Gen 1 US internet players tried to come to China mostly failed. But Yahoo made the best $1bn investment ever in Alibaba….>30x in 10 years.
Back in 2005, when Jenny opened GGV first office in China in Shanghai, when I moved my family to China from CA, ecommerce in China is negligible. Smart $ on Sand Hill Road was ecommerce will never take off in China. No online payment, no credit card, no trust, no UPS, Fedex, no logistics. Fast forward to today, China e-commerce will be 280X that of 2005 and 14% of all retail….vs 3% in Japan and 7% in the US What happened?? How can so many smart money be so wrong? Lessons learned?
1) China GDP growth – 10% for 20 years. People start to have money. 2) broadband internet services took off – infrastructure was good enough. 3) offline retail shopping experience was terrible; can’t get refund, cant exchange, store clerks have poor service mentality; not much selections in stores. 4) Jack Ma: 0% commission encouraged many sellers and SKUs; unified CS and call center offered superior services; alipay = escrow. Take-away: Retail is only the beginning. More offline economy sectors in travel, home, auto, education, fintech…etc. will be disrupted. In ecommerce vs retail, % of retail online will be 20% in 3 years; 30% in 5 years.
Only 60M of 1.3Bn Chinese Have Passports Today…More to Come!! Kinds of travelers will shift over time, with 350M Chinese Milllenials emerging as most frequently travelers from China. Airbnb CTO Nate told us China is the fastest growing outbound travel market for Airbnb…knows industry #s that China will be = 2x US+Germany by 2018
While Internet companies from US have struggled in China until recently, Western offline brands have learned over last 40 years that they need to partner, differentiate, empower local teams and localize offerings. Starbucks are everywhere: 70% of its business in China is after 10am..vs 70% in the US before 10am. KFC menu in China was the 1st in the world to have rice dishes. There are always long line queue up for Haagen Dazs ice cream moon cakes. I love getting them
Another great lesson for US internet players – this time from Tencent in China. Tencent used to rely on QQ, a AOL-like messenging platform for young users. Inspired by Kik Messenger initially, Wechat has evolved into something completely different, and invested in Kik 2 months ago to help Kik. In China, Wechat allows users to do many things: order taxi, pay utilities, transfer money to retailers and friends, buy movie tickets, shop on JD. It is becoming a Bank, and has inspired Facebook Messenger to evolve too. To compete better in China, US internet companies need to innovate new offerings beyond its core services, and offer end to end solutions that are transactions based and can become an ecosystem to work with other vertical service providers.
India: 354M internet users +1M smartphones/day
Indonesia: 90M internet users 67% shop on mobile
Sources: Internet and Mobile Association of India (IAMAI) and IMRB International as of June 30, 2015 Micromax presentation (peak 2015 summer sales of 30M units a month) Internet World Stats Google Asia Pacific (August 2015)
Mobile First Skipping PC era Business models
New consumers Learning to consume Internet role in daily life
Limited infrastructure Internet access Payments, logistics
Speed 10-10-6 Ecosystem
Musically – popular US app
UCWeb 30% international 42% share in india
Cheetah mobile 494M MAU 70% international 50% of revenues
Sources: UCWeb company website Cheetah mobile 2Q15 earnings release
$0 $200 $400 $600 $800
$1,000 $1,200 $1,400 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E US ChinaE-commerce GMV In 2005, who would have thought China would be too big to ignore? Source: Ministry of Commerce of China; US Department of Commerce; iResearch estimates