Over the last decade, Chinese people have been rapidly and systematically utilizing mobile payment—that is, payment services performed through a mobile device. This trend kicked off with China’s first e-commerce wholesale platform Alibaba, founded by Jack Ma from his humble apartment in Hangzhou, China, in 1999. Responding to eBay’s growing presence in China a few years later, Jack Ma launched taobao.com, a consumer-to-consumer (C2C) and business-to-consumer (B2C) online marketplace. To support taobao.com’s transactions, Jack Ma released Alipay later that year as a “thirdparty online payment platform.” Mobile payment became a reality in China when Alipay released its mobile app in 2008, which can be used to pay water, electricity, and gas bills as well as mobile phone fees. After 2011, when the first third-party payment license was issued to Alipay, more Chinese consumers replaced their credit cards and debit cards with Alipay. By 2013, Alipay overtook PayPal as the world's largest mobile payment platform. Alipay dominated 69.6 percent of China’s mobile payment market. Jack Ma was the “only horse” (the surname Ma means “horse” in Chinese) in the field and a clear first mover, but faced a solid rival in second mover IT giant Tencent.

Ma Huateng founded Tencent Inc. in 1998, and its early years focused on the iconic product of QQ,
China’s first instant messaging software product. Tencent expanded into other Internet fields such as games, music, microblogging, and online shopping. By 2011, Tencent’s QQ was China’s most successful instant messaging software with over 700 million active users, and the company released WeChat, another instant messaging software product. Tencent’s two software products competed in the same space, with QQ primarily PC-based with “online” and “offline” status, and WeChat smartphone-based without “offline” status. WeChat soon acquired over 300 million users. Tencent is often described as a successful “second mover,” imitating a promising business model introduced by innovative first-mover firms and then surpassing these firms.

The two IT giants faced off in 2013 when each invested in a taxi booking app: Didi (by Tencent) and Kuaidi (by Alibaba). In an August 2013 5.0 version update of WeChat, users were surprised to find a “wallet” function added to the app, but most did not know how to use it. However, for Jack Ma and Ma Huateng, all had become clear: the two “horses” were going to war.

Tencent offered and then linked three seemingly unrelated apps: smartphone-based WeChat, taxibooking app Didi, and a new wallet function. In January 2014, WeChat wallet was linked to Didi as the payment method. Passengers using WeChat to pay the taxi fare received a generous subsidy from Tencent, making taxi fare lower than bus fare. Alipay and the Kuaidi app responded in a similar way. While widely welcomed by white-collar workers, the money-] burning campaign cost each side approximately 1.5 billion RMB (US$244 million). 

For Ma Huateng, the campaign is not just about occupying the newly born taxi-booking app market in China, but also about penetrating Jack Ma’s precious share of the mobile payment market by “teaching” WeChat users how to use make mobile payments. Weeks later, Ma Huateng continued his “teaching” in the virtual red envelope campaign during Chinese Spring Festival. The virtual red envelope is modeled after the Chinese tradition of exchanging packets of money among friends and family members during holidays. WeChat introduced the “red envelope shake” to the Chinese Spring Festival Gala, during which users were invited to shake their smartphones for a chance to win red envelopes, and eight million WeChat users participated in this promotion campaign. WeChat users can save the money won to their WeChat “wallet” and then send it to others with their own red envelope. WeChat sent 1.2 billion red envelopes worth over half a billion RMB (US$82 million) during the promotion. However, to use the money from the red envelope, WeChat users needed to add their bank card to their WeChat account and thus fully activate the WeChat payment function. Retrospectively, Jack Ma regarded the WeChat red envelope promotion as a “Pearl Harbor attack” on his territory.

After the Chinese Spring Festival, the money-burning war game between first mover Alipay and second mover WeChat continued. Both sides heavily subsidized taxi passengers on their taxi-booking apps through 2014. In the third quarter of 2014, Alipay’s market share reached a peak of 82.6 percent, but WeChat’s increasing presence the in mobile payment market was unstoppable. Both sides engaged in a new red envelope campaign during the next Spring Festival holiday. While Alipay fought hard to defend its market share, WeChat’s social nature smoothly transformed users into payers.

By the end of 2016, both sides saw continuous growth in user population; however, Alipay’s market share dropped to 54.10 percent, and Tencent and WeChat’s market share rose to 37.02 percent. In that year, consumers spent 157.55 trillion RMB (US$23.72 trillion) on mobile devices in China, and QR codes and POS machines supporting both Alipay and WeChat could be found at street food vendors, supermarkets, department stores, and online markets.

Discussion Questions:

1. What tactics did Tencent use to encroach on Alibaba’s share of the mobile payment market?

2. What key resources did WeChat use to compete with Alipay?

3. Does WeChat’s presence in the mobile payment market always negatively affect Alipay?

4. Would you rather be a first mover or a second mover in a new technology market?