firstly, it got rid of the tasteless QQ online shopping and Paipai.com, and retained the truly valuable Yixun, and used this transaction to integrate its own e-commerce business; secondly, it borrowed this The transaction and JD.com's high valuation have in disguise raised the value of WeChat and mobile QQ; three times, JD.com can also bring stable orders to WeChat Pay to compete with Ali.

Taking a step back, even without considering the strategic layout, if JD.com goes public at the current market valuation, Tencent will only pay for the cumbersome QQ online shopping and Paipai.com, less than 2.15 million US dollars, and the almost zero-cost "Tencent One" Level interface”, but can be exchanged for stocks worth at least 30 billion US dollars.It's also a very profitable investment.

As far as JD.com is concerned, although it seems to be at a disadvantage, it is also a helpless move.

Previously, several Wall Street investment bankers said that JD.com, which was conducting a pre-IPO roadshow, was coldly received by the US capital market.It is also reported that JD.com’s meetings with investors in the United States did not achieve the expected results. American investment institutions have a low valuation of JD.com, and the response is cold. JD.com’s IPO situation is relatively passive.

Therefore, Jingdong, which is in urgent need of a better "story", has launched the B-type option of IPO, and chooses a partner (such as Tencent) with sufficient market concepts, so that investors can give "rationalized market imagination" and invest in its assets. It is a reasonable choice to carry out more favorable pricing.

After all, for the current JD.com, as long as it can be successfully listed and obtain a satisfactory valuation, all costs are worth it.

(End of this chapter)