This chart shows the rise of the connected device/smartphone market worldwide, from 2010 to 2018. This is a market that for all intents and purposes kicked off in 2008 with the launch of the iphone, followed in 2010 by the launch of the app store model.
A few takeaways here:
1) The growth of this market is unlike anything we’ve ever seen in the technology market. Today there are over 2 billion smartphone users worldwide, and we will add another 1-2 billion over the next 5-10 years. For our friends from the US, there are roughly 200 million smartphone users – we are now less than 10% of the TAM!
2) For perspective, when Amazon.com went public in 1997, the total number of internet users on the planet was less than 70 million.
3) And it’s important to understand we’re not just talking about a phone. We’re talking about a device that is connected to the Internet. Has social, payment and transaction capabilities we never dreamt about 15 years ago when GGV was founded.
4) Lastly, the next 1 billion smartphone users will all come from outside the US. A high percentage of them will be in China and SE Asia. We feel our global perspective and cross border operating model gives us a unique window into the growth of this market.
How many of you have purchased something on your mobile phone in the past week?
The rise of smartphone users worldwide has in turn kicked off an unbelievable market around mobile commerce estimated to be worth more than $1 trillion worldwide in a few years. Has there ever been a trillion dollar technology market created in under 10 years?
A few things I’d highlight:
China. China and the US both saw mobile commerce take off at a relatively even pace until 2013, when the number of smartphone users in China surpassed the US. Since then, it’s been off to the races. A relevant data point is Alibaba, which reported a record 55% of its sales had come from mobile devices, up from just 5% in 2012. China’s mobile consumers are embracing mobile commerce like no other.
U.S. opportunity. In the U.S., mobile commerce is growing at 40%+ Y/Y, much faster than ecommerce and retail overall. However, it’s still less than 2% of US retail. And we’ve got entire categories like CPG, which is more than $750B annually and has less than 2% penetration online. We are truly still in the first inning of this shift, and see a massive opportunity for venture-backed companies.
The reasons for this mobile commerce boom are many, but I’ll highlight a few here.
1) First, the mobile experience is very different from that of the desktop PC. Users are typically moving, multi-tasking and looking to get in, have a quick, rich experience, make a purchase, and get out.
2) Vertical applications like GGV portfolio company Meilishuo typify this experience. Users on Meilishuo don’t see ads for TV’s, coffee or games. They are there to shop for fashion, and they get a highly customized, social experience where it’s easy to buy.
3) The intersection of social and mobile is a second big driver of mobile commerce, exemplified by Xiaohongshu. The company has absolutely nailed a consumer experience that is fun, engaging and drives a high velocity of transactions. Consumers and brands alike love it.
4) Third, the app store model has created a distribution model like none other, with companies addressing a global audience from Day 1. No one knows this better than the team at Wish, with several million suppliers in China reaching a global audience of more than 50 million via the Wish marketplace app.
5) Lastly, as I mentioned previously, the CPG industry worldwide is more than $750 billion, and less than 2% of it is online. Chieh and the team at Boxed launched their mobile app just 2 years ago, and are already making a dent in the $250 billion wholesale category dominated by Costco, BJS and Sams Club.
Our next section is the brave new connected world, a key investment sector for GGV. This is where we look ahead 3, 5, 10 years to see how the world will be changed by technology and how we can participate in this change by investing and supporting some of the most leading edge and visionary CEOs and businesses.
The Connected World is about connecting people, process, data and things together and to the Internet. This trend starts with the 3.6Bn connected mobile users globally who now have a super computing device with them everywhere, anytime. If you count the number of phones, smart watches or sensors strapped to you, on average in 2014, the mobile user has 3.5 devices connected to them today.
If you forecast to 2020 and assume that everything (people, process, data and devices) will be interconnected with each other and to the Internet cloud – The Internet of Everything,IOE, Cisco predicts there will be 50bn connected devices in 2020, almost 10 devices per person.
(200m BOYD in 2000 to 50B IOE in 2020)
The IOE Created Value or profit that can be realized through time and efficiency savings, machine to machine automation, smart grid, smart cities, smart health etc is expected to exceed $14.4T in the next 10 years.
M2M (45%), P2M (25%), P2P (30%)
A key driver behind “smart connected-ness” is the algorithms and operational software that drives the intelligence behind the connected ecosystem. When Tesla went public in 2010, in their IPO prospectus, Elon Musk said “Tesla is not an automotive company. Tesla is an Internet platform company for automotives”. He went on to open up the BMS and software to other car makers. Recently, I met a startup in China trying to design a mass market electric car to retail for $10k in China. (1/10 the price of a tesla). The IOE revolution starts with hardware but ends with intelligent software. Within the value chain, we should find investment opportunities from sensors to computation to complete systems.
We expect the Internet of Everything to be a major trend but because it is a relatively new disruptive form of engagement between persons, between machines and between processes, we expect innovations to start around the person first with lifestyle type devices, industries in smart automation and eventually extend to brand new forms like auto driving cars and home service robots.
GGV has a unique vantage point. We feel that the best IOE companies will combine the best of the US and China in terms of talent and expertise to bring the best products to the market.
Our first investment in this space started with AAC, a leader in acoustic components, now trading at about $8bn market cap in the HKSE. Today, China manufactures 90% of all PCs, 80% of all air conditioners, 74% of all solar cells and 70% of all cellphones, most electronic goods are manufactured or assembled here in China. In fact, China has exceeded the US in all global manufacturing output at 25% market share relative to US at 17% (Japan, Germany, Korea).
Over the year, China has refined not just mass production but also precision manufacturing at affordable cost (Xiaomi is a good example). Given the proximity to the factories and production, the Chinese entrepreneurs have been able to produce prototypes faster and bring production units faster to the market.
On the other side, the US talent ranks ahead in terms of world design ranking and if you have ordered any products from kickstarter recently, you will be aware of the many new products that are being designed and marketed daily. From May 2014 to April 2015, over 7000 projects have been added with an average of 22 new ideas added per day. Many IOE companies leverage crowd funding sites as a way to pre-market their products.
We are seeing startups starting up as global first companies, with global team and complementary skillsets to take on this market. With teams in both US and China, GGV is extremely well positioned to invest in this trend.
These are our investments in the wearables and accessories, ideal as Christmas gifts.
These are our investments in the smart home area, not just products for the family but also for your pets.
This session – Focus on Online to Offline Economy – O2O. O2O is a very important investment theme for GGV.
In the O2O model, PEOPLE can use mobile to REGISTER demand for goods & services and their willingness to pay for CONVENIENCE and REAL TIME DELIVERY
Conversely, SUPPLIERS use mobile to ASSESS demand & MANAGE WORKFORCES to deliver on it.
O2O companies can be very disruptive in traditional industries.
Lets look at two case studies of O2O companies in action to see their disruptive effects – GGV Portfolio Cos – AirBnB & Didi
First – AirBnB.
The global hospitality industry is mature.
The largest global players, such as Marriott, Hilton and Starwood have grown over the past 4 years at compound annual rates of mid single digits, at best.
BUILD: Meanwhile, AirBnB has achieved a remarkable compound annual growth over the same period.
Industry analyst estimates for Airbnb’s current year revenue range from $700M to $1Bn
How is AirBnb growing so fast and achieving meaningful scale GIVEN the MATURITY of the market and ENTRENCHED players?
We’re seeing AirBnB EXPAND the market.
On the AirBnB platform, would-be travelers are able to match with appropriate hosts. Transactions are taking place that weren’t occurring previously.
Source: Capital IQ.
DRIVING this market expansion is a GROWING GLOBAL SUPPLY BASE.
BUILD - AirBnB has CATAPULTED past the INCUMBENTS.
There are now far more places to rent on AirBnB then you can find in the Marriott, Hilton and Starwood chains.
You’ll see this DIFFERENTIAL WILL CONTINUE TO GROW –AirBnB’s host community is expanding rapidly.
A YEAR FROM NOW, we wouldn’t be surprised if AirBnB’s TOTAL ROOM SUPPLY IS LARGER THAN MARRIOTT, HILTON & STARWOOD COMBINED
The market cap of the top 10 public hospitality players is over $100Bn
AND AirBnB is growing the market.
we see LARGE opportunity for AIRBNB TO GROW IN VALUE over the coming years.
NEXT – DIDI
Anyone whose spent time in Beijing knows that traffic congestion is a real problem in China.
Even though CAR OWNERSHIP IS LOW in China, POPULATION DENSITY is so high that there are just TOO MANY CARS on the road.
AND HAILING A TAXI in China can be INCONVENIENT, sometimes even a HARROWING experience.
ENTER Didi. The company LAUNCHED its mobile taxi hailing service in 2012, helping customers FIND TAXIS more RELIABLY and later LAUNCHED PRIVATE CAR SERVICES AS WELL
BUILD - Growth has exploded.
DIDI POSTED an astounding 1,700 X growth in monthly rides over the past 2 and a half years
LIKE AirBnb, Didi has BEEN EXPANDING its TOTAL market.
In ADDITION to TAXIS AND PRIVATE CARS, Didi has now launched CARPOOL AND BUS SERVICES, covering the FULL GAMUT of transportation needs of CHINESE FOLKS.
EXPECT MORE services to come and RAPID GROWTH TO CONTINUE
As we’ve seen with both AirBnB and Didi, O2O businesses can disrupt and grow in traditional markets.
Drivers for future growth in O2O include GLOBAL SMART PHONE GROWTH, which we expect to continue. You’ll hear more about this from JEFF and HANS later.
Increasing URBANIZATION and population density – the more people within a smaller geography, the larger a locally delivered service can become,
And a related growth in FLEXIBLE LABOR SUPPLY as more and more people are appreciating the FREEDOM OF WORKING ON THEIR OWN TIME and FOR THEMSELVES
GGV has actively invested in EARLIER STAGE, fast growth O2O companies as well across the hospitality, real estate and transportation and automotive spaces.
MASSIVE RISE OF THE MOBILE
CONSUMER 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Global Smartphone Users (Billions) Source: Creative Strategies, eMarketer
$0 $100 $200 $300 $400
$500 $600 $700 $800 $900 2012 2013 2014 2015e 2016e 2017e $ Billions GMV Source: Goldman Sachs, eMarketer, GGV Research Total China surpasses U.S. smartphone market D R IVIN G GL OBAL M - C OMMER C E
C H IN A +
U S = POW ER FU L C OMBIN ATION US Design & Marketing #1 World Design Ranking in 2013 Powerful China Supply Chain and Manufacturing 90% of all PCs 80% of all A/Cs 74% of all solar cells 70% of all cellphones Sources: worlddesignrankings.com, International Business Times
C A S E S
T U D Y Airbnb vs. the Hotel Industry Total Rooms Marriott 742,635 Hilton 724,943 Starwood 313,800 Airbnb 1,000,000+ Source: Marriott, Hilton, Starwood10-Qs, June 30, 2015; New York Times
$100B+ T H E O
P P O RT U N I T Y Market Capitalization of 10 Largest Public Hotel Companies Source: Capital IQ
Jan '13 Jun '15 Didi
Monthly Rides 1,700x growth in 2.5 yrs C A S E S T U D Y Didi Impacting the Transportation Industry Source: Didi Chuxing
C A S E S
T U D Y Didi Impacting the Transportation Industry Taxi Budget Private Car Premium Private Car Carpooling Bus
D R I V E
R S O F T H E O 2 O O P P O RT U N I T Y Rise in Mobile Internet Users Growth in Flexible Labor Supply Increasing Urbanization & City Density H O T E L / L O D G I N G Representative GGV Investments DIANDIAN YANGCHE DIDI TRAVEL R E A L E S T A T E T R A N S P O R T A T I O N A U T O M O T I V E IWJW