Alibaba Group Holding Ltd (NYSE:BABA), the company that leads online and mobile retail business, has set eyes on a new frontier called local services, otherwise known as Online to Offline (O2O). Ant Financial, an affiliate company of the Alibaba group that is run by the CEO Jack Ma, will invest heavily in this new venture.
Booming Local Services Market In China
This Online to Offline system works somewhat like this: The user uses an online service, say a cab calling app. The app then suggests the users where he can get offers at local offline stores near him. Didi Kuaidi, a taxy calling app, uses this system very successfully to utilize the potential of local markets.
As the number of smartphone users is increasing at a rapid rate, mobile and online transactions have seen a huge increase too. There is a lot of potential in the Online to Offline services that is waiting to be explored.
Koubei is the joint venture of Alibaba Group Holding Ltd (NYSE:BABA) and its affiliate Ant Financial. Both companies have invested nearly $1 billion in this venture. This service will focus on food delivery first. Additional services will be added over the next few months.
Both the companies will contribute nearly 3 billion yuan (almost $483 million) with a 50-50 partnership. Taodiandian, the food delivery business of Alibaba Group Holding Ltd (NYSE:BABA) and offline merchant resources by Ant Financial will be at the core of Koubei.
This service is accessible through Alipay Wallet app by Ant Financial and Taobao app by the Group. Samuel Fan from the payment business unit of Ant Financial will be the head of this new venture.
The local services market is facing stiff competition as internet giants like Baidu Inc (NASDAQ:BIDU) and Tencent enter the field. It will soon be clear how Koubei survives the competition.