Suning Eyes Banking, Alibaba Goes To School

Alibaba tries education with Taobao Tongxue

Chinese Internet companies have never been afraid to venture outside their core business areas, and that trend continues with word that e-commerce heavyweights Alibaba and Suning (Shenzhen: 002024) are making new forays into education and finance, respectively. Frankly speaking, this recent venturing of some companies so far outside their core competencies doesn’t look all that smart to me, and is the result of a “follow the herd” mentality that’s being driven by a few companies with lots of cash that they want to invest. But that said, these 2 latest cases do look relatively logical and probably have good chances for success.

Let’s start with a look at the latest news from Suning, which has confirmed that it’s pursuing a banking license. (English article; Chinese article) Suning has also applied for Internet domains to host the bank’s online site, which could be called Sunabank or Suningbank. This wouldn’t be the first financial services foray for Suning, as the company previously launched a small loan company in the city of Chongqing, and has provided financing for some of its upstream suppliers. It has already formed a separate banking tie-up called Sunnan Bank with a Jiangsu company, though this new financial services initiative doesn’t appear to be part of that.

What looks clear in this latest move is that Suning isn’t just interested in providing e-payment services like those offered by Alibaba’s Alipay. Instead, this looks like a serious play by Suning into financial services similar to what Alibaba is doing. Both companies are trying to take advantage of Beijing’s recent push to encourage more lending to privately owned small and medium sized enterprises (SME). Such companies are an important economic growth driver for China, but often have difficulty getting funds from traditional state-owned banks.

As I’ve said above, this push by Suning looks like a relatively logical move into a related space and thus could be an important new growth area for the company. Many of Suning’s suppliers could probably benefit from such financial services, and many Suning customers could also probably use such services to help pay for their goods.

From Suning let’s look quickly at Alibaba’s latest move that comes in the education space with its launch of a new service called Tongxue under its Taobao brand. (Chinese article) The service looks like a pure online initiative to sell third-party educational products in a specialty online store.

This move by Alibaba is just the latest into a wide range of areas outside its core general merchandising e-commerce business, as the company looks for ways to spend its big cash pile. The company has entered social networking and online mapping through major tie-ups this year with Sina (Nasdaq: SINA) Weibo and AutoNavi (Nasdaq: AMAP), and is reportedly close to a deal to enter video sharing through a major investment in PPTV. (previous post) It’s also invested in an online travel services website (previous post), and made its own major expansion into financial services with its launch earlier this year of Yu E Bao, a new investment product for users of Alipay.

Some of these initiatives like Yu E Bao look relatively related to Alibaba’s core e-commerce business. But others like AutoNavi and the travel website investment look a bit far removed from the e-commerce sector that Alibaba knows best. This latest education investment seems to be relatively good fit, as it falls into Alibaba’s expertise of offering third-party products and services via its online e-commerce platform. I doubt it will earn big money from the site anytime soon, but could still develop into a profit center for the niche education services area.

Bottom line: Suning’s push into financial services looks like a smart complement to its retail businesses, while Alibaba’s new education services e-commerce site could become a strong niche player.

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