On September 19th, 2017, the Yale Center Beijing welcomed Winston Ma, Managing Director of the China Investment Corporation (CIC) and author of the best-seller “China’s Mobile Economy”; Andy Tian, Founder and CEO of Asia Innovations Group (with top live streaming app Uplive); and Adam Bao, Founder of The Harbinger, to share their insights on China’s mobile economy. Over the past decade, the mobile internet has catalyzed domestic innovation from mobile payments, to O2O, to today’s sharing economy boom. The speakers discuss underlying factors propelling this mobile revolution, key examples and trends, and how they expect the market to evolve, moving beyond a copy-to-China to a copy-from-China model.
Adam: Regarding China’s mobile economy, over the past few years, O2O (online to offline), live streaming, and bike-share companies like ofo and Mobike have really taken off. What are the key factors that allowed for these companies and trends to grow so quickly?
Winston: There are three major factors that contributed to the rapid growth of China’s mobile economy:
- Infrastructure: Existing infrastructure allowed for people to jump-start into and become players in the mobile arena.
- Large population: China’s large population makes the network effect very meaningful; successful apps can accumulate users much faster and achieve economies of scale. Furthermore, China’s large population serves as an ideal testing lab; companies can get feedback more quickly and improve their products much faster.
- Younger internet users: Chinese internet users are much younger than their U.S. counterparts. According to a recent BCG report, of the 700 million internet users in China, the average age is below 30, while in the U.S. the average age is around 42. This young generation drives the mobile economy.
Andy: There are many forces that drive the mobile economy, but two stand out:
- China’s entertertainment culture: Chinese culture is much more entertainment-focused, which is reflected in the tastes of Chinese mobile users. A lack of offline entertainment rendered mobile the ultimate entertainment platform, and Chinese people consume far more mobile entertainment than their U.S. counterparts.
Adam: Payments have proven to be a particularly impactful component of China’s mobile economy, especially for mobile entertainment. In terms of mobile payments and live streaming, what are the major differences between China and the U.S.?
Andy: The major cultural difference is that Americans tip while the Chinese “gift”. When it comes to monetizing tipping online, American tipping culture doesn’t work well. Gift-giving, on the other hand, has a huge advantage as it “gamifies” payment streams and can result in higher pay-outs. Gift giving is a human, social and entertainment experience all wrapped into one. This is why, even though there is a tipping option during live streaming in the U.S., companies are only able to monetize about 5% of the amount that China does. Gift-giving also strengthens the social bond between a streamer and his/her fans. For example, at my company, the average active user spends $3 USD per month on gifts, a much higher value than Facebook, Snapchat, and other companies, and partially because we have really expressive, fun virtual gifts – you can even give virtual Chanel bags if you like!
Adam: In China, users of popular apps such as Zhihu, Fenda, Ximalaya, and Dedao pay to access and consume knowledge. On the other hand, the U.S. does not have many, if any, comparable examples. Why have these apps taken off in China and not in the U.S.?
Winston: This goes back to the earlier question about payment. First, mobile payment is so convenient that it enables business models based on frequent, small amounts of payments, such as in the context of online novels – people pay a small amount over two to three months to finish a novel. Second, as consumers’ purchasing power increases, they prefer to consume specific, personalized products over standardized ones.
Andy: China’s culture has traditionally emphasized education, and now, China’s long history of valuing education is being reflected in these types of apps and driving a need to learn. Tangentially, for better or for worse, China has an extreme hero culture: we worship victors, kings, emperors and what they say, while in America, people advocate critical thinking and questioning everything.
Adam: What are some major trends today, whether pertaining to mobile or overall internet technology?
Winston: There are three major trends I’ve noticed. First, from my investment perspective, I’ve noticed a lot more cross-border investment, particularly in VC firms that are merging their Chinese and U.S. strategies and innovation centers. Second, an uptick in innovation has simultaneously spurred innovation between China and the U.S. In AI or robotics, for example, increased cross-border competition means that companies will do more than just copy ideas – they’ll be forced to innovate and come up with new ones. Third, China is exerting more influence than ever before. China innovates and brings new business models to the world. Take O2O as an example; even though it wasn’t a very popular term in 2015 because a lot of hot companies didn’t work out, it caused a lot of businesses to shift their focus from offline to online. A few years ago, Jack Ma claimed that all retail brick-and-mortar stores were going to die. But last year Jack Ma said that going forwards he will not use the term “e-commerce” anymore. There is no more e-commerce, but instead, data-driven retail. This is extremely smart; it has ushered in a new era of retail. There is also an increasing segmentation of cheap, standardized products and expensive, experience-oriented products.
Andy: Mobile is, by definition, personal. It is individual and consumer based. No matter what the innovation is, it has to satisfy consumers’ needs. There are three main consumer demands that drive the technological innovation in China: consumer laziness (and subsequent demand for convenient, easy products), impatience (demand for fast and intuitive products), and cheap services (price-sensitive consumers incentivize companies to cut out middlemen and make transactions more efficient).
Adam: Given all these underlying trends and factors, what advice do you have for people who want to start their own venture in this environment?
Andy: It’s going to be really hard. A major problem is that now, most information consumption is filtered by the media, and the media are not start-up people; they only look at what's hot. For startups, there are always ups and downs. So why should you do it? I think the question you should ask yourself is, do you want to create something new, something that never existed before? I actually suggest that if you are building a startup for the first time, don't start something new. Look at what was working before, take into account what sort of backgrounds you have, and determine how you can add a little of your own “special sauce” to it. Also, regarding time: prepare to work 18 hours a day. Ideally, you are single without marriage responsibilitie. Otherwise make sure that your spouse or partner understands and supports you.
Adam: Are there any innovative technologies or business models in China that you think can go abroad with a high likelihood of success?
Winston: I think that things like the intersection of OEM on the manufacturing side and the user experience side can be successfully exported. China can become a base for specialized demand manufacturing and distribution to overseas markets. Take the start of Xiaomi for example. They started with Mi-fans and created online discussion rooms for people to provide feedback on the software. Based on the feedback they received, they were able to create better products next time. Now Xiaomi as well as Lenovo is doing the same thing in India. If you think broadly, China may offer more brand-oriented products based on its large consumer-base and manufacturing base.
Andy: On the baseline you have language and culture-agnostic servers like Huawei. Huawei now powers many global networks, many of which are manufactured back in China. Branded TVs, like Skyworth, are now going abroad as well. Regarding the culture-agnostic hardware, or standardized hardware, Chinese products will definitely beat out the competition, not because made-in-China is cheaper, but because Chinese manufacturing has become very efficient, faster and already produces a lot of stuff. For more advanced, technically-challenging things like smart hardware, Chinese products have also taken a lead and become the best in the world too, like Xiaomi. Xiaomi now has one of the most advanced phones in the world, not just because it's cheaper and faster. Xiaomi has the number one selling phone in India, and in many other countries. Other things, such as pure software, mobile software, apps and services are much harder to export. This is because products require regional operations sensitive to regional culture.
Adam: Even looking at our site The Harbinger, we’ve noticed that a large portion of our audience is not from America, but rather, from India. Chinese technology is very attractive to emerging market economies with huge opportunities for investors and entrepreneurs who can benefit from Chinese companies and business models.
Thanks for your time Winston and Andy!