Source: Retail Boss Internal Reference (lslb168) " Core Reading Guide Why did Tencent join the retail game? What are Tencent's seven weapons for smart retail? Why is it said that Tencent has two kinds of smart retail? " The reason big companies are called big companies is that they cannot afford to fall behind or be absent in any business. Competition in the internet industry is like a never-ending card game. Any famous player or figure in the arena has the basic obligation to sit at the table. In one round, you may hold winning cards; in the next, you may be defending; in the round after, you may only assist a teammate's bad hand. In short, it doesn't matter what cards you hold at the moment. The key is that you cannot refuse to sit at the table, nor can you leave it. Take Microsoft in the internet era: after several costly trial-and-error attempts, it never left the table. Eventually, with the Surface product line, it gained global acclaim and secured a place in the mobile internet arena. Once you leave the table, there's no coming back. For instance, some old-school portal sites or real estate tycoons have repeatedly tried and failed to reverse their decline, following trends without grasping the essence. At the slightest setback, they immediately shut down and avoid battle. As a result, they are now in the arena but have no legend. Tencent's entry into retail, viewed from the big picture, is a choice that Tencent had to make—it could not afford to stay off the retail table. Regardless of what cards Tencent holds today, what cards it can play, or whether it entered the game early or late, as long as it stays at the retail table and trades time for space, Tencent's influence in retail can only grow, not shrink. A method of engaging in retail without leaving the table Tencent has not been idle in consumer retail. New retail is a watershed driving the transformation of the retail industry, with October 2016 as the dividing line. Before that, Tencent made strong efforts to stay in the e-commerce game through self-created Paipai (a rival to Taobao), and investments in Yixun and JD.com. Of course, in the e-commerce era, Tencent had a presence but no voice. In the main components of consumer retail—trading platforms (payment and full-chain resources), brands, service providers (logistics), and consumers—Tencent never successfully built a complete resource framework. The winners of that era were Alibaba and JD.com. JD's aggressive push in several categories once made Tmall, its rival, very wary. During the same period, the broader business economy was nurturing internet+, consumption upgrades, O2O models, nationwide mobile payments, and the plateau of e-commerce. These actions and objective laws all paved the way for the arrival of new retail. Starting in October 2016, Alibaba took one year to popularize the concept of new retail: data-driven retail restructuring; digital upgrade of traditional commerce. Alibaba, with its own strength, drove and led a societal (not just industry) transformation in consumer retail. Not only retailers, but Alibaba also brought global brands along to complete the digital economic upgrade. Alibaba reaped rich rewards. In less than a year, new retail—a seemingly simple but actually highly professional business concept—achieved social consensus. This is no easy feat. A knowledge and awareness system, according to its distribution map, can reach four levels. Level 1: Expert level. For example, 6G mobile communication technology, still in the lab stage, is not yet covered by media tracking or social discussion, nor even in government industry development reports. Level 2: Industry level. Technologies like AI and IoT have been widely explored and tested by big companies, with countless media reports and studies, but for the general public, ordinary people cannot explain them in plain language, nor do they see mature product applications. Level 3: Social level. New retail is a typical case. It started as an industry term, but Alibaba made it a social term. The general public has heard of new retail and knows it is a current business hotspot and future trend. The industry, due to strong public awareness, has largely reached a social consensus: no one can escape the transformation and upgrade of new retail. However, the confusion about how to transform and upgrade remains. This leaves an opportunity for Tencent to enter. This is the focus of the following section, so I won't elaborate here. Level 4: National level. Smartphones are smart, China must strengthen independent innovation in science and technology, China must become prosperous... These are national consensuses that everyone accepts regardless of personal will or preference. In this hierarchical map, new retail, originally at Level 2, successfully expanded to Level 3. This gave Alibaba's new retail unprecedented social resource support and momentum from social trends. In plain words: Alibaba forcefully created a typhoon, lifting everyone up. Tencent actually thinks the same way. In December 2017, Tencent announced its official entry into the retail game by investing 4.2 billion yuan in Yonghui. Tencent must have thought it through clearly. Even though the future of technology empowering retail is uncertain, purely from a financial return perspective, taking a 5% stake in each retail company is a worthwhile investment. Model Analysis: Alibaba vs. Tencent Because Alibaba and Tencent compete head-on in every niche, the two-strong pattern in China's internet industry has existed for a long time. The so-called BAT pattern is mainly discussed as the AT pattern. Retail has not escaped the AT rivalry. Of course, the two-strong status of AT in retail currently reflects the comparison of the two companies' overall strength, not that they have actually formed equally strong positions in the retail industry. Therefore, it remains to be seen whether Tencent will allow the outside world to use Tencent Group's strength to inflate Tencent Retail's strength for a long time. However, the outside world expects Tencent to use its retail strength to directly compete with Alibaba's new retail, making the AT rivalry in retail truly worthy of the name. Although this is somewhat unfair. New retail represents almost all of Alibaba's business, while smart retail only represents a part of Tencent. At the Guangzhou Tencent Cloud+ Conference on May 23-24, smart retail was only on the outermost ring of Tencent Cloud's product service panorama, not even as prominent as gaming, finance, or video services. Even Ma Huateng's opening speech on the 23rd did not specifically discuss Tencent Smart Retail. Compared to Ma Yun's "Five New" concept at the Hangzhou Yunqi Conference in October 2016, the weight of the two retail businesses at the two tech giants' annual conferences is indeed different. However, this has not dampened outside expectations for Tencent's moves in retail. Retail is the foundation of commerce, and physical retail is the mainstay of retail. Because people's clothing, food, housing, transportation, entertainment, and leisure are all in the physical realm. It can be said that retail and consumption are related to everyone. But because people are almost fully digitized (everyone has a smartphone), data-driven retail is what Alibaba is doing. Two such giant companies, in such an important traditional industry related to everyone, every move in retail affects the actual lifestyle of the entire population. So how to understand the layout and differences between Alibaba and Tencent in retail? The two companies have actually left this puzzle to the public. Some compare Alibaba to Apple's iOS and Tencent to Android. Others go further, comparing Alibaba to the Warsaw Pact model and Tencent to the NATO model. Those who say this are even big names in the retail circle. Their words are truly ignorant and nonsense. Anyone with a bit of knowledge understands the implications of the Warsaw Pact and NATO. Using such historical context to describe the retail rivalry between Alibaba and Tencent is not only foolish but also malicious. However, it must be admitted that because Tencent began large-scale investments in physical retail enterprises at the end of last year, the whole industry has started to talk about the retail layouts of Alibaba and Tencent. But there is a serious prerequisite: investing in physical retail enterprises and transforming them is not the main direction of retail industry change. Moreover, what the two companies can do in physical retail is not very comparable. Think about it: rarely has an industry like retail seen two internet giants' competitive methods and points of contact fail to align on the same channel. In other words, the comparison between Alibaba and Tencent in retail is like one singing Peking opera and the other singing rock. It's hard to make a direct, detailed comparison. This situation is very rare compared to other business tracks. In other business areas, Alibaba and Tencent compete in similar models, opening their resources, capabilities, and endurance valves to see who can outlast the other. For example, in video, they have Youku and Tencent Video. For users, the choice is based on who has more content and better original dramas or shows. Often, their video resources are basically similar. Or like Tencent and NetEase's competition in online games: although the game themes and gameplay differ, the way they attract players and the benefits they offer are similar. The same applies to other niche tracks. Only in retail, what is the standard for their competition? Let's assume some commonly recognized competition standards in the industry and try to see who is better in this AT (Alibaba & Tencent) retail rivalry. First, the technology contest? What Alibaba brings to physical retail is full-chain digital upgrade, with big data as the sole driver and decision-making basis. It optimizes costs and efficiency through technology, and reshapes scenarios and delivery. Tencent's solution is mainly based on technology-derived "seven weapons" for seven specific improvements: store location, marketing reach, facial recognition, traffic flow analysis, shelf display (electronic price tags), cost reduction, and self-checkout (scan-and-pay). This is a standardized retail solution recognized by Tencent's Smart Retail department, Carrefour China, Belle Shoes, and others. The technology system for the seven weapons comes from Tencent's seven resources: data analysis, WeChat traffic, WeChat Pay, finance, new business innovation, technology innovation, and cloud computing. The corresponding tool names include WeChat Official Accounts, Mini Programs, Tencent Social Ads, Tencent's cultural and creative pan-entertainment IP resources, etc. Frankly, whether it's the seven weapons or seven resources, when compared to Alibaba, Alibaba can come up with dozens of more detailed technologies. In terms of technology, Alibaba seems to have more to offer than Tencent. Second, the empowerment contest? What Alibaba brings to its physical retail enterprises is comprehensive resource transfer. Because Alibaba, in the e-commerce era, built a complete retail resource framework. Not only does it bring technology, but Alibaba also connects with numerous domestic and international brands, providing irreplaceable resource output for optimizing and upgrading retailers' product structures. More importantly, Alibaba's strong integration capability over its retail assets allows it to quickly replicate and connect to all its affiliated enterprises. For example, after fully acquiring Ele.me, Ele.me's Fengniao delivery resources can be connected to Alibaba's businesses focusing on near-scene retail, including Hema and RT-Mart. Several shallow investments, let alone deep control and resource integration, still involve competition and conflict among the platform assets. For example, JD and Pinduoduo, Meituan and Didi. In terms of empowerment, Alibaba seems to show higher efficiency and effectiveness in resource integration. Third, the scale contest? The physical retail enterprises or related consumer shopping platforms that Alibaba and Tencent have invested in or deeply cooperated with are publicly countable information. That is, can the annual transaction volumes of the affiliated companies in each system be compared? More specifically, what if Tencent's affiliated companies' annual transaction volume exceeds that of Alibaba's affiliated companies? Even further, what if the growth rate and scale of Tencent's affiliated companies also surpass Alibaba's? Can we then say, "See, in the end, Tencent's empowerment of physical retail is more effective and reliable?" In reality, it's quite possible. The reason is that we must not forget that physical retail is highly fragmented. Why is the retail rivalry between the two companies so fascinating? Because this is the first time they are truly competing from online to offline. The charm and value of offline lie in its high fragmentation, extreme dispersion, and differentiation. To map every detail of offline transactions and connections to absolute online data is currently beyond the boundaries of internet technology. Alibaba is striving toward this direction: only when everything offline is mapped to absolute online data can the most cumbersome and chaotic transactions and connections at the physical level be systematically organized. Tencent's starting point is to provide limited technological empowerment, bringing faster and more direct performance improvements. Alibaba's strength, Tencent's tools Why is physical retail called physical retail? Because physical retail must have physical stores. Having only physical warehouses doesn't count as physical retail; that's a competitive advantage from the e-commerce era. Once consumers complete their ideal shopping needs at a physical store within an effective distance (e.g., a three-kilometer radius), whether they lean toward Alibaba or Tencent doesn't matter to the consumer. But it matters greatly to Alibaba and Tencent. Belle Shoes said that after integrating Tencent Cloud technology, their transaction volume increased by 40%. We haven't verified the actual data, but with such growth, more and more Belle Shoes-like enterprises mean more growth in Tencent's retail scale, and more consumers completing satisfying purchases under Tencent's empowerment. We also cannot delve into a detailed analysis of Alibaba's and Tencent's specific product structures; that process is too tedious and not very meaningful. Conceptual technical analysis is a sufficient condition, but not a necessary process for predicting outcomes. What we need to see is whether Tencent's tool theory (seven weapons) and marketing theory (traffic and IP integration) are the practical methodologies that physical retail expects. If one day Tencent's retail enterprises lead Alibaba's in transaction scale and growth rate, it might trigger unpredictable mental chemistry in the physical retail industry. After all, Alibaba's willingness to invest heavily and deeply transform several leading physical enterprises is also to create benchmarks in niche areas, attracting other players in the niche to join. RT-Mart for hypermarkets, Intime for department stores, Easyhome for home furnishing stores... all follow the same logic. If the leaders succeed, why wouldn't the second, third, and fourth players follow? However, Alibaba's transformation of a traditional retail enterprise may be more difficult than creating a new one. For this reason, once Tencent's transaction scale and growth rate rise, why wouldn't the second, third, and fourth players in the niche follow? You could say Tencent is doing a dimensionality reduction strike. That's true, but also not entirely true. From a theoretical perspective, no solution is the only or optimal one. The key point of this thinking is: why must the retail industry let two internet companies decide its future? So, for Tencent, its way out in retail is actually to lower the technical threshold of retail and strive toward a more era-defining transformation: everyone is a participant and consumer of new retail (smart retail). Every enterprise and merchant has inherent differences in capabilities. Every enterprise and merchant also has fundamentally different self-positioning and expectations. If you give me some technology, I can easily get started, and the effect is immediate. With the natural fragmentation of physical retail, a merchant or enterprise, when connected to Tencent's resource platform, can complete technological transformation and digital upgrade, and reap tangible performance returns. Isn't that also good? Tencent's unique weapon: WeChat ecosystem Speaking of this phenomenon of relying on Tencent's platform resources to make a living, it is not only a fact but also a more spectacular contribution Tencent has made to consumer retail. A large number of merchants and enterprises have found ways to make money through Tencent's WeChat platform. To borrow the words of Zhao Xiangyang, founder of "Third Eye Retail", the logic that Tencent's WeChat ecosystem brings to those enterprises is "from traffic, to traffic"; "Alibaba does product business, Tencent does people business." Even if Tencent watches billions of real money flow by, it doesn't covet a single cent. Perhaps the "Pinduoduo effect" is too strong, as brands big and small, including Vipshop, Weimob, and Lian Coffee, are all high-profile transforming into social e-commerce, building ecosystems based on Mini Programs, Official Accounts, and WeChat Pay. So, Tencent's smart retail has two kinds of smart retail. One is the shallow stake in physical retail enterprises and shallow tool empowerment, aimed at not being absent from the retail table. The other is Tencent's social-based ecosystem monetization. Occupying the largest population of Chinese internet users (WeChat has nearly 1 billion users), it creates an online trading ecosystem where any brand can participate and reap rewards. To a certain extent, Tencent's exploration history of smart retail is a history of WeChat's product capability evolution. At the Tencent Cloud+ Future Summit's Smart Retail sub-forum, Tencent Vice President and Head of Smart Retail Lin Jinghua listed the "seven weapons" for retail digital transformation and upgrade: WeChat Official Accounts, WeChat Pay, Mini Programs, Tencent Social Ads, Tencent Cloud, pan-entertainment IP, and WeChat Work. These are the core capabilities Tencent can offer physical retailers. "We place the seven toolboxes in the integrated online-offline retail scenario, hoping to bring new experiences to consumers and efficiency improvements to merchants," Lin Jinghua said. But it is by no means a customized product for specific enterprises—although many enterprises have expressed urgent needs for personalized solutions. Tencent prefers to "distribute" the toolbox to different retailers, allowing them to freely carry out corresponding upgrades and transformations. Enterprise transformation is a gradual process, not completed overnight, which is consistent with the iteration and upgrade of the WeChat ecosystem. The changes in the WeChat ecosystem are specifically reflected in two aspects: the complexity of social relationships and the comprehensive commercialization of functions (actively or passively). Unlike QQ, early WeChat mainly existed to meet the needs of acquaintances' social interaction, supporting importing QQ friends, reading phone contacts, and connecting with Weibo private messages, which greatly helped WeChat quickly gain its first batch of registered users. Through features like "People Nearby," "Shake," and "Drift Bottles," WeChat also opened up the possibility of exploring stranger social interaction, helping users further expand their friend lists. As the user base expanded and group chat functions enriched, WeChat's user relationship chain gradually extended from strong-tie connections with family and friends to broader social networks. Professional socializing became an important part of WeChat social interaction, gradually forming a "social + work + life" triad, making social relationships more complex. The design of chat and social environments has also consistently emphasized symmetry and privacy, such as only mutual friends being able to see each other's interactions on Moments, and the selectable methods for adding friends. But this does not mean there is no opportunity for monetization. WeChat took seven years to prove that the commercialization potential of social traffic can be infinitely large. WeChat's sudden rise has filled the industry with confidence in the future of social e-commerce. However, WeChat's "user social priority" feature determines that the road to social e-commerce is far more difficult than imagined. The industry's restlessness gave rise to Weidian, which focused on "pocket shopping" and was once seen as the ultimate weapon to counter Taobao and Tmall. Weidian provided an e-commerce sales platform for everyone, allowing anyone to open a store and sell goods. This helped Weidian attract 12 million sellers within nine months of launch and secure three rounds of financing in 2014, enjoying a brief period of glory. But because it focused too much on small and medium sellers, Weidian missed the opportunity to focus on WeChat self-media KOLs. Bai Ya, who sensed this business opportunity, eventually led Youzan to a backdoor listing on the Hong Kong Stock Exchange. WeChat Official Accounts mainly have three monetization methods: selling goods (e-commerce), advertising, and knowledge payment. The e-commerce model is heavy, with large upfront investments in supply chain, operations teams, and marketing, but if managed well, the return on investment is clearly the highest. Advertising is essentially a traffic business, stable but with obvious bottlenecks. Knowledge payment, despite steady development over the years, clearly lacks industry penetration. Official Accounts are just one representative of WeChat's functional commercialization, but this is more of an online business. This is not to say that WeChat has been远离 offline before; in fact, WeChat Pay, Scan, LBS-based Moments ads, coupons, and even the aforementioned Official Accounts have all attempted to guide WeChat users to offline scenarios. But it is undoubtedly extremely fragmented. The launch of Mini Programs formally gave the WeChat ecosystem the ability to fully land offline. The value of Mini Programs for retail enterprises, besides meeting basic service needs, also lies in achieving a domino effect across the WeChat ecosystem, without sacrificing social principles. The root cause of this outcome is that WeChat hands the "voting device" to users, rather than being algorithm-driven or centralized. "The WeChat platform has always wanted to follow this principle: we should not influence the existence of various services; what we should do is to let more valuable services emerge and be found by users, rather than us controlling them," Zhang Xiaolong once said. This logic is exactly what Tencent is saying to retailers facing digital transformation today. WeChat initially connected people to people, but later it evolved to connect people to platforms, people to scenarios, and platforms to scenarios. This super app with a billion users has also continuously integrated comprehensive service capabilities such as clothing, food, housing, transportation, and daily use through strategic investments and acquisitions, providing fixed entry points for corresponding products or platforms and becoming part of WeChat itself. From WeChat Official Accounts to Tencent Social Ads, from WeChat Work to Mini Programs, from mobile e-commerce to smart retail, WeChat has undergone two "great leaps": from a social tool to an O2O full platform, and then to digital upgrade infrastructure. The only thing that can benchmark against the WeChat ecosystem is Alibaba's Taobao. This is also the original intention behind Taobao's recent announcement of its new strategy under its president Jiang Fan. The battle between China's retail consumption and online-offline, Alibaba and Tencent, the story never ends. -END-