The old story: Big Chinese Internet companies would, rather than buy or invest in startups, hire a bunch of engineers to build products on their own or do pixel-to-pixel knockoffs. Big names like Tencent are notorious for killing startups by doing so, with better products or the ability of converting existing users. Recognized reasons include 1) the costs of hiring several smart-enough Chinese engineers are much lower than buying a startup, and 2) intellectual property rights haven’t been well protected in China.
That changed much in the last couple of years. Big Chinese Internet giants began acquiring startups or taking stakes in them. The widely accepted causes include 1) they, almost all being public companies, became increasingly rich in cash, and 2) Tencents felt pressure for being accused of strangling innovation and entrepreneurship. Not only domestic companies, they are also, more recently, eyeing companies big or small overseas.
In early 2013, we heard a lot of rumors about potential acquisitions or investments. Most of them turn out to be true. But those were relatively small deals compared with what would happen later in the year.
Counting those investments and acquisitions is quite a pleasure to me as it tells where those players are.
Baidu is one of the most cash rich and the craziest shopper of the year. It’s acquisition of 91 Wireless, one of the biggest mobile app distributors in China, tops all deals in terms of amount. $1.85 billion sounds expensive for others, but to Baidu it might not be about money given the company wasn’t well positioned in mobile in China market before the deal. Baidu now must feel relieved with 91 the native app distributor and Light App – a strategy to have developers convert their native apps into search-friendly webapps.
Another big deal is the acquisition of peer-to-peer video service PPStream (or PPS) for $370 million in cash. The service has been merged into iQiyi, the online video service under Baidu. It is expected that iQiyi will go public in the U.S. next year considering the PPS mergence and the one-year exclusive video rights it just bought for an estimated 200 million yuan (around $33 million). Baidu made a success of a similar deal. Qunar, the online travel search and transaction service Baidu took a stake in a couple of years ago, went IPO in the U.S. earlier this year.
Other deals by Baidu,
- A 59% stake in Nuomi, the group-buying service under Renren, for $150 million.
- Becoming the largest investor in custom mobile phone design and distribution company DigiOne.
- led a $15 million round in Chinese fashion site Yoka.
- Acquisition of online literature publisher PW Literature.
- Acquisition of mobile security service TrustGo.
Alibaba Group must be the runner-up in terms of the amount spent. The group has been expanding everywhere in the past year, from digital maps to app search. It is speculated that all the expansion and investments are to raise the valuation of the entity Alibaba would take public soon. Or, it’s because almost all Internet services are related to or can be leveraged for shopping experience.
The largest deals include $586 million for 18% of Sina Weibo, $294 million for 28% of AutoNavi, HK$2.82 billion ($363.90 million) investment in Haier Electronics and 1.18 billion yuan($193 mn) for 51% in mutual fund dealer THFund. As UC Web’s existing investor, Alibaba injected more funding into the company this year. But the amount wasn’t disclosed.
- Music. Acquisitions of online music service Xiami.com and mobile music player TDpod (not confirmed).
- Finance. Alifinance, the online financial arm of Alibaba, took a 19.9% stake in Zhong An, the online insurance company Tencent also has take a stake.
- Data Analysis. Acquisition of mobile data analytics service Umeng.
- Cloud. Acquisition of Cloud storage service Kanbox.
- Internet Security. Investment in Mobile security service LBE (not confirmed).
- Investment in e-coupon service DDMap.
- Investment in taxi app Kuaidi.
- Led a $50 million investment in US-based app search service Quixey,
- Led a $206 million investment in American e-commerce company ShopRunner.
- Investment in US-based sports retailer Fanatics
The largest deal for Tencent this year is the $448 million investment in Sogou. The company finally gave up the in-house developed search engine Soso and merged it into Sogou.
Another strategic deal is it joined another round of funding in Kingsoft Network (or Jinshanwangluo in Chinese), a Kingsoft company, with $46.98 million that increased its equity in Kingsoft Network to 18%.
When it comes to investments in other domestic companies, it’s obvious those are for the company’s expanding to other or newly emerged sectors. Within this year Tencent has injected fundings in online financial product provider HOWbuy, taxi app Didi (Tencent reportedly has joined another round in it), Android ROM developer CyanogenMod, among others.
To tap to finance sector, the company has established several companies including one for WeChat Payment in the Qianhai Shenzhen-Hong Kong financial and modern services development zone. Tencent also took a 15% stake in Zhong An, the online insurance company jointly established by Alibaba and Ping An.
Earlier this year Martin Lau, president of Tencent, disclosed that some $2 billion had been invested overseas. Tencent has an office in the U.S. looking at potential acquisition or investment targets. Most companies Tencent would spend money on are related to its core businesses, online communication and gaming. It’s the same in 2013. The company contributed in another round of funding in mobile gameplay recording service Kamcord, and bought 6% of the game developer Activision Blizzard. It is reported that Tencent joined the last round of financing in Snapchat.
A surprising deal is Tencent led a $150 million round in Fab.com, a US-based online retailer for design products. Currently it’s hard to say whether it’s a good deal as it seems Fab went wrong later this year. Anyway, Tencent isn’t known as a visionary investor. There were stories like how Tencent missed the opportunity of investing in YouTube in the early days.
Qihoo led a $30 million funding in a Brazilian Internet security service for international expansion. It also funded a Japanese mobile gaming company Klab. In early this year it acquired the team behind SaaS security startup RiZhiBao.
UC Web, as a mobile browser and service provider on Android, has been successful in China and overseas markets such as India. When it announced the acquisition of Teiron Network, the company made it clear that the move was for iOS. You may have heard the story about the first iOS7 jailbreak released that was bundled with a Chinese iOS app store. The jailbreak later decided to drop the Chinese store for issues like piracy. But Kuaiyong, the Chinese company behind the store, is planning to release a jailbreak by itself soon. I personally believe a land-grabbing war on iOS is about to start as the cake for Android app distribution has been carved up.
Sina invested in the company that developed WeMeet, a mobile messaging app, to join the war against WeChat. It was reported that Sina bought Yun Yun, the social search developed by former Google execs.