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Alipay takes on online-to-offline risk
ALIBABA, China's largest e-commerce company, and Shanghai-based outdoor advertising firm Focus Media have begun a collaboration aimed at encouraging smart phone users to buy daily group discount deals they spot as they are out and about in the city.
Under the agreement, Focus Media's LCD screens around Shanghai will use special coding in advertising deals linked to the Alibaba group-buying site Juhuasuan.com.
Utilizing Alibaba's online payment system Alipay, smart phone users can scan the codes to buy deals instantly.
It's all part of Alibaba Group's efforts to extend its business to offline from online and expand its reach into consumer spending power.
There are currently about 40 million users of Alipay's smart phone tools.
At least 30,000 Focus Media's screens in major office buildings will be turned into a brand display as well as a direct link to the final purchase or payment.
Consumers in seven cities will be able to see these deals, according to their locations. That means passers-by in one area of town may see a daily deal for a restaurant in their vicinity.
Alipay and Focus Media said they will work together on future technology upgrades to allow smart phones with near field communication chips to scan the barcode more conveniently. The Internet company said it hopes to tap into Focus Media's extensive advertising network in major domestic cities.
Juhuasuan currently offers daily deals in more than 80 domestic cities, and over half of its branches are offering gift cards or vouchers for cinemas or cafes.
"Juhuasuan will be offering deeper discounts on Focus Media's network than on its own website to attract more consumers," said Will Cheng, marketing director of Juhuasuan.
Cheng said his company hopes to bring consumers and local vendors closer by offering such deals in office buildings so that consumers don't have to spend extra time looking for them. The collaboration is still in its initial stages and won't affect Juhuasuan's overall revenue for the time being, according to Cheng.
"Traditionally, there is a time gap between viewing an advertisement and actually paying for a product or service," said Focus Media Chairman and Chief Executive Officer Jason Jiang. "This partnership has narrowed the gap."
Will it work? I have some doubts.
Some local online vendors have already been exhibiting posters in Metro stations in Shanghai, using quick coding that can be scanned for instant online payments for daily necessities like food and beverage. But I have seen very few people actually scanning the codes in and placing orders while waiting for Metro trains. There is simply too little time to decide what to order.
Technology barriers and safety concerns also prevent some consumers from paying for orders through their mobile phones.
And the number of LCD screens may be too few to make much of a difference.
Taobao, the online marketplace run by Alibaba, said 3.2 million of its users spent 2.2 billion yuan (US$ 345 million) in the second quarter on cash vouchers and other local services such as restaurants and massage houses. The majority of those users searched for deals and paid for them from desktop computers.
Only 30,000 of the 156,000 ad screens operated by Focus Media nationwide will be able to display online deals. Many consumers no doubt will think twice about buying on a flash impulse.
Chinese consumers love to compare prices and selections when shopping for clothes or deciding where to eat out. Smart consumers want to know what other people online think about deals before committing themselves.
Why would consumers want to gawk at flat-panel TV ad mounted in commercial areas when they can use their desktops or smartphone applications to browse and shop at leisure?
"We have to take into consideration how vendors or service providers will benefit from such deals and whether this will have long-lasting effect," the marketing director of a leading domestic daily deals site told me.
Indeed, the Alibaba-Focus Media strategy seems like just another ad fad rather than some truly revolutionary new sales tool.
Vendors who pay to appear on Focus Media's advertising network should think twice about the cost-effectiveness of trying to attract customers on the hop. If they don't get good returns, they won't be offering good deals.