What is a better internet?

The answer is simple: true interconnection.

On September 26, according to market news, JD Logistics and Cainiao Express will access Taobao and JD platforms respectively. Meanwhile, JD will also enable Alipay payments before "Singles' Day", once again partnering with Ali's payment system after 13 years.

Upon the announcement, on September 27, JD surged by 18% at one point, while JD Logistics surged by 16.52%, and Ali also surged by 10%. It was a win-win situation for all.

Behind the surge in stock prices, what details of the cooperation between Ali and JD are worth delving into? Will similar cooperation and openness become the mainstream of China's technology industry in the future?

Giants 'tear down walls,' Ali, Tencent, and JD reconcile

It was unexpected that Ali and JD, which had previously engaged in all-out competition in various fields such as merchants, pricing, and delivery, would open up their core businesses to each other after years of bitter rivalry.

Specifically, consumers can now shop on Taobao and choose to have their purchases delivered by JD Logistics; consumers shopping on JD can also pay through Alipay; at the same time, JD Logistics will also access Cainiao Express and Cainiao Post.

For merchants, this undoubtedly means improved inventory turnover and reduced management complexity.

Singles' Day is around the corner, and platform merchants are facing a surge in inventory demand for stockpiling and turnover. Before this, merchants with stores on both JD and Taobao/Tmall had to open separate accounts on each platform and manage inventory, logistics, and other information separately. But now that Taobao has integrated with JD Logistics, merchants no longer need to stockpile and arrange inventory separately.

For the platforms, Cainiao Logistics can provide lower-cost logistics services to JD's brand merchants, while JD Logistics' integrated supply chain also attracts more brand merchant customers from Tmall.

In fact, as early as March last year, JD had already opened its logistics interface, allowing merchants to use third-party logistics besides JD Logistics to meet the increasing transaction frequency and declining average order value in the era of "cost-effective consumption." Now, with the addition of Cainiao Logistics, JD's platform will undoubtedly be able to build a more diversified service system to meet the diverse needs of merchants and bring more GMV growth.

In addition to the logistics sector, the cooperation has also extended to the payment sector. With Alipay's entry into JD Mall, consumers' usage costs are further reduced, eliminating the need to switch between different payment apps and marketplaces.

Previously, the interconnection between Taobao and WeChat brought the last batch of long-tail users who insisted on using only WeChat Pay to Taobao. Now, with the interconnection between Alipay and JD, it undoubtedly brings the same user growth to JD.

From this perspective, after the "great reconciliation of the century" with WeChat Pay, Ali has finally swung the hammer at the wall between itself and JD. When Tencent, Ali, JD's e-commerce and payment systems are interconnected, it is undoubtedly a win-win-win situation for platforms, merchants, and consumers.

Walls are easy to tear down, but 'heart walls' are hard to resolve

However, despite the vastly different attitudes of openness, interconnection, and inclusiveness displayed by the giants, it is undeniable that Ali and JD still maintain a strong competitive relationship in the e-commerce sector.

Taking JD Logistics' integration with Taobao as an example, when Taobao merchants use JD Express for delivery, the merchants' logistics information will be synchronized and uploaded to JD Express. However, for courier companies, competitors are now well aware of each other's market positions, shipment volumes, categories, etc. Merchants' phone numbers, addresses, and other information have always been transparent.

The truly important data, however, is often opaque, such as the details of cooperation between merchants and platforms and the daily operational business data of customers. These data, which involve the core business areas of platforms and courier companies, were not and will not be opened to competitors in the past or future.

Previously, relying on the retail business in their marketplaces, Ali and JD each built a logistics system "tailored" for their own marketplaces through acquisitions, partnerships, and self-built logistics. The emerging courier company J&T Express, represented by J&T Speed, has been unable to be included in the selection range of Taobao and JD merchants due to its ambiguous relationship with Pinduoduo.

However, in order to gain more users and business growth in the fierce competition for stock , the giants will always make the most favorable choices based on assessing the situation.

As Taobao and JD have also launched their own multi-billion subsidy campaigns, platform merchants' demand for low-cost logistics is gradually increasing. In 2021, J&T Express was granted delivery qualifications by Taobao, and in 2023, J&T Express was approved to access JD. However, it was not the so-called "interconnection" that truly motivated J&T Express to enter the JD and Ali systems. Rather, it was the improvement of J&T Express's own delivery capabilities and the reduction of delivery costs that gave it the qualifications to compete with the logistics systems of JD and Ali.

From this perspective, the interconnection between Ali and JD is not a simple reconciliation. The action of tearing down walls between giants is merely to release the business clusters that have long been protected by group barriers to compete on the same stage, thereby accelerating industry competition and elimination, and using market forces to further reduce delivery costs. The opening up of both sides is still a commercial behavior that pursues maximum benefits after weighing market demand and their own conditions, and it is not as "friendly" and "ideal" as outsiders perceive.

Why interconnection will be the most important theme for Chinese tech companies in the future

Looking back at China's internet giants, Tencent and ByteDance went from mutually "blocking" each other to reconciling, and Ali and JD went from an "either-or" choice to working together to create something new. In this transition from building walls to tearing them down, there are both external catalytic effects of regulatory forces and internal evolutionary effects driven by companies like ByteDance and Pinduoduo breaking the established patterns and motivating older players like Ali, Tencent, and JD to spontaneously join forces.

In the early stages of competition, every company pursued absolute growth in users, revenue, profits, and other metrics. Slogans like "everything for DAU" and "everything for GMV" were loudest at this time, so e-commerce giants quickly developed their own payment methods. In this situation, users had no voice: if they wanted convenience, they had to download and use all the apps together.

At this time, China's internet contributed many classic cases: In 2008, Taobao blocked Baidu spiders and announced a ban on paid search rankings; in 2010, Tencent and 360 fought the "3Q War"; in 2011, JD stopped using Alipay; in 2013, Taobao and WeChat blocked each other, and so on.

When this incompatibility reached a certain level, in 2021, the Ministry of Industry and Information Technology proposed to ensure normal access to legal URLs. In the same year, Ali was fined 18.2 billion yuan for violating the Anti-Monopoly Law.

Since then, although companies have ostensibly emphasized openness, it often does not involve core businesses and only means no longer blocking each other, far from the level of mutual openness. For example, in 2021, Taobao links in WeChat could directly jump to Taobao. This year, the determination of the big players to open up is obviously stronger. Earlier, Ali CEO Wu Yongming wrote in a letter to all employees, "To create the best user experience, we must seek the broadest openness and cooperation, including companies that traditionally have competitive relationships."

This evolution of the relationship between the big players from "fierce competition" to "both competition and cooperation" also marks the transition of China's internet from an "incremental market" to a "stock market."

After all, during the incremental market period, everyone was a competitor, and the means of "land grabbing" and user acquisition were effective. But in the current stock market, no platform wants to risk losing users by isolating themselves from each other. Reconciliation is clearly a wiser choice. Of course, from a results perspective, regardless of the circumstances, we have ended up with a more open, collaborative, and efficient internet industry.

Finally, in the tumultuous history of competition and cooperation in China's internet, we may be able to draw a lesson: "Only by abandoning the zero-sum game model of a simple 'winner takes all' and embracing interconnection can we bring more development and customer acquisition space to all players in the industry and achieve a larger cycle."

Having said that, let's look at all the other technology industries in China that are currently indulging in "involution": photovoltaics, electric vehicles....

Will they follow the old path of the internet industry? When will they move towards openness and win-win situations?

This is a question worth pondering for every practitioner.

Source: Hong Kong Stocks Research Society