The Chinese e-commerce wonder, Alibaba has bought a chunk of Focus Media, another Chinese company that is in the business of outdoor digital advertising. The deal is complicated, but the following should shed some light on the subject.
Here’s how the deal breaks down according to TechCrunch:
Alibaba is paying $1.43 billion for a 6.62% share of Focus Media. It is also spending $504.7 million to buy 10% of an entity managed by Focus Media founder and chairman Jason Nanchun Jiang, which controls 23.34% of Focus Media.
Also of note is the fact that the Alibaba-affiliated fund called “New Retail Strategic Opportunities” is buying 1.37% of Focus Media, whilst Alibaba is planning to take advantage of the option to buy an additional 5% more of the business over the next 12 months. That will add some $1 billion to the total investment depending on Focus Media’s price on the stock market.
That’s a lot to take in, but Alibaba already utilises its more than adequate online channel to interact with customers. It is now simply expanding what it can do offline.
Focus Media already reaches 200 million middle-class consumers across 300 Chinese cities thanks to its outdoor advertising platform. The platform includes digital screens in streets, subways and elevators. They plan to grow that to 500 million across 500 cities, which ties into Alibaba’s online/offline strategy. They call this “New Retail”.
Alibaba wants to marry the benefits of online shopping (with its 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).
Consumers will soon be able to see a product advertised via Focus Media with a buy option or arrange to see it in a store — simply by scanning a QR code. Let’s not forget that QR codes are immensely popular in China, whilst also being a key part of online/offline shopping.
Beyond New Retail
Distribution provided by Focus Media offers sellers on Alibaba’s platform a different way with which to reach customers. Time will tell whether consumers reject the constant bombardment of ads on their commute or during their freetime, but given the fact that Alibaba is spending so much on this deal, it might just work.