On September 12th, Taobao officially opened WeChat Pay.

This is not only the first major move since the end of Ali's three-year rectification period but also a landmark event marking the reshaping of China's e-commerce landscape. The interconnection between Taobao and WeChat represents a shift from Ali and Tencent's previously antagonistic relationship towards interoperability. It also officially announces the evolution of China's e-commerce landscape from a two-way split between Ali and JD.com to a more diverse "three superpowers and multiple strong players" scenario.

Taobao, as the heartland of Ali, has opened its doors to Tencent. This means sharing the pie with its former rival. Is this a century-long reconciliation between Ali and Tencent, or is there another motive behind it? During Ali's three-year rectification period, what transformations has China's e-commerce industry undergone? Looking ahead, where lies the next opportunity for China's e-commerce industry?

Taobao and WeChat Interconnection: A Step Back for a Broader View

In fact, the rivalry between Ali and Tencent dates back to 2013. At that time, WeChat strictly controlled external links to e-commerce platforms, forcing online shoppers to navigate between the two giants' ecosystems by copying and pasting Taobao passwords. Meanwhile, WeChat Pay was banned from all Taobao-related apps.

Since then, Tencent and Ali have maintained competition in areas such as e-commerce and social media, blocking each other while investing and supporting enterprises within their respective ecosystems, ultimately leading to the emergence of the "Ali Group" and the "Tencent Group."

However, in 2021, things began to change:

The "ice-breaking" moment first occurred in September when Ele.me, Youku, and Damai, among other Ali-affiliated apps, integrated WeChat Pay. Ali responded by expressing its desire to "face the future together with other platforms." In November, WeChat lifted restrictions on Taobao links, allowing users to open Taobao links in WeChat group chats.

Over the next two years, the pace of cooperation between Ali and Tencent accelerated significantly: In 2022, Alipay added a "WeChat Friend" option to its "Transfer" page. Six months later, Alipay began supporting transfers to QQ friends. In 2023, WeChat opened its advertising ecosystem, allowing Taobao merchants to advertise on video numbers, mini-programs, Moments, and more.

Since 2024, the pace of cooperation has continued to accelerate: In January, Xianyu launched a WeChat mini-program supporting WeChat Pay. In March, the topic "WeChat can now use DingTalk for meetings" trended on Weibo. At the end of August, Taobao Special added support for WeChat Pay.

Now, with Taobao's integration, the interconnection between the two giants has finally breached their respective "peripheries" and entered their core domains. From mutual isolation to interconnection, what drives this transformation?

While regulatory requirements may play a role, a more crucial factor is that both Ali and Tencent face the challenge of losing their competitive moats amidst the rise of Pinduoduo and ByteDance:

In the first quarter of fiscal year 2025 (second quarter of calendar year 2024), Ali Group's revenue grew 4% year-on-year, while Taobao and Tmall's revenue declined 1%. Net profit declined 27% year-on-year and 9% under non-GAAP accounting standards. Meanwhile, Tencent's financial technology and enterprise services growth rate stagnated at 4%, showing signs of fatigue. As an e-commerce professional in the Ali community put it, "If the two giants don't cooperate, Douyin and Pinduoduo will take their place.""From this perspective, taking a step back for both parties is the best choice: Enabling WeChat Pay on Taobao can further attract long-tail users and increase transaction volumes. Meanwhile, WeChat can earn significant payment processing fees from Taobao's nearly RMB 8 trillion in gross merchandise volume (GMV) and attract Taobao merchants to open stores on video numbers, enhancing WeChat's e-commerce ecosystem. The shift from competition to cooperation will also allow both parties to focus more on competing with other companies.

China's E-commerce Enters a Turbulent Era: How Did the "Three Superpowers and Multiple Strong Players" Scenario Emerge?

In fact, during Ali's three-year rectification period, China's e-commerce landscape underwent significant changes, marked by Pinduoduo's market capitalization surpassing that of Ali Group in 2023. Today, Pinduoduo's GMV continues to close in on Ali's, while Ali's e-commerce market share has dropped from 72.1% in 2017 to 49.2%. Additionally, emerging e-commerce platforms like Douyin, Kuaishou, and Xiaohongshu have emerged. Fueled by live streaming and content-driven e-commerce, these platforms have become rising stars in the industry.

This transformation stems primarily from two industry-wide revolutions in recent years:

In 2015, when most believed the domestic e-commerce market was evenly split between Ali and JD.com, Pinduoduo emerged as a game-changer. Starting as an agricultural product retail platform and leveraging WeChat's traffic dividends, Pinduoduo quickly grew into the third-largest player in the shelf e-commerce sector through innovative social fission methods like "cutting prices."

At that time, Ali and JD.com were actively embracing "consumption upgrading," encouraging merchants to transform towards premium offerings. Pinduoduo's "10 Billion Subsidy Plan" and low-price strategy seemed counterintuitive. However, by focusing on price sensitivity, Pinduoduo captured price-conscious consumers from Ali and JD.com, leveraging the "low-price" advantage etched in consumers' minds to sustain its rapid growth.

Beyond Pinduoduo, short-video platforms like Douyin and Kuaishou have thrived through live streaming and short-video e-commerce. Compared to traditional e-commerce platforms, Douyin and Kuaishou boast greater content traffic and user stickiness, facilitating smooth e-commerce conversions. Both have entered the "trillion GMV club," becoming formidable competitors to traditional e-commerce platforms. Similarly, Xiaohongshu's e-commerce has also experienced rapid growth since 2023, albeit on a smaller scale than Douyin and Kuaishou, but with impressive growth rates.

The underlying logic of these content-driven e-commerce platforms differs from the past. They first use algorithms to identify and present content that interests consumers, then recommend related products, ultimately driving purchases. This shifts the traditional "people find products" shopping logic to "products find people" in the content-driven e-commerce era, transforming market demand and consumption habits.

From this perspective, Ali hasn't changed; the market has. It wasn't the rectification order that dethroned Ali and reshaped China's e-commerce landscape but rather the underlying innovations and iterations in e-commerce technology.

China's E-commerce: Navigating Storms, Embracing Boundless Opportunities

In the short term, such technological innovations and iterations lead to shifts in the power dynamics among giants, fostering competition between the "new kings" and "old kings" of e-commerce. However, historically, such shifts and cycles propel industry progress.

Currently, China's e-commerce user base has peaked, and the traffic dividend has waned, making stock competition the norm. Therefore, exploring new growth avenues within existing businesses will be a top priority for all e-commerce enterprises in the next round of competition.

Taking Ali and Tencent as examples, their interconnection can subjectively become incremental opportunities for each other, fostering win-win cooperation. Objectively, however, this interconnection mirrors a broader trend in the ongoing AI industrial revolution.

After all, AI's decision-making and prediction capabilities rely on analyzing and learning from vast amounts of data. Building and maintaining large-scale datasets is essential for AI development, which should encompass diverse information to support its application across various fields. This necessitates greater data sharing and resource integration among platforms to support industry-wide transformation.

As Zhuang Shuai, retail e-commerce industry expert and founder of Bailian Consulting, puts it, "The evolution of the e-commerce industry is still driven by technology, and AI will become the most significant variable shaping its future, altering and influencing the entire industry.""Specifically, AI technology is introducing new models and methods to traditionally templated and formulaic businesses in applications such as shopping guidance, operational analysis, and customer service. Taobao and JD.com have already embarked on AI-driven e-commerce. Ali has launched its self-developed large model, "Taobao Xingchen," offering intelligent services like copywriting, operations, data analysis, and marketing strategies. JD.com leverages digital humans for live streaming and has introduced the "Spring Dawn Plan" to support merchants with AI.

From this perspective, mainstream e-commerce platforms' early layout in AI-driven e-commerce signals the beginning of the next round of competition. Laggards from the previous phase won't sit idly by. While the outcome of intra-industry competition remains uncertain, AI's application is poised to reshape the industry landscape once again. Driven by AI, boundaries between markets and competition, whether B2B, B2C, domestic, or international, will continue to shrink, ultimately revealing a smarter, more efficient, and open e-commerce ecosystem.

Source: Hong Kong Stocks Research Institute