Face-Lifts and Finance: China's Kingmakers Tangle Over the Internet of Everything

In the search for new growth in the world's biggest internet market, China's three tech titans are spending billions of dollars on dozens of fronts to find the next big thing.

The latest battleground is China's lifestyle trends, with companies investing in apps that offer a variety services including food, face-lifts, child care and bike sharing. E-commerce giant Alibaba Group Holding Ltd., social-media champion Tencent Holdings Ltd. and search engine Baidu Inc. are betting that one-stop shops that match merchants with consumers represent the next wave of consumption.

China's market of 731 million internet users is peaking, with several times the number of people accessing the web and shopping on smartphones as in the U.S. As growth opportunities narrow, the big three internet companies are increasingly cutting across each others' businesses, including online video streaming, cloud computing and internet finance.

With deep pockets and a powerful influence on day-to-day Chinese life, the companies have amassed a tangled array of investments, becoming kingmakers for startups and contributing to a funding glut that has created more than 100 billion-dollar startups in China, surpassing the number in the U.S.

Tencent, China's most valuable company by market capitalization, is a global gaming giant and owns China's largest social network, WeChat. The app is prevalent in the lives of its more than 900 million monthly users. In recent years, Tencent has accelerated its push into mobile payments. According to research firm Analysys, it had 40% of China's mobile-payments market, snatching some of that from Alibaba, whose affiliate Ant Financial at one time monopolized the industry.

Alibaba--which runs China's most popular e-commerce websites, Taobao and Tmall, and has more sales than Amazon and eBay combined--chronicles the spending habits of more than 450 million customers through its payments affiliate. It competes neck and neck with Baidu on internet mapping services in China.

Baidu, whose market capitalization has lagged behind that of its two rivals of late, dominates internet searching in China and is often referred to as China's Google. It has bet heavily on artificial intelligence and driverless cars, a field that Tencent is moving quickly into.

The frenzy to invest means the three tech giants sometimes overlap. Tencent and Alibaba are both investors in China's ride-hailing app, Didi Chuxing. Baidu and Tencent also jointly back electric-car maker NextEV, which will start production of an electric SUV in China this year.

Currently, these three companies are fighting over the untapped segments of Chinese consumer lifestyles such as booking real-world services through the internet, referred to in the industry as online-to-offline services.

China's internet-driven lifestyle-services industry is forecast to grow to 7.8 trillion yuan by 2020 ($1.15 trillion) from almost 5 trillion yuan in 2015, according to Sanford C. Bernstein, dwarfing that of the U.S.

Alibaba has backed Koubei, a lifestyle search engine that is the newest entrant into the field. Koubei said in February that it had raised $1.1 billion from investors, giving it a valuation of $8 billion. Weeks later, Tencent-backed Meituan-Dianping said it had raised 1.5 billion yuan ($218 million) to start a venture-capital fund to help restaurant- and leisure-related merchants grow.

Those apps go further than those available elsewhere, such as Yelp Inc. Users can not only order food and make an appointment with a hairdresser, they can also book day trips, holidays and educational classes, and hail rides.

Meituan-Dianping dominates China's industry, with 75.5% market share last year, according to Analysys. Baidu's Nuomi is second, with 24%. Koubei has yet to establish a major presence.

The competition offers another prize: a wealth of big data companies can use to unlock more money in a market where user growth is slowing. The data those services yield gives the companies more power to target consumers with tailored advertising, helping them capture a larger slice of the online-advertising pie. All three say their data analytics will win them a greater share.

Beijing-based Baidu said it is accelerating efforts to use its artificial-intelligence technologies, such as virtual-reality hotel tours, to boost merchants on its platform. Its location and search data can also advise merchants on optimal locations to open a physical store: Several consumers searching for a manicure salon in an area could indicate demand for one.

Koubei, whose name translates to "word-of-mouth" said it can sell services to businesses that want to better manage their customer base and customize promotions.

"Restaurants know very little about their customers," said Koubei CEO Samuel Fan, whose app leverages Ant Financial's customer database. "They don't know if he lives nearby, or is he a student or a professional? How does he shop online? We offer them our database of information to give them this insight."

Meituan-Dianping, the $18 billion industry leader, uses order and browsing history to send targeted ads. It has added ride-hailing and homestay bookings to the app.

The company has five million merchants on its platform, the most among the three. Nuomi has two million, while Koubei has 1.5 million.

Koubei's funding salvo may delay profitability in the sector, but Meituan-Dianping's investors aren't perturbed. Meituan-Dianping's first-mover advantage and user reviews will help it hold on to its lead, said early-stage investor James Mi, Lightspeed China Partners' co-founder.

"In such industries, there is usually only space for one big player," Mr. Mi said.

Lilian Lin contributed to this article.

Write to Liza Lin at Liza.Lin@wsj.com

(END) Dow Jones Newswires

June 08, 2017 07:48 ET (11:48 GMT)