Bottom line: Alibaba’s Koubei is unlikely to gain major traction despite its $1.1 billion in new funding, due to its late arrival to a crowded O2O take-out dining space already dominated by Baidu, Ele.me and Meituan-Dianping.
The longer I stay in China, the more the latest stories coming from the Internet sector look like I’ve seen them before. That’s certainly the case with Koubei, the Alibaba (NYSE: BABA) online-to-offline (O2O) take-out dining delivery service, which is close to landing a fresh $1.1 billion in new funding. In this case, Alibaba’s extremely late arrival to the space looks a lot like its vain attempt to play catch-up to Tencent’s (HKEx: 700) WeChat with a service called Laiwang back in 2013.
Alibaba founder Jack Ma should be commended for his visionary moves into e-commerce and electronic finance, where his early arrival status helped him to build Alibaba and its affiliated Ant Financial into juggernauts worth billions of dollars. But he has a far spottier record in areas where he has arrived late, as the example with Laiwang illustrates.
We’ll return to that example shortly for some clues about what might happen with Ma’s latest obsession, but first let’s review the latest headlines on the massive new fund-raising by Koubei, whose name means “word of mouth” in Chinese. Those headlines say the service is close to raising the $1.1 billion sum from a range of investors, including US private equity fund Silver Lake Partners, as well as China-focused Primavera and Chinese sovereign wealth fund China Investment Corp (CIC). (English article)
Not surprisingly, Jack Ma’s own Yunfeng Capital was also one of the names contributing money to Koubei in this latest funding. The reports point out that this latest fund raising round has been happening since last August, and that participants were solicited on an invitation-only basis. I first wrote about the plan back in April last year, which shows how long it’s been percolating.
The invitation-only element sheds a little light on why the funding has gotten such strong response. After all, how many people would have the guts to say “no” to Jack Ma when such an e-commerce visionary and one of China’s richest men was offering them this kind of exclusive chance to invest in the next big thing? And of course the subtext would be that any refusal to provide money would probably ban these investors from participation in any future new projects by Alibaba or Ma.
Going it Alone
The truth of the matter is that Koubei has been around for a few years but hasn’t really made an inroad into the O2O space. That’s because Alibaba has been somewhat indecisive on how it wanted to enter the O2O take-out dining business that is now dominated by three names: Baidu (Nasdaq: BIDU), Ele.me and Meituan-Dianping. At one point it looked like Alibaba would be placing its bets via its ownership of a stake in Ele.me, the industry’s oldest player.
But this latest move makes it clear that Alibaba wants to build up its own service in Koubei. That means that in addition to the hundreds of Baidu, Ele.me and Meituan delivery bicycles and scooters that now clutter the streets of big cities like Shanghai and Beijing, those of us here in China can soon expect to find Koubei added to the mix.
As I’ve said above, this kind of late arrival looks quite similar to Jack Ma’s sudden drive into social networking with Laiwang back in 2013. That initiative was in the headlines for a few months, when Ma forced all of his staff to sign onto the service and get their friends to register, or risk seeing their annual bonus reduced or eliminated.
Fast forward to the present, when nobody except for people like me even remembers Laiwang, which has probably quietly been retired. One big difference in this case is that Laiwang never embarked on the kind of mega fund raising that Koubei is doing now. But that’s partly because as a web-based SNS service, Laiwang was far less capital intensive than Koubei, which will require big investment in delivery vehicles and equipment that needs to be installed in participating restaurants and other shops.
So the big question becomes, will Koubei become the next Laiwang, or could it perhaps go on to become a major player in O2O services despite its late arrival? Jack Ma is obviously betting the answer is the latter, and it’s still possible the company could make up ground if it can discover some innovations that the others haven’t yet. But the field is already so crowded and competition so intense that even with this new big wad of cash in hand, I honestly can’t see Koubei making major inroads into the area.