2014

China's O2O market: the path to success is not uni-directional

BEIJING, April 8, 2013 /PRNewswire/-- With pundits of all stripes forecasting China's O2O market to grow into a behemoth throwing off trillions of yuan in revenues, the sector is widely viewed as a gold mine in the age of the mobile internet. According to a survey by Global Brand Insights, all the majors have joined the O2O fray - not only have the longstanding internet titans jumped in, but also an out-of-home media company that until recently had been strictly a traditional media player with no online presence at all. Access to China's O2O market is no longer a one-way street but now a two-way thoroughfare where entry can take place at either end.

Tencent and Alibaba create an O2O closed loop

In September 2012, Pony Ma announced in Beijing that Tencent, with its 200 million WeChat users combined with its ability to provide e-commerce and payment services, would launch a foray into the O2O market. Tencent, through its third-party payment platform Tenpay, said it would incorporate O2O into WeChat. Tencent has bundled WeChat into Tenpay and taken WeChat's "Shake" and 2D barcode scanning features to offer a wide array of payment methods, enabling the integration of online payment and offline commerce. The micro-payment system created by Tenpay and WeChat allows users to shop offline using 2D barcodes. The marrying of 2D barcode scanning and payment enables instant purchasing by taking a snapshot of the product or service's barcode.

Although Tencent O2O's approach seems novel, this form of integration isn't something new. In fact, Tencent started to embrace the O2O concept more than a decade ago, long before Taobao, however, at the time, the firm had not yet joined the mainstream. Tencent O2O is viewed by the industry as being at the beginner's gate, and the key to success of its O2O initiative are the offline capabilities, and that, rather than online capabilities, will be in large part the "differentiator" as to who will win and who will lose in this industry. Tencent's offline capability is still the firm's weakest link. While the 300 million user base opens up a great opportunity for Tencent O2O, it remains to be seen whether the company will eventually build an O2O closed loop by seamlessly linking to offline shopping.

And when it comes to O2O in China, no one can overlook Alibaba, which is undoubtedly O2O's earliest and best adopter on the Chinese landscape. Jack Ma is widely recognized as the first person to tap into O2O in China. Jack Ma's second-in-command, Alibaba vice president Zeng Ming has his own view on the topic: "Frankly, we have had a really hard time with O2O, and every year we face many new challenges with regards to it," Zeng Ming said.

Despite the difficulties and many false starts, Alibaba will likely become the first company to successfully form an O2O closed loop and achieve another milestone, as evidenced by its recent developments. Alibaba has been accelerating its O2O strategy since mid-2012, starting with the launch of a map service by Taobao. Then DDMap, the local life information service platform, announced that it had received an investment from Alibaba and Citibank. These moves reveal that Alibaba has come a long way in developing an O2O closed loop.

Balintimes – creator of an offline to online model by reversing the O2O model

Balintimes, a leading public transportation advertising firm in China, is at the frontier of reversing the O2O model. Just a mere 18 months ago, the company had zero presence online. Whereas the traditional O2O model refers to companies extending their business from online to offline, Balintimes reversed the model by creating an offline to online model suitable for non-internet firms.

Based on its well established traditional media network, Balintimes created a directed digital marketing platform "Shanlink.com" in November 2011 leveraging on its mobile internet thinking to achieve the integration of offline and online multi-channel communications. The platform represents an unprecedented model combining offline media and online mobile marketing resources. With the "Shanlink.com" mobile marketing platform, Balintimes provides consumers on-the-go with access to a wide range of lifestyle and product promotion information. To optimize the effectiveness of its advertising communication, Balintimes created the "point-to-point" mobile marketing platform, offering advertisers a directed and efficient interactive marketing communication experience. 

Balintimes chairman Zhang Weixiong offered an explanation of the thinking behind the company's O2O model: the average busy person has fragmented time adding up to about 20 minutes per day where they find themselves in an idle state. This is where Balintimes' new platform fits in with the O2O model. The "Shanlink.com" mobile marketing platform provides people on-the-go with a wide range of lifestyle information and product promotion information. Balintimes Shanpai, an entertainment application developed by the company that leverages its online advertising platform, allows consumers to take a snapshot of a product they are interested in with their mobile phones, at which point they are automatically connected to "Shanlink.com" where they are shown information and new offers about the product by way of an image recognition system - this service helps users buy products and services at a lower cost and, in turn, reduces their overall cost of day-to-day living. 

The new O2O model brings a whole new level of convenience to the entire purchasing process while providing ready access to all of the model's benefits. While waiting for a train in a subway station, you can take a snapshot of Estee Lauder's latest product from a wall poster and instantly obtain information about samples, coupons and a link to the official website, where you will find information about Estee Lauder's other products and how to buy the coupons. While sitting on a bus, you can also use your smartphone to take a snapshot of a China Unicom ad posted on the back of the seat in front of you and have the prepaid electronic code "pushed" to your phone through the platform's backend. The interaction between online and offline channels helps build brand awareness while, at the same time, increasing sales.

This reverse (offline to online) approach has opened another door for traditional media, and now, Microsoft, Amazon, China Minsheng Banking, China Unicom, China National Cereals, Oils and Foodstuffs Corporation (COFCO), Estee Lauder, L'Oreal and many other advertisers have all become early adopters of this new multi-dimensional marketing platform.

What's next for China's O2O market?

According to official statistics,China's O2O market reached 98.7 billion yuan (approx. US$15.8 billion) in 2012, representing a growth of 75.5 percent from 56.2 billion yuan (approx. US$9 billion) in 2011. However, industry analysts anticipate that this impressive growth is just the icing on the cake and by 2015, the China O2O market is expected to quadruple to over 418 billion yuan (approx. US$67 billion).

As growth of the e-commerce sector is now an inevitable fact, merchants need to shift their focus towards improving their service and their offline experience, rather than simply relying on the traditional obfuscation of information to maintain the bottom line. With a continually shifting dynamic in such a huge market, viewed by many as the next pot of gold, consumer-oriented approaches must be taken to further market-share gains.

Matrix Partners' senior analyst Niu Lixiong stated that "out of the box" thinkers should be encouraged to fulfill the potential of the mobile internet. He believes that O2O is not simply just another market, but, in fact, an entirely new way of thinking and vehicle for moving traditional industries into the age of the mobile internet.

As is often said, where there is a will, there is a way. And, right now the China O2O market is offering a limitless potential to any and all who have that will.

Contact
Ms Xing
Email: sunkist20@163.com
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SOURCE Global Brand Insights




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