Tech Titans of China
With China-created superapp WeCHat, you can text or chat in groups or one-on-one; transfer cash to peers; pay bills; get a loan within a seconds; buy movie tickets; find nearby friends; order groceries; shop for fashions; and post videos, news, and photos. No need for a business card.
Cash and email are things of the past in China.
China’s e-commerce startup Pinduoduo makes online shopping on your mobile for bargains truly social and fun. China’s 15-second video streaming app TikTok amuses twins and can make online performers into rich celebrities. The world’s most valuable artificial intelligence startup SenseTime uses facial recognition. China’s electric car maker NIO.
A robot dentist in China was the first to insert 3D tooth implants in a patient.
The Chinese have arrived and are succeeding at:
- buying into US cutting-edge startups,
- fast tracking and popularizing innovative business models in China like: virtual gifts, social commerce, AI-powered news and video apps, and one-stop super apps,
- building giant consumer and enterprise ecosystem,
- owning and using technologies for smart cities, smart homes, smart workplaces, and smart cars,
- inventing the future for mass commercialization of electric cars and self-driving, errand-running humanoid robots.
I’ve seen China’s venture and tech ecosystem spread out nationally and strengthen from its original base in Zhongguancun Software Park next to Beijing’s well-regarded, tech-oriented Tsinghua university.
China’s going to eat Silicon Valley’s lunch, according to Gary Rieschel.
China’s workaholic, determined entrepreneurs are quick to get new technologies commercialized. China’s huge digital markets – the world’s largest for the Internet, smartphones, e-commerce, and mobile payments – are spurring advancements that go mainstream quickly.
From copy to China, to invented in China, the biggest trend to watch is copied from China, meaning US companies duplicate Chinese innovations.
Made in China business model is built for a mobile-first generation.
Startup teams in China routinely work 12 hours per day, six days a week, or “996”, as it’s commonly referred in US-China tech circles.
China New Era Technology Fund is a state-led 15 billion USD fund. China’s climb in patent application to number two in the world. National spending on R&D reached 409 billion USD. They have 4.7 million graduates in science, technology, engineering, and math. US 0,6 million.
China is investing more in mobile infrastructure than the US.
China’s startups and tech titans alike are distinctly focused on the most progressive ideas in the digital world today:
- AI
- New retail commerce
- Mobile payments
- Fintech
- Social credit
- Sharing economy
- Livestreaming
- Virtual reality
- Electric vehicles
- Social commerce
Going global is the next push of these China-centric tech giants.
How China is winning
China’s Facebook, Amazon, and Google: the BAT’s tech template
There’s no cash, cashiers, or checkout, lines at Alibaba’s futuristic stores. It’s all digital. You pay by Alipay mobile app. Your grocery orders are bagged and clipped to an overhead conveyor belt that runs across the store to be delivered within 30 minutes by scooters within a three-kilometer zone. Wi-fi-connected, e-link price tags change pricing details automatically.
The BAT have the best of both worlds. These three companies have scaled up in their protected home markets with little overseas competition, tapped the Western capital markets with IPOs, and used the money to bulk up with billion-dollar acquisitions and chunks of the most promising, innovative tech companies, in effect paying a large tuition to gain knowledge on what makes Silicon Valley tick.
Alibaba’s lead in e-commerce is challenged by social commerce upstart Pinduoduo. JD.com is also a competitor, baked by Tencent.
The BAT trio and their alumni represent 42 percent of China’s venture investments.
CEO and founder of Baidu is Robin Li. He stepped back when Lu stepped down to run the China offshoot of US accelerator Y Combinator. AI is a big thing for Baidu also.
A major component of the Alibaba vast empire is fintech giant Ant Financial, with its black, ant-shaped logo. Ant against an elephant. Elephant being China Telecom.
Tencent derives its name from a fusion of the Chinese characters Teng and Xun, which means “galloping fast information”. They are also the world’s largest video gaming company. They have a 25 % market share. Only in China gaming market is 27.5 billion USD. They also include Tencent Music and Literature companies. Other products are WeChat, QQ, and Tencent news.
Chinese apps are more advanced in content, social networking, and commerce according to Hans Tung. Some super apps are WeChat, Meituan, Ele.me, and Didi.
A new group of net players has popped up in China that is focused on the mobile internet. Their acronym is TDM. The T for AI-powered news aggregator Toutiao and video app TikTok. The M is for food delivery and service app Meituan Dianping, owned by Wang Xing – the biggest cloner of China (Facebook, Friendster, Groupon). The D is for ride-sharing service Didi Chuxing.
BAT international revenue is low (Baidu – 1 %, Tencent – 5 %. Alibaba – 11%).
Don’t expect China’s leading tech innovators to go mainstream in the US anytime soon.
Tech giants take a bite and bulk up
Alibaba’s transfer of leadership is from Ma to CEO Daniel Zhang.
From 2010 to 2018, BAT inked 227 tech deals worth 33.5 billion USD in the US, two-thirds of China’s investment in US tech.
The heightened regulation and uncertainty over approvals are causing China tech titans that previously singled out the US to turn to other technology centers, such as Israel, and to the booming Southeast Asian region.
China is reaping the bonus of an early start in South Asia and is making American companies seem slow and clumsy.
Alibaba is investing in foreign e-commerce and retail companies like Lazada and Tokopedia. Baidu in computer vision and AI companies in the US. Tencent is putting money into connected cars and internet-facilitated health care. They are also looking for opportunities in e-commerce to fight against Alibaba.
Sinovation Ventures is a Beijing-based venture capital firm headed by AI expert and investor Kai-Fu Lee.
Gaining fast: China’s next tech titans
The Chinese market demands hyperspeed and precise execution – and an eye on superfast growth before profitability. It can be a winner-takes-all market.
Xiaomi is the Apple of the East. Its owner is Lei Jun. Xiaomi runs on MIUI – me, you, I – a version of Google Android. It was launched in 2010. They are number four in the world for smartphones. They are strong, especially in China. Lei’s net worth today is 9.9 billion USD. He is now running his venture fund.
Xiaomi formula: affordably priced phones to drive adoption, razor-thin profit margin, and continual updates based on customer and developer feedback. Their business model is called “triathlon business model” by Lei. Three synergistic pillars of growth. Handsets – 70 % of revenue, IoT gadgets – 22 % and internet value-added services – 9 %. They also invest in other companies. Huami fitness tracker. Viomi smart home products.
Their competition in China is Huawei, but also two startups focused on the rural part of China – OPPO and Vivo.
What is next for Xiaomi? Fintech.
Toutiao is the next news and video king. YY is one of the first Chinese live-streaming platforms. Livestreaming has become a 5 billion USD business.
Bytedance and its founder Zhang Yiming. The new B. In 2012 Zhang cranked up his flagship product, a news app called Toutiao.
Zhang worked briefly at Microsoft.
Short video is not a new game. Twitter bought Vine and shut it down. Facebook has Lasso. Tencent funded Kuaishou. Jeffery Katzenberg created NewTV, a new mobile video platform, called Quibi.
China is ahead of the United States in experimenting with AI news curation.
Toutiao is leveraging its massive traffic to take on Alibaba and JD.com in e-commerce.
Meituan Dianping is the M of TDM. Tencent owns 20 percent of Meituan. In 2018 their revenue was 77 billion USD. Meituan delivers in no more than 28 minutes from the order. You can see the restaurant location, track your order, and the delivery person, check arrival time, and see the name and picture of the delivery person. They have 60 % of the delivery market in China.
However their cash and labor-intensive delivery business model does not create profit yet. Their travel and hotel segment is more profitable.
Digitalized retailing is a potential next step for Meituan.
Few US companies crack the China code
Starbucks’ sales have picked up in China since going all in on digital technologies and introducing spill-proof cups. Starbucks is growing and innovating faster in China than anywhere else in the world.
Many US tech companies have stumbled in China: Uber, eBay, Yahoo!, Amazon, Groupon.
Pointers to win in China:
- Find a local partner.
- Hire a local team.
- Give the local team autonomy.
- Customize services and features for Chinese customers.
- Learn to negotiate with demanding Chinese customers.
- Aim for high growth before profits.
- Develop out-of-the-box, fun promotional strategies.
- Be prepared for sudden rule changes.
- Kee the long-term vision.
In China, what they are doing is known as fast-response tech, according to Mao Daqing.
Airbnb and WeWork both struggle in China.
China’s Silicon Dragon venture capitalists
Sand Hill Road gets a megarival
Sequoia Capital China partner Glen Sun knows what it takes to get ahead in venture capital investing. Neil Shen is the driving force for Sequoia Capital China.
China’s emerging innovations and the scale of its venture capital markets are driving China’s competitiveness on the world stage.
Of the world’s 40 best venture capital bets of all time, 12 are Chinese tech startups. China inked seven of the world’s top 10 venture deals in 2018.
Chinese tech innovations have become advanced and world-leading due to the size of its domestic. But there’s a potential downside. Many venture-funded Chinese startups are burning cash like there’s no tomorrow to chase growth, well before profits (just as Amazon did).
In the early days of venturing in China, led by Silicon Valley firms, missteps were made. Small teams were stretched to cover the opportunities. Strategic decisions and tactical moves were called from Silicon Valley rather than the front lines.
New Enterprise Associates (NEA), one of Silicon Valley’s largest and longest-established firms, was a pioneer in China and managed through some rough spots. They started in 2003. And they succeed with investment in ByteDance.
The next frontier for venture investors has opened in Southeast Asia. Its population is 665 million and its internet base of 260 million.
Some of the funds in China are: Qiming Venture Partners, GGV Capital (Alibaba), DCM Ventures (they are focusing on the US, China, and Japan), Lightspeed China Partners, Redpoint China, GSR Ventures.
Tech sectors that matter most: China’s grab for superpower status
Face-off in AI
SenseTime high-tech system also verifies identities for payments at staff-less checkouts, peer-to-peer lending, and phone unlocks. They scored commercial success with the support of the Chinese government. Now they are working with Honda in Japan to develop autonomous driving.
Baidu, Alibaba, and Tencent are all powering up in autonomous driving, and each has a specialty focus area in AI. In their quest to win the AI challenge, the three titans are hunting for new AI technologies and application by investing in AI startups globally. Baidu: ZestFinance, Kitt.ai, TigerGraph, Tiger Computing Solutions. Tencent: Atomwise and XtalPi.
Of 32 AI unicorns worldwide, China counts nine.
Several startups are leveraging across diverse fields: LAIX in edtech, WeLab in fintech, And LinkDoc in medical diagnoses.
A shared economy
Didi is the nation’s leader in the world’s largest ride-hailing market, worth 30 billion USD. They have absorbed Uber and Kuaidi. Half of all Didi rides are ordered from WeChat and Alipay apps, compared with 40 percent through the Didi app. The most troubling issue for Didi is passenger safety, a problem throughout this market sector internationally. Getting to profitability has remained a struggle for the privately held Didi, as with many fast-growth tech companies in China.
Bike-sharing startups are Mobike and Ofo.
Another sharing economy concept that originated in China is shared kitchens, thanks to Chinese startup Panda Selected.
In China’s congested cities, it’s no longer a status symbol to own a car.
E-commerce gets social
Pinduoduo was established by Colin Huang. It is most popular in China’s rural areas and lower-end demographics. Its business model is built on driving bulk sales with low-ish prices.
China has become the largest e-commerce market in the world with 1.1 trillion USD in 2018.
Tencent invested in Alibaba’s competition. JD.com, Meituan and Pinduoduo. Walmart is also investing in JD.com. Baidu is sending e-commerce traffic to JD.com.
The Detroit of electric vehicles: China
Buy an electric car in China, and you’ll receive a free license, a 10.000 USD subsidy, and access to charging stations. China is the leading market for all-electric vehicles, led by Tesla challenger NIO and Alibaba-backed Xpeng Motors.
Xpeng Motors owner is He Xiaopeng.
The development of China’s EV industry is an element of the nation’s Made in China 2025 policy to own key industry sectors.
Entering the US and Eurozone would be difficult for China’s EV manufacturers.
China’s leading electric car startups are laser-focused on building a research foundation for self-driving.
Three privately held Chinese auto companies are leading the way: Geely, which bought Volvo, EV maker BYD (founded by Warren Buffet and Bill Gates), and Great Wall Motors.
The age of drones and robots
China’s pioneering drone maker DJI Innovations is getting attention today, but not always in a favorable light.
China is taking over the main role in the robotics and drone industry from Japan.
There is a lot of funding. China-made UBTech recently pulled in 800 million USD.
Horizon Robotics is another successful company in this area.
DJI market share globally is two-thirds. The average age of DJI’s employees is 27.
Predicting China’s tech future
China’s rapid rise as a tech superpower is challenging America’s status as the world’s technology leader and could lead to a shift in global economic dominance.
