Source: LatePost.
Author: Guan Yiwen

On the afternoon of September 4th, Taotian Group issued a solicitation of opinions on the merchant platform, announcing the addition of WeChat Pay function. According to our understanding, Taobao will sign contracts with all merchants in the future, and the functionality will be fully launched by the end of September. At that time, consumers can use WeChat Pay for shopping on Taobao.

We have also learned that on the same day, Meituan's two core businesses, delivery and hotel, officially settled in Alipay Mini Program. Meituan group-buying business is also under internal testing and will be launched in the near future. Previously, Alipay could only be used for takeaway orders through Ele.me, and ordering on Meituan required an extra step with Alipay.

According to the information we have learned, the negotiations for Taotian to access WeChat Pay began six months ago. Taobao took the initiative and about 50 core personnel from various departments, including technology, security, legal, industry (responsible person for all categories), and customer service, are involved in the cooperation. The core executives of both sides personally communicated and experienced the usage process.

The mutual blocking between the two companies started 11 years ago. At that time, when users clicked on the Taobao link in WeChat, instead of opening the product shopping interface, they were directed to the download page of the Mobile Taobao. Shortly after, WeChat blocked the shopping links of Taobao, and Taobao introduced a "Taobao Password" with a special identifier to cope with it. At that time, the various businesses under the two companies were competing with each other and also expanding the battlefield through strategic investments and acquisitions, giving rise to the two major camps of "Alibaba System" and "Tencent System", and conflicts appeared in almost every field.

In 2021, the Ministry of Industry and Information Technology specifically required Internet companies to rectify issues such as blocking website links. By the end of August 2024, the State Administration for Market Regulation issued a statement.$Alibaba (BABA.US)$It has completely stopped the "two options, one link" monopolistic behavior as required, and the compliance rectification work has achieved good results.

In 2021, Taobao first integrated with Tencent Video. In the following three years, users could access external Taobao links in one-on-one chat scenes on WeChat. Later, this extended to group chat scenes. Furthermore, Taobao Tmall merchants can directly reach their stores, product detail pages, and Taobao live broadcasts through advertising resources such as WeChat's video accounts, Moments, and mini programs.

Since last year, Tencent and ByteDance have fully resumed business cooperation, with products from both companies able to advertise on each other's platforms.

At this point, several of China's largest internet platforms have finally achieved true interoperability. This industry is no longer relying on investment, mergers, and acquisitions to build closed systems to suppress competitors, but instead choosing the most effective partners to pursue the ultimate efficiency, preparing for the future's fierce competition. The impact of regulation plays a role here, as it is also an inevitable result of the market's cruelty.

The experience still needs improvement, as integration is just the beginning.

When consumers shop on Taobao using WeChat Pay, the experience still requires an additional step: they need to switch to WeChat first, complete the payment, and then return to the Taobao app. If using Alipay, they can complete the payment directly within the Taobao app.

We tested Taobao, jd.com,$PDD Holdings (PDD.US)$On Douyin, the four e-commerce platforms share different forms of product links to the one-on-one WeChat chat interface: JD is the best, open the mini program; Pinduoduo is next, showing a product link card - Pinduoduo often asks users to leave WeChat, download the app to buy some popular products; Taobao is third, with a paragraph of text with a URL; and Douyin still has a gibberish 'Douyin password'.

Currently, the experience of buying Taobao products in WeChat is still not very good. For Taotian, integrating WeChat Pay is an important step, but it is only the last step in achieving a complete basic shopping experience. There is still much room for optimization. It is the end of shallow cooperation between the two parties and the beginning of deep cooperation.

After Taobao and Tmall started charging for basic software services, a merchant said to us, 'Everyone is charging, as long as it's fair. More importantly, Taobao needs to quickly resolve WeChat Pay.'

Many e-commerce industry insiders believe that the cooperation between Taobao and WeChat Pay is almost all beneficial to Taobao. It can help expand its user base and increase transaction volume, so they are more active in this cooperation.

Some e-commerce industry insiders also believe that this cooperation has limited practical benefits for Taotian. In their view, the growth of e-commerce platforms still depends on traffic or supply at this stage, and payment is not the key factor for growth.

Integrating WeChat Pay may not bring Taobao rapid and significant growth in the short term, but it opens up a steady stream of benefits, as it adds the most mainstream payment method in the market. One industry insider said, 'It doesn't hurt.'

There are nearly 0.9 billion people who open Alipay every month, but compared to WeChat, which is used by everyone, it is still not thorough enough in coverage among the elderly and in low-income areas. Currently, China has over 20% of its population aged over 60 years.

We understand that Taotian will increase investment in the future, using various marketing methods and subsidies to encourage these users to download or re-download the Taobao application.

After the two sides are completely connected, the threshold for users to use Taobao is no longer to download two applications and register two accounts. They can just install the Taobao application or even shop on Taobao without installing the Taobao application, reducing the threshold to be as low as JD.com and PDD.

Taobao is also the largest merchant integrated with WeChat Pay, with an annual turnover of 8 trillion yuan. An insider participating in the integration work said that both parties have conducted rigorous verification at each step of the experience. "What we are currently concerned about is to prevent bugs, such as page loading failures, incorrect billing information, etc."

Alipay is under short-term pressure, but there is also new room for imagination.

The longer-term impact of this cooperation is the change in the online payment market pattern dominated by WeChat Pay and Alipay. We understand that WeChat has always been actively controlling its market share in online payments, and even proposed to reduce its growth rate by early 2024.

Now, with the integration of Taotian, it will definitely increase the market share of WeChat in online payments. An industry insider said, "The public's attachment to WeChat's payment system is stronger, and the payment mentality in the sinking market is also stronger. This will undoubtedly pose a challenge to Alipay's payment share on Taobao."

In response to this, Alipay stated, "Openness, collaboration, innovation, and sharing are the basic spirit of the Internet and the general trend of industry development. In addition to payment products, Alipay will also increase open cooperation in the broader ecosystem of Internet technology, AI technology products, and create greater business opportunities."

Alipay is no longer just a simple role of Alibaba's payment tool.

According to the ant group's 2020 prospectus, the transaction volume from Taotian actually accounts for only about 6% of Alipay's total annual payment transaction volume. The prospectus also states that they handle over 100 trillion yuan of domestic payment transactions per year, including commercial transactions where users make payments to merchants online and offline, personal transactions such as credit card repayments and transfers between individuals, as well as financial transactions related to credit and investment.

With the integration of WeChat Pay into Taobao, Alipay is under short-term pressure, but there is also new room for imagination.

In the past, due to the strategic bundling relationship with Taotian, Alipay's target audience was limited. Now, more platforms are opening up to Alipay, which is used by 0.9 billion people every month, which helps Alipay develop its internet advertising business.

After the entry of delivery, hotel, and group-buying mini programs into Alipay, Alibaba's former competitor Meituan is about to fully integrate with Alipay. The cooperation between Alipay and Meituan began at the end of 2020, with Meituan's Charging Treasure and Bike Sharing services being the first to integrate because Alipay's zero deposit feature is more suitable for shared economy businesses like charging treasure and bikes.

Kuaishou and Pinduoduo have separately integrated Alipay's "pay later" feature in 2021 and 2023, respectively, helping the platforms reduce consumer decision costs. All of this happened after Alipay gradually untied from Taotian.

The Alibaba ecosystem is fully open.

About a year ago, on September 12, 2023, Alibaba Group CEO Wu Yongming, in his first company-wide letter since taking office, mentioned that Alibaba must firmly shift its focus to the user perspective and meet user needs from multiple dimensions. User needs take priority over everything else. And in order to achieve a better user experience, "we must be more open."

In the internal letter, he said that all of Alibaba's businesses should proactively adopt a user-first perspective and seek the most open and cooperative approach, including with companies that traditionally have a competitive relationship. In line with this, Alibaba will allow more cooperation between its businesses to follow market principles without affecting strategic synergies.

An Alibaba insider said that this is a sign of internet giants moving from self-closed-loop to open and win-win, which is the trend of the times and the process of history. More and more companies will find that abandoning the mindset of self-closed-loop and winner-takes-all can take them further.

Previously, the largest companies hoped to complete the commercial closed-loop as much as possible within their own territory.

Alimama provides advertising and marketing services for businesses on Alibaba's platform. Businesses purchase services such as Alimama's Taobao Direct, Diamond Booth, and Grand Promotion to gain traffic within the Taobao ecosystem and increase sales, which is Alibaba's most important source of revenue. If businesses receive more traffic from outside sources than from Taobao, they will spend more money on promoting outside the Taobao ecosystem and reduce their investment in Taobao promotion.

The premise of this system is that Taobao is the irreplaceable choice for e-commerce.

Nowadays, Alibaba is facing a different landscape. By 2024, Alibaba's China retail GMV will be around 8 trillion yuan, accounting for 40% of the market; Pinduoduo will be around 4 trillion yuan, JD.com will be around 3 trillion yuan, and Douyin e-commerce will be around 2.6 trillion yuan. Before the outbreak of the COVID-19 pandemic, Pinduoduo's GMV was only 1/6 of Alibaba's, and Douyin had not yet started its own e-commerce business.

In the past three years, the form of Taobao products in the WeChat chat interface has evolved from Taobao password and images to product URLs. Accessing Taobao links in WeChat has expanded from one-on-one chat scenarios to group chats, Moments, and Video Accounts. Alibaba's businesses that can use WeChat Pay have expanded from early services such as Ele.me, Youku, and Damai to Taobao itself. Hema, Ele.me, and Idle Fish have all joined WeChat mini-program.

WeChat Pay being integrated with Taobao and Meituan mini-program entering Alipay means that the Chinese internet has become more open. All parties have transitioned from pursuing strategic layouts and guiding consumer choices through core businesses to completely catering to consumer choices and allowing core businesses to compete freely. Competition can ultimately dissolve all monopolies.

Editor/rice