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Hidden away in Alibaba's earnings report released this week, was the news that its affiliate company Koubei had closed a $1.1 billion funding round this month from a consortium of investors. Koubei offers a range of services in China's online-to-offline (O2O) sector, which provides online information or services to consumers to drive offline purchases. That includes features like letting users buy movie tickets online, order food or make reservations at a restaurant.
The growth potential for such services in China is huge—iResearch Consulting Group estimates that O2O ecommerce sales in the country will hit RMB521 billion ($78 billion) this year and grow to RMB626 billion ($94 billion) in 2018. And while much attention in the sector has been paid to food delivery services, O2O does not exist for sustenance alone. A report from McKinsey & Company found that more than half of digital buyers surveyed in January 2016 in tier 1 cities had made O2O purchases for travel or ride-hailing services.
Koubei is a joint-venture established in 2015 between Alibaba and Ant Financial, the Alibaba affiliate that oversees digital payment platform Alipay and other financial services. The company counts among its rivals Meituan-Dianping, which raised $3.3 billion last year in a funding round that gave it a valuation of $18 billion. It's also facing off against Baidu's group-buying platform Nuomi, JD.com-backed New Dada and Ele.me, which Alibaba and Ant Financial have also invested at least $1.25 billion in.
However, it's Koubei's tight integration with the popular Alipay service that gives the enterprise a potential edge against competitors in a crowded space. If Koubei can take advantage of the detailed consumer profiles Alibaba is generating based on online purchases and use of Alipay, it can better target promotions to users for O2O purchases.
"This is how Alibaba wants to get those people—the customers who go to restaurants or to local convenience stores—to transact and bring them more fully into the Alibaba ecosystem," Ken Hao, a managing partner of investment firm Silver Lake, one of Koubei's investors, told the New York Times.
In its Q4 2016 earnings statement, Alibaba reported that Koubei had generated RMB73.1 billion ($11 billion) in payments transacted via Alipay, an increase of 52% over the previous quarter. But the company is still in the red, with Alibaba recording a loss of RMB237 million ($36 billion) in the fourth quarter of last year.
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