A few weeks ago, news broke out about the number 1 online video site, Youku, buying out the number 2 online video site, Tudou. Last December, this acquisition would have been dismissed as ridiculous given the bitter fighting between Youku and Tudou in a tit for tat battle over content rights.  But as China’s tech sector grows at hyper speed and companies with deep pockets enter the same space like online video or group-buying, the natural cycle of fierce competition then consolidation is inevitable.

Now, as reported by Bloomberg, Tencent’s v.qq.com, tv.Sohu and Baidu’s iQiyi have announced their alliance, only after a month after the consolidation of the two biggest players, Youku and Tudou.  It almost feels like a modern version of China’s Three Kingdoms warring period.  Originally a slew of online video sites emerged, so many that it was hard to remember all the options. The only real differentiator was which could deliver the best quality content the fastest. After a year of close combat, many of the weaker players have died, leaving the remaining players to join forces and continue the battle to become the supreme winner. Now it will clearly be Youku + Tudou against v.qq.com+tv.sohu.com+iqiyi.com.

Such consolidation in the market mirrors what is happening in China’s group buying space. At one point there was an absurd amount of group-buying sites, in the 6,000+ range.  But now those numbers have rightfully dwindled to a few hundred and will inevitably result in the top five.  Reports of Lashou’s downsizing follows, 360Buy’s outsourcing of its  group buying business and 55Tuan’s takeover of Ganji’s group buying business.

The point is, as Yang Wang noted in The Gold Rush Menatlity, that despite having war chests of money and the ability to raise a tonne of venture capital funds and people who are treated more like numbers, not every company should be doing the same business. They should take a longer term approach when considering which businesses to enter. With the benefit of hindsight, they should be able to see what happens when everyone rushes in to the same thing, without strategizing how to grow sustainably. But who knows if this mind shift will happen sooner rather than later. It may only be a matter of time and seeing what the next big trend from America is, before the next battle begins.

Jason is an Australian born Chinese living in Beijing, specializing in entrepreneurship, start-ups and the investment eco-system in China, especially in the tech and social area.

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