Alibaba is investing big bucks into offline distribution. The Chinese e-commerce giant has forked out $2.23 billion in exchange for a sizeable piece of Focus Media, a Shanghai-based company that operates outdoor digital advertising screens across China, Singapore and Hong Kong, according to a U.S. filing.
The deal itself is broken up into a few pieces. Alibaba itself is paying $1.43 billion for a 6.62 percent share of Focus Media, which is listed in Shanghai, It is also spending $504.7 million to buy 10 percent of an entity (managed by Focus Media founder and chairman Jason Nanchun Jiang) which controls 23.34 percent of Focus Media.
In addition, an Alibaba-aligned fund called ‘New Retail Strategic Opportunities’ is buying 1.37 percent of Focus Media, while Alibaba itself is planning to exercise an option to buy five percent more of the business over the next twelve months. That additional transaction will add another $1 billion or so to the total investment, dependent, of course, on Focus Media’s stock price.
That’s quite a mouthful but the objective of the deal is simpler to grok: Alibaba already has a formidable online channel to interact with consumers and now it is expanding what it can do offline.
Focus Media currently claims to reach 200 million middle-class consumers across 300 Chinese cities via its outdoor advertising platform, which includes digital screens in streets, in subways and in elevators. The company plans to grow that to 500 million people across 500 cities, and that ties into Alibaba’s online-to-offline strategy, which it also calls ‘New Retail.’
That has seen the company buy up expensive stakes in offline retail businesses with the goal of marrying the benefits of online shopping — such as quick delivery, easy to find products and easy payment — with the customer experience of brick and mortar stores, like in-person customer service and try-before-you-buy.
It isn’t hard to imagine a scenario in which a consumer sees a product advertised via Focus Media with the option to buy it, or arrange to see it in a store, simply by scanning a QR code. (Lest you forgot, QR codes are huge in China and a very key component in online/offline shopping.)
Beyond the New Retail push, the distribution provided by Focus Media offers sellers on Alibaba’s e-commerce platform an alternative avenue through which to reach potential customers, particularly within China’s growing middle class.
Will people reject being bombarded with ads on their commute or downtime, especially when they could just open an app on their phone? Alibaba likely isn’t keen to take the risk, and given the vast amount of cash it is sitting on this deal isn’t going to be a huge risk.