Alibaba vs Tencent: Who's winning China's tech war?

Who is winning China's mobile war?
Who is winning China's mobile war?

In China's fierce mobile battleground, analysts say Tencent is a step ahead of rival Alibaba as the social networking firm makes strides in e-commerce.

"My pick would be Tencent since they really dominate the mobile market with their WeChat app, with 600 million users on the app every day. Now, they're expanding into e-commerce and games have been a stronghold, so in the first innings of the mobile war, I would say Tencent is a little bit ahead of Alibaba," David Chao, co-founder and general partner at venture capital firm Doll Capital Management, told CNBC's "Asia Squawk Box."

While Alibaba, which is gearing up for a New York initial public offering, is the mainland's biggest player in online commerce with two retail sites and payment service Alipay under its belt, the smartphone market presents a challenge for founder Jack Ma.

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That's where Tencent comes in. The world's fourth-largest web company by market capitalization, Tencent's instant messaging applications WeChat and QQ have made it a household name in China.

The Shenzhen-based firm reported on Wednesday that WeChat users jumped 11.5 percent on quarter to 396 million users.

Brent Lewin & Andrew Harrer | Bloomberg | Getty Images

These apps have helped the company encroach on Alibaba's territory in online payments. In March, Tencent unveiled a merchant payment service for WeChat that enables users to purchase goods without ever exiting the application. The app already allows users to buy movie tickets, order taxis and make restaurant reservations.

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"There's no doubt in my mind that Tencent will be number one in the mobile market because of WeChat. That's what you need to be a leader in this market – for people to use your app every day," said Michael Clendenin, managing director of RedTech Advisors.

The two behemoths share many of the same business verticals and this past quarter, their rivalry hit a fever pitch following Tencent's recent buying spree. In February, it took a 20 percent stake in Diaping, known as China's 'Yelp,' and in March, it acquired a 15 percent stake in online retailer, a smaller competitor to Alibaba's website.

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Deals to boost Tencent's growth: Stanchart
Deals to boost Tencent's growth: Stanchart

Experts say the deals raised the stakes in the mobile commerce battle between the two.

"I think Tencent is forcing its rivals to react in mobile. They have done a great job of setting the terms of the battle. To a certain expect, other companies in the mobile space can aspire to do what Tencent has done with WeChat but they can't really emulate it. So even for someone like Alibaba, they'll still be number two in the market," Clendenin continued.

Standard Chartered attributes Tencent's lead in mobile to their diversified online services. Apart from social networking, the company's other core business is online gaming, which generated the bulk of its $289 million first quarter revenue.

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"If you look at the recent war initiated by Alibaba, they're trying to attack Tencent's backyard to defend their own core business. We've seen Alibaba launch a mobile game platform and invest in online video so they've realized that they are trying to transform themselves from an e-commerce company to a comprehensive internet platform," said Wendy Hau, the bank's head of China technology research.

On Wenesday, Tencent reported record first-quarter profits, which sent shares soaring over 5 percent in Hong Kong.