Alibaba Ties With Midea, Tencent With New Oriental

Alibaba in smart appliance tie-up with Midea

I’m quickly getting tired of writing so much about the flood of new initiatives coming from Internet leaders Alibaba and Tencent (HKEx: 700), which is why I’m combining the latest word of new tie-ups for both into a single posting today. Frankly speaking, both of these initiatives look quite interesting and a year ago I would have done a separate posting and analysis for each. But these latest alliances look less interesting in the current frenzy of similar new announcements. One will see Alibaba partner with appliance maker Midea (Shenzhen: 000333), and the other Tencent and educational services provider New Oriental (NYSE: EDU).

In the first alliances, Alibaba and Midea will co-develop appliances based on the Internet of Things concept, which is likely to become a major new trend in the years ahead. (English article) The idea is that consumers can use the Internet to “talk” remotely to their devices like refrigerators and air conditioners. Devices can also use such networks to talk to each other. The latter deal will see Tencent and New Oriental partner to provide online education services, an emerging area that New Oriental is trying to develop to offset slowing growth in its traditional classroom-based services. (English article; Chinese article)

Let’s start with the Alibaba-Midea tie-up, which looks a bit like a similar deal between leading web portal Sina (Nasdaq: SINA) and home appliance giant Haier (HKEx: 1169; Shanghai: 600690) announced last year. (previous post) Whereas the Sina-Haier deal was focused on a single product, namely air conditioners, the Alibaba tie-up looks a bit more broad. It will see the pair develop a platform based in Alibaba’s cloud computing unit that can allow devices and their owners to talk to each other over the Internet.

The first group of devices linked to the new platform will be air conditioners, with 8 new models to debut on March 19 over Alibaba’s popular TMall online shopping mall. The partnership looks quite detailed and long-term, indicating it could become a major strategic initiative for Alibaba’s cloud computing unit.

As a long-time tech watcher, I can say unequivocally that user friendliness will be a key to this initiative’s success. Many technologically exciting products have failed from some of the biggest tech names over the years due to complexity that makes them unattractive to average consumers. I personally doubt that Midea or Alibaba has the expertise to overcome this major barrier, and thus wouldn’t hold out very big hope for the partnership.

Next let’s look at the Tencent-New Oriental partnership, which is only rumored at this point in reports citing unnamed sources at Tencent. New Oriental has denied rumors of an exclusive arrangement, saying it is open to online initiatives with any suitable partner. (Chinese article) Word of this tie-up comes just a month after New Oriental spun off its online unit into a separate company, which has much bigger growth potential than New Oriental’s traditional classroom-based business.

This initiative also looks quite interesting, as online education seems like an area with huge growth potential in a country where such services are in high demand. I’m a bit puzzled why New Oriental wouldn’t want to publicize such a tie-up a bit more, since Tencent is probably one of the best online partners it could hope to find. Obviously execution will be key to the success of any tie-up. But each company’s status as a leader in its space should certainly boost the chances that such a partnership should do well and potentially become a significant new revenue source.

Bottom line: A new smart appliance tie-up between Alibaba and Midea is likely to fail due to inexperience, while an online education venture between New Oriental and Tencent stands a much better chance of success.

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