HANGZHOU, Feb. 21 -- In the war between Tencent and Alibaba for China's emerging mobile payment market, cab-calling services have become the slightly unexpected battlefield.

Smartphone apps Didi (Tencent) and KuaiDi (Alibaba) are competing for the custom of those Chinese people who hail a cab through their online services.

Didi announced on Tuesday that if passengers pay the taxi fare via WeChat (Tencent), they will get a 12 yuan price subsidy. Hours later, rival KuaiDi made a public promise to cut "always one yuan more than our competitor" off the price, if the payment goes through Alipay.

In large cities like Beijing, a three kilometer taxi ride could be free, as the starting fare is 13 yuan. In smaller cities where starting fares are less, consumers may even profit.

As the competition gets more tigerish, the sustainability of the price war has come into question and a more healthy development of the mobile payment market sought.

Alipay currently leads mobile payments with nearly 300 million registered users, 100 million of whom use mobile phones.

Last year, those users made 2.78 billion transactions, with an aggregate turnover of 900 billion yuan, more than five times the 27 billion U.S. dollars posted by Paypal in the same period.

Neck and neck is Tencent's WeChat, China's largest social networking app with more than 500 million users worldwide.

During Spring Festival holiday between Jan. 31 and Feb. 6, WeChat users on the Chinese mainland distributed nearly 200 million yuan of "lucky money" to one another through the platform. That marketing maneuver has given Wechat an edge as users scramble to cash in their gifts that have to link at least one cash card.

Describing the lucky money maneuver as a "surprise attack on Pearl Harbor", Alibaba Chairman Ma Yun said, "It's a good thing Spring Festival ends soon."

While the skirmishes escalate, researcher Yi Jingxue with Analysys International sees "no clear profit model for cab-hailing apps yet."

"The real emphasis of the rivalry should go beyond looking for new users to cultivating user loyalty," said Yi.

"For mobile Internet products, network traffic means profits, which is why the number of users is of ultimate importance," Yi explained.

UNAVOIDABLE WAR

Outright war in the mobile Internet market does not seem avoidable as consumers want to get connected all the time.

By the end of 2013, 500 million Chinese were accessing the Internet via mobile phones, accounting for 81 percent of the country's netizen population, figures from China Internet Network Information Center showed.

"Most Chinese netizens are not satisfied in using the Internet sitting down at a table. They want to use it anytime anywhere," said Hu Yanping, director of DCCI Data Center of China Internet.

"This is the reason why the two firms are promoting mobile Internet products. Mobile Internet services will make people's lives more comfortable and convenient," he said.

The two have different approaches.

Alipay wins users mainly through money transfers and credit card debit payments. Tencent attracts mobile payment service users through its mobile social-networking and game apps.

"It's too early to say which will top the mobile payment market as two thirds of the market has not been developed yet," said Hu.

He said the winner will be judged on four areas essential to profit. These are the number of registered users, user activity, monthly mobile payment by the average user, and the number of merchants that accept payment via phones.

Once fully developed, China's mobile payment market will be four times as large as that of the e-commerce, Hu predicted.

Apart from cab-calling services, there is competition in personal finance products, maps, meal-ordering, social-networking apps, mobile gaming platforms as well as e-commerce.

Tencent announced on Wednesday that it had purchased a 20-percent stake in the country's lifestyle and group buying website Dianping.com.

Dianping's content, user base and offline retailer network will be integrated with Tencent's social communications platforms, to build an online-to-offline service, according to a joint statement.

Alibaba, on the other hand, has completed its acquisition of digital mapping and navigation firm AutoNavi for 1.39 billion U.S. dollars, turning the latter into a fully-owned subsidiary.

AutoNavi will not only direct smartphone users of how to get to places but also tell them about where their favorite services and products can be found.

Tencent and Alibaba are also competing in personal finance.

Yu'E Bao, an online product launched by Alipay and Tian Hong Asset Management Co., Ltd., has attracted 49 million users, who have deposited over 400 million yuan in less than a year.

Tencent and China Asset Management launched online asset management services in January. Users can deposit money and receive as high as seven percent of the annualized seven-day interest.

PROSPECTS

Experts say the war between the two companies will have a major impact on China's mobile Internet market and usher in an era of rapid expansion, even though the industry is still in its infancy.

"The adoption of mobile payment is low and application scenarios are limited. The players are very active, but the majority of mobile payment services and products are still in the pre-commercial phase," according to a Trends and Prospects of Mobile Payment Industry in China 2012-2015 Report released by Deloitte.

Hu Yanping said the acquisitions by Tencent and Alibaba were "only the first step."

"Companies will seek ways to integrate all mobile services to make profits and even change people's lifestyle," said Hu.

But companies face certain issues and must find solutions.

Alipay's alliance with Hankyu Department Stores to offer customers a mobile payment service was halted by Taiwan's Financial Supervisory Commission for violating regulations on electronic tickets last month.

Also, both Tencent and Alibaba have been reportedly involved in user privacy leakages or illegal reselling of user information.