Heating up

China's tech giants set for costly food fight

China's tech giants are set for a costly food fight. E-commerce giant Alibaba and its internet finance affiliate Ant Financial are investing $1.25 billion in Ele.me, China's biggest takeout app. Platforms linking China's mobile users to local services are booming. But rivals Baidu, the search engine operator, and Tencent, the social media group, are also betting heavily on food.

The deal will make Alibaba and Ant, both controlled by Jack Ma, the largest shareholders of the food-delivery outfit, according to a person familiar with the situation. The deal's structure was not disclosed. But an earlier report from Bloomberg suggested that the deal valued Ele.me at $4.5 billion.

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This heightens the competition between Baidu, Alibaba, and Tencent over "online-to-offline" services. Each of the trio, known as BAT, is racing to offer services that allow smartphone users to book movie tickets, hail taxis, and order takeout.

The prize here is a bigger slice of China's enticing food-delivery market. Analysys, a data provider, reckons online orders should top 164 billion yuan ($25 billion) by 2017 - up 67 per cent from this year. But the battle for market share could be costly.

Other O2O apps have had to offer discounts to undercut rivals and win users. In car-hailing, for example, Uber boss Travis Kalanick recently admitted Uber China was losing over $1 billion a year competing with rivals.

And food delivery, in particular, also requires financing and maintaining a network of delivery drivers, order dispatchers, and so on. Alibaba and Ant won't have control of Ele.me, but will get access to Ele.me's delivery services. That should help their existing food venture, Koubei, which lacks its own logistics.

In exchange, Ele.me will gain potential customers from Ma's e-commerce and payments empire. Pooling resources will be crucial. Ele.me leads the takeout market with a 34 per cent stake, but Tencent-backed Meituan-Dianping is catching up fast with just under 33 per cent, Analysys says. The latter, in which Alibaba still owns a residual stake, was the product of a merger supposed to reduce fierce competition. Instead the battle simmers on.