What is the relationship between Tencent and Jingdong?
If this question was asked half a year ago, many people would have answered: it doesn’t matter.
At that time, without warning, Tencent suddenly reduced its holdings of most of its JD stocks by way of dividends, cutting off the closest connection between itself and JD.com.
But just last week, again without warning, JD.com announced that it would issue an additional $ 220 million worth of stock to Tencent over the next three years.
At first glance, the market is at a loss, why did it just “break the wrist” and connect it to myself.
In fact, this additional issuance is part of the renewed “strategic cooperation” between Tencent and JD.com that began in 2014. Most of the shares of JD.com that Tencent had distributed significantly before, accounting for about 15% , were obtained at the beginning of this “strategic cooperation”. .
The cooperation signed in the past few years has always defined the relationship between the two. Just like this additional issuance of US $ 220 million only corresponds to a 0.2 % increase in Tencent ’s JD . changes, you will find that the relationship between Tencent and JD.com has changed a lot:
Eight years later, JD.com and Tencent are finally sitting at a table for coffee.
Signed three times in eight years, and today finally became a “cooperation”
Counting the newly signed agreement, JD.com and Tencent have had three rounds of strategic cooperation so far. From the perspective of consideration, the three strategic cooperations involve share transactions, but the value of JD.com’s additional shares to Tencent is gradually declining.
The first round of strategic cooperation began in March 2014. After JD.com submitted an IPO application to the US Securities and Exchange Commission, Tencent announced the purchase of about 350 million ordinary shares of JD.com, accounting for 15% of the ordinary shares of JD.com before its listing. An additional 5% stake in JD.com was subscribed at the issue price, and at the same time the two parties signed a five-year strategic cooperation agreement.
In March 2019, JD.com and Tencent launched the second round of strategic cooperation. The former issued more than US$250 million in Class A common stock to the latter within three years. It is worth noting that as the second round of strategic cooperation is coming to an end, Tencent announced in December 2021 that it will distribute its 460 million JD shares to shareholders in the form of dividends, and the distribution will be completed in the first quarter of 2022.
After the dividend, Tencent’s shareholding in JD. At that time, the external market was generally worried that after Tencent’s substantial reduction in holdings, JD.com would lose its traffic support in the WeChat ecosystem. The news announced that JD.com’s stock price once fell by 11% on the same day.
However, this concern was relieved in the third round of strategic cooperation agreement signed recently. On the evening of June 29, 2022, JD.com announced that it has renewed a three-year strategic cooperation agreement with Tencent, which will continue to provide JD.com with significant primary and secondary access portals on the WeChat platform to provide traffic support.
The specific total value involved in this agreement has not been disclosed. The announcement shows that JD.com will issue up to $220 million in Class A ordinary shares to Tencent in the next three years, and the rest will be paid in cash. Based on the stock price of JD.com before the press release, the additional issuance of US$220 million corresponds to an increase of 0.2% of the equity of JD.com.
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In addition to the decline in the value of additional shares, the specific content involved in the strategic cooperation between JD.com and Tencent has also undergone a milestone transformation this time. JD.com has gradually become a supplier of business value from a buyer of traffic value in previous cooperation.
In the first round of strategic cooperation, the content of the agreement between the two parties not only involves Tencent providing JD.com with the first-level portals of WeChat and QQ as traffic support, but as a condition for the two parties not to compete with each other, Tencent will also provide QQ online shopping, Paipai.com e-commerce and logistics. Partially merged into Jingdong. In Tencent’s investment map, JD.com is the earliest and most well-known investee company that directly took over Tencent’s internal business. This largely depends on Tencent’s strategic change. At that time, Tencent was changing from the criticized “doing everything” to “opening up”, and the cooperation with JD.com became the best proof of its determination to demonstrate strategic transformation. Tencent consolidated all its e-commerce assets, including employees, business contracts, intellectual property, licenses and permits, to JD.com in 2014 .
With the help of Tencent’s traffic support, the number of annual active users of JD.com indeed achieved explosive growth from 2014 to 2017, from less than 50 million to 300 million. In the “Asian Management” program broadcast by CNBC in the United States in 2017, Liu Qiangdong even admitted the importance of Tencent to JD.
The Tencent-led cooperation model was still very significant when the two parties renewed their second strategic agreement. According to the 2019 cooperation agreement, Tencent will continue to provide JD.com with prominent primary and secondary entrances on the WeChat platform, and continue to cooperate in areas such as social media services, advertising buying and membership services. According to relevant data, the total value of this round of strategic cooperation exceeds US$800 million.
Although starting in 2019, Tencent has also opened the gate of WeChat traffic for Pinduoduo, and Pinduoduo has used social fission to grow rapidly in the sinking market, and even has the momentum to overtake JD.com and Ali in a corner. However, from the perspective of WeChat traffic position, Pinduoduo has always occupied the secondary entrance, and there is still a gap in strategic importance compared with the primary entrance of JD.com.
Also because of the pressure brought by the growth of Pinduoduo in the sinking market, in 2019, JD.com replaced the WeChat first-level entrance-oriented Jingdong Mall, which mainly focuses on the sinking market, Jingxi. According to QuestMobile data, in October 2020, Jingxi surpassed 150 million users after deduplication of the total number of mobile application terminals and WeChat mini-programs, of which 96.1% of users came from WeChat mini-programs. Although the subsequent business development of Jingxi is not ideal, its early rise did depend on Tencent’s traffic support, and now the first-level entrance of WeChat has been replaced by Jingdong Mall.
As the environment of the platform economy has changed in recent years, and various challenges faced by companies have intensified, this “ head-heavy” tilted cooperation balance has also begun to balance in the third round of strategic agreements.
In the content of the third round of strategic cooperation, in addition to retaining the regular traffic cooperation of the first two rounds, JD.com and Tencent have deepened in terms of technology and supply chain services. The former focuses on technical exchanges and cooperation in artificial intelligence and other fields, while the latter focuses on JD.com providing Tencent with services such as edge computing, digital and intelligent procurement, industrial interconnection, supply chain finance, intelligent logistics, and C2M product innovation.
Correspondingly, there is also a reversal of the gap between the strategic cooperation between the two in terms of value to each other.
According to JD.com’s 2021 financial report data, from 2019 to 2021, JD.com and Tencent’s advertising business cooperation generated revenue of 288 million yuan, 355 million yuan, and 248 million yuan respectively, while the services and sales provided by JD.com to Tencent Products generated 399 million yuan, 375 million yuan, and 553 million yuan in revenue. In addition, the advertising resources and payment processing services purchased by JD.com from Tencent have also expanded year by year, reaching 2.222 billion yuan, 3.226 billion yuan and 5.01 billion yuan respectively in 2019-2021.
From Dependence to Mutual Need
In other words, from the beginning of this strategic cooperation, Tencent and JD.com really have the meaning of being evenly matched and getting what they need.
For JD.com, it still needs a first- and second-level prominent entrance on WeChat to solve the problem of traffic sources. In fact, the source of traffic has always been a major pain point that hinders traditional e-commerce platforms. From the perspective of user behavior links, e-commerce platforms mostly play the role of the terminal to undertake traffic. In recent years, Ali has found new channels for Taobao to open up traffic to a certain extent through live broadcast e-commerce, but JD.com, which has always been tepid in live broadcast e-commerce business, seems to have to rely on external cooperation, through purchase or replacement. Get traffic sources.
This can be seen from the growth of advertising expenses paid by JD.com in the past three years. The amount used for traffic resources in 2019-2021 reached 2.222 billion yuan, 3.226 billion yuan, and 5.01 billion yuan respectively. JD.com’s 2021 annual report data also shows that JD.com’s overall spending on marketing is as high as 38.74 billion yuan, a figure of 22.23 billion yuan and 27.16 billion yuan in 2019 and 2020, respectively.
JD.com’s desire for traffic is not only reflected in its strategic cooperation with Tencent, but also in resource replacement and cooperation with major content platforms including Douyin, Kuaishou, and Xiaohongshu.
In the cooperation between JD.com and Douyin in 2021, JD.com opened an official store on Douyin to sell self-operated products, shopping transactions were completed on Douyin platform, and JD.com was responsible for the supply chain system and after-sales service of the products; similarly, JD.com It has also reached a traffic cooperation with Kuaishou by virtue of its own supply chain advantages. The former needs a stable and reliable supply chain, and the latter can take this opportunity to gain target sinking users; and JD.com started cross-border e-commerce cooperation with Xiaohongshu this year. In the same period, the supply chain resources of JD.com are also used to replace the brand marketing traffic of Xiaohongshu.
Comparing the cooperation between JD.com and external platforms, it can be found that only the strategic partner Tencent has given it the greatest degree of traffic support, providing it with a first- and second-level WeChat entry, and at the same time jumping directly to JD.com to complete the shopping transaction process; compared to Under the circumstances, the cooperation between JD.com, Douyin Kuaishou and Xiaohongshu has compromised in shopping transactions in order to obtain traffic.
But it is clear that the self-built supply chain logistics system that JD.com has formed over the years has become the most valuable bargaining chip and business moat in its external cooperation. The same is true in the third round of the renewed strategic agreement with Tencent. It can be said that JD.com now has what Tencent really needs.
From Tencent’s point of view, although its e-commerce platform “Little Goose Pinpin”, which had been online for less than two years in February this year, withdrew from major app stores due to business exploration failures, Tencent hatched it internally a few months later. An e-commerce-related business, “Penguin Huimai”, is reported to have entered the initial stage of operation. Although this grass-growing platform created by Tencent’s joint cooperation brand plays a more marketing role in diverting the flow of other e-commerce mini-programs, it shows Tencent’s continuous attention and ambition to e-commerce business.
It is also worth noting that the non-compete clause that Tencent and JD.com promised when they first signed a strategic cooperation “will not participate in any retail or managed market business model of physical e-commerce in Greater China within the next eight years” has expired, but the new one The rotating renewal agreement did not emphasize that the treaty was still covered.
A truly equal “cooperation” often implies competition at the same time, and the same is true of the new cooperation between JD.com and Tencent, which is obviously more interesting than the previous joint camp formed by investment.
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