Investment Competition
The business expansion of China's two big Internet companies are having dramatic implications for the related industries in China and Korea.
According to industry sources on Sept. 17, much attention is being paid to whether or not Shanda Games, which is one of the top five game developers in China, will finally sell its business, and what company will buy the game company. A source familiar with the matter, said, “Tencent and Alibaba have vied for the acquisition of Shanda Games, and the competition between companies with the intention to buy the game developer is in its final stages.”
In the past, Shanda Games imported Wemade Entertainment's Legend of Mir 2 from Korea into China and saw the game become popular in the country. The two Chinese companies are vying to purchase the local gaming company after their competition to make an investment in Korean firms like CJ Games, 4:33 Creative Lab, and PATI Games.
Tencent has grown into the largest Internet service portal in China, after dominating the local online gaming market first and the mobile gaming market afterwards, based on the huge popularity of messaging app WeChat. The company's market cap amounts to US$160 billion.
Alibaba, on the other hand, is strengthening its position in the market to become the world's largest e-commerce company through its e-commerce website Taobao and online payment service provider Alipay. Alibaba's New York IPO is scheduled on Sept. 19 (local time). It is estimated that the e-commerce company's listing will reach US$21.8 billion and its market capitalization with US$167.6 billion. The size of Alibaba's New York IPO is expected to be the highest ever, exceeding the prior record of US$19.7 billion set by VISA. The market cap of Alibaba or VISA is similar to the 177.643 trillion won (US$169.958 billion) of Samsung Electronics.
Fierce competition between the two Chinese firms for investment is attributable to the fact that their businesses have started to overlap. Alibaba's investment in mobile messaging app Laiwang kicked into high gear, and the company also started mobile gaming business. Alibaba's moves like these are aiming at Tencent. Tencent, in turn, mounted a serious challenge to Alibaba by purchasing an ownership stake in China's second-largest e-commerce retailer JD.com.
Tencent appears to stay one step ahead of the competition for the investment in the Korean market. The Internet giant invested 530 billion won (US$506 million) in its purchase of an ownership stake in CJ Games, and bought an ownership stake worth 20 billion won (US$19.1 million) in PATI Games, which already forged a strategic partnership with Alibaba. Tencent is also discussing its investment in 4:33 Creative Lab, which previously signed a license agreement with Alibaba for games. Alibaba, on the other hand, made a US$120 million investment in U.S. mobile game publisher Kabam, instead.
From the perspective of Alibaba, its buyout of online and mobile game developer Shanda Games would significantly shorten the time needed for soft-landing its gaming business. From Tencent's point of view, it is difficult to be attracted to Shanda Games, but the purchase of the gaming company could undermine Alibaba's attempt to enter the gaming market. Shanda Games is considered to be valued at about 3 trillion won (US$2.9 billion).