Managing data: key for the future of tech firms – Ben Cavender

 

Ben Cavender

China’s government is tightening the strings for tech companies, especially when it comes to data management, says business analyst Ben Cavender at RTHK. “I think you’re going to see companies like this that really do peddle in data come under a lot more scrutiny going forward,” he said.

RTHK:

Regulators have ordered the country’s biggest ride-hailing firm, Didi, to be removed from app stores and accused it of violating rules on the use of personal data.
It comes a week after Didi raised billions of dollars when its shares were listed on the New York stock exchange for the first time.
“I think there’s potentially some subtext here which is basically saying ‘if you’re going to be a big tech company’ and you want to (do an) IPO, you’d better be doing it on the mainland'”, Ben Cavender, the principal at China Market Research Group, told RTHK’s MoneyTalk programme.
Cavender said he believed the government wanted “to tighten up its access to data that’s being collected while at the same time sort of trying to codify a little bit better what kind of data practices are actually OK in China”.
He added that the government is sending a message that it wanted more control over money flows.
He said the days of China initial public offerings (IPOs) being a sure thing were over for investors, and described the development as worrisome.
Cavender also said there was increased pressure “about this idea of consumer rights and what data actually is being collected.
“So I think you’re going to see companies like this that really do peddle in data come under a lot more scrutiny going forward,” he said.

More at RTHK.

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Digital insurance boomed post-COVID – Rupert Hoogewerf

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Rupert Hoogewerf

Digital insurance has become one of the post-corona winners in China, says Rupert Hoogewerf, chief researcher of the Hurun China Rich List as his firm published the first list of top-10 digital insurers, according to Asia One.  Health insurance was one of the key winners, he says.

Asia One:

The post-pandemic era has seen health becoming one of the hottest topics and diversified insurance products, said Rupert Hoogewerf, the chairman and chief researcher of Hurun Report. Quoting statistics from Insurance Association of China, Hoogewerf said Chinese insurers’ premium income increased by 6.5 percent year on year to 2.7 trillion yuan in the first half of the year.

Insurance agencies have played a crucial part in insurance purchases, whose premium income has accounted for over 80% of the total premium income for the past consecutive years, Hoogewerf noted, adding that the practice of independent service providing and marketing has shaped the insurance sector, and, at present, near 70% of China’s 700 national insurance agencies are eligible to market online.

Digital insurance in China has enjoyed leap-forward development in the past years, Hoogewerf said. He further explained that, besides internet giants Baidu, Alibaba, Tencent and JD.com, Ctrip, Didi, Meituan and other platforms have rolled out insurance services. Relying on massive active users and taking advantages of big data and cloud computing technologies, those companies have designed insurance products in accordance with the consumption scenarios of their original platforms, including entertainment, shopping, travelling and mutual health aid, to meet the insurance needs of different customer groups, said Hoogewerf. For instance, Hoogewerf added, Ant Insurance provides shipping insurance for online shopping and Ctrip offers insurance for flight accidents and delay.

In digital insurance business, there are other companies that worth gaining people’s attention, such as scenario-based health insurance marketing agencies represented by Qingsong Health Group’s insurance platform, and China’s earliest online platforms that obtained online insurance brokerage licenses represented by Huize Insurance, said Hoogewerf.

As insurtech embraces a new development era in both China and the global market, multiple business players have been competing for the position of industry leaders, Hoogewerf noted. He said the prospects of Chinese digital insurance agencies are promising, given the trend of independent service providing and marketing in insurance industry as well as the rapid development of internet technology.

More (including the top-10) at Asia One.

Rupert Hoogewerf is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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China is a source of business models, not an easy market - William Bao Bean

William Bao Bean

China is, as the second largest economy, becoming an attractive source of new business ideas, says Shanghai-based VC William Bao Bean. Although the China market itself is a hard one to crack, for startups and larger companies, he tells in WebinTravel.

WebinTravel:

William Bao Bean, who runs SOSV Accelarator which runs China Accelerator and MOX Accelerator, said that Facebook is copying WeChat and the question is, who can crack the global market first? “Chinese companies have gone to the US and failed, WeChat tried – spent US$120,000 a day on marketing,” he said. 

Chinese companies are now turning to Southeast Asia which he said “is turning into a Chinese colony. Leaders by sectors are being taken out by the Chinese. If you’re building a business, say a family-owned bank, you have to ask what’s the future because Alibaba and Tencent are coming. Riches to rags in three generations?” 

“In China, the big got bigger and the small got crushed"... 

As for startups who want to enter China, Bao Bean said, “99% of you should not go to China. Look at all the big boys – how many of them have been successful? Uber spent $2b, Didi shut them down. Uber was a company that broke the rules and that works in China but still …” 

His thinking is you need an unfair advantage to compete. “We focus on fintech, AI, machine learning and education.”

More in WebinTravel.

William Bao Bean is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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The war between US and Chinese platforms - Jeffrey Towson

Jeffrey Towson

Chinese platforms are going global: Ctrip, Didi, Alibaba, Baidu, UnionPay. Global platforms try to enter China: Airbnbn, Uber, Google, Facebook. Peking University business professor Jeffrey Towson welcomes us to the US-China platform war, and explores on his LinkedIn page the battle field.

Jeffrey Towson:

Point 3: Complementary and inter-connected platforms can be particularly powerful. A single platform is good. As mentioned, it can have lots of strengths, particularly when competing against a traditional vertically integrated merchant (VI). Especially, if you can get a network effect and some economies of scale going. 

But complementary networks can be even better. This is when you actually have two different (Multi-Sided Platforms) MSPs serving a common set of users. The two MSPs can sort of amplify each other. For example, Microsoft Word (an MSP) is helped by being on the Microsoft Operating system (another MSP). They both have a user group in common and amplify each other. A mapping application (sometimes an MSP) linked into Wechat (another MSP) is another example. Complementary networks are very common in China, where much of the mobile world has collapsed to a few powerful ecosystems (Alibaba, Tencent, Baidu). 

However, inter-connected platforms are arguably even better. This is when a platform (or set of features) is actually integrated within another platform - to the point that the whole thing becomes inseparable within a service. The feature the user group sees and uses is actually being delivered by several interconnected platforms. For example, advertising-based media (e.g., Yahoo, broadcast TV) is increasingly inter-connected with advertising networks (i.e,. platforms that match advertising buyers with available inventory in real-time). That’s how the ads on Yahoo, Baidu and Google get placed in real-time based on who you are or what you are looking at. There are actually +2 interconnected MSPs delivering this service.

More at Jeffrey Towson´s LinkedIn Page.

Jeffrey Towson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Why bike-sharing is no ride-sharing - Jeffrey Towson

Jeffrey Towson

Investments have been flooding into bike-sharing, with Shanghai-based Mobike and Beijing-based Ofo as main players, including funds from ride-sharing giant Didi. But bike-sharing is nothing like ride-sharing warns Peking University professor Jeffrey Towson on his LinkedIn page. Five arguments.

Jeffrey Towson:

Bicycle-sharing does not have a network effect. 

Ride-sharing (i.e,. using cars) is awesome because it has a powerful competitive advantage via a two-sided network. Basically, each additional rider increases the networks’ value to the drivers (i.e, more customers and they are closer by.). And each new driver increases the value of the service to each rider (i.e., shorter wait times, more cars available). So bigger platforms actually have a superior service offering to both populations. And the market usually collapses to the leading companies quickly (Uber and Lyft in the USA, Didi in China, Ola in India, Grab in SE Asia, etc.). 

Additionally, once the market has matured, it is very difficult for a new entrant to break in. If you then want to launch a ride-sharing service, you will have to offer the same big driver network and short wait times as the dominant competitors from day one. But to get all those drivers, you have to offer them a big customer base. It's the multi-sided platform "chicken-and-egg" problem but with entrenched competitors. This type of indirect two-sided network effect also happens in home sharing (AirBnb), credit cards (Visa, MasterCard), app stores (Apple, Google Play), auction houses (Sotheby’s, Christie’s), and even shopping malls (sort of). 

But none of this happens in bicycle-sharing. There is no second population of drivers using the  platforms - and providing the cars (which are the key assets). You just need to put lots of bicycles around town. Each new rider does not add any value to the other riders, nor to a population of drivers. 

Bike sharing is basically a commodity b2c service. It is a traditional merchant business. Being bigger helps somewhat but it is still fairly easy for a new entrant to enter. All you would need is about 30,000 bicycles (Ofo currently has about 95,000). That would cost about $2.5M. So this is a cheap and fairly easy business to enter, which will impact long-term profitability. 

However, in the short-term companies like Ofo and Mobike should do really well. They are offering an innovative new service and are first-movers in a massive market.

Four more arguments here.

Jeffrey Towson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in a speakers´request form.

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Why did Expedia and Morgan Stanley fail in China - Jeffrey Towson

Jeffrey Towson

Failing foreign companies are all too common in China. Peking University business professor Jeffrey Towson dives into two specific cases, trying to learn from the mistakes by Expedia and Morgan Stanley, at his LinkedIn page.

Jeffrey Towson:

It all looked pretty good. So why in 2015 did they sell their entire eLong stake for $671M? Why after almost ten years of work did they exit China? What happened? 

My assessment is that they got tired of losing money. eLong was frequently losing money and impacting Expedia's overall returns. In the most recent quarters before Expedia's exit, eLong was still occasionally losing around $20M per quarter. 

This is an example of the situation I call "last man standing". Competitors ramp up spending on capacity or price subsidies and everyone loses money. The market then becomes a contest of who is willing and able to lose the most cash. In the end, whoever is "left standing" gets the market. Uber and Didi recently had this situation. It can be a particularly effective strategy against foreign companies. 

So even though Expedia won big in China, becoming one of the three major players. They were still losing cash after ten years of work. And they eventually cut their losses. They sold their stake in eLong, much of which was then quickly purchased by ctrip. 

Morgan Stanley and CICC: A case of "what have you done for me lately?" 

CICC (China International Capital Corp) was launched in 1995 as a joint venture between Morgan Stanley and China Construction Bank (i.e., People's Construction Bank of China). For Morgan Stanley, this was their single largest investment in an emerging market to date ($35M for 34.3% ownership). And it was their primary strategy for becoming a player in China's domestic capital market. 

And the enterprise was very successful. CICC has gone from the 40 employees at launch to over 4,200 employees today. Revenues in 2015 were over 8B RMB. 

However, Morgan Stanley sold its stake in CICC in 2011 - and had been trying to sell as early as 2008. There are various reasons for this, including the financial crisis and dealing with limits on how many banks / JVs a foreign company can have in this sector. But underneath this was also the fact that CICC was no longer an operational vehicle for Morgan Stanley in China. It had become a passive investment. 

So what happened? 

My standard question for any company in China is "what is your advantage or value-add?". Good answers to this can be technology, foreign customers, a well-known brand, and cross-border operations. But my follow-up question is always "and how long will this advantage or value add last?". This is the question that often catches companies.

More at Jeffrey Towson´s LinkedIn page.

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How subsidy wars killed brand loyalty - William Bao Bean

William Bao Bean

When the ride-hailing wars between Uber and Didi has confirmed one feeling among Chinese consumers, it is that loyalty to brands does not pay off, says Shanghai-based VC William Bao Bean to Bloomberg. Brand loyalty was already low, but the latest Uber-Didi wars have made things worse.
Bloomberg:

Startups backed by Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. once offered plentiful and steep discounts on everything from on-demand massages to personal trainers in a massive land grab. But as consolidation revs up -- seen most recently in Didi Chuxing’s acquisition of Uber Technologies Inc.’s Chinese operations -- this peculiar golden era for smartphone-wielding consumers is waning. Didi’s deal wasn’t the first merger intended to end internecine subsidy wars, and it won’t be the last -- and that means fewer doorbusters for Li and millions of her cohorts. 

The subsidy “wars have just been brutal. Well, great for the consumer, but brutal in terms of burning cash,” says William Bao Bean, an investment partner at SOSV. “And they’ve trained Chinese consumers to not be loyal, but instead to go anywhere to seek out bargains. Consumer loyalty means nothing in China.”

More in Bloomberg.

William Bao Bean is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Uber did things right in China, but still lost - Kaiser Kuo

Kaiser Kuo

Uber learned much from the failures of other American internet companies who tried to enter the China market, but still failed. China veteran Kaiser Kuo looks in ChinaFile at the competitive market in China, making it almost impossible for foreign internet companies to gain substantial market share.

Kaiser Kuo:

Uber didn’t just bumble into the China market without a good map of the pitfalls that doomed so many other U.S.-based Internet companies trying to make it in China. In fact, they studied the failures of their predecessors carefully, and avoided many of their missteps. They created a highly autonomous China entity and gave their people on the ground extensive decision-making power, allowing them to take the gloves off where needed—not that Uber as a company has ever shied from doing so. They partnered with, and received investment from, China’s largest search engine (Baidu), and leveraged not only Baidu’s market position (by integrating Uber directly into Baidu Maps) but also its deep experience with government relations. Uber committed huge amounts of capital, and paid out billions in subsidies to win market share. They offered services tailored to the Chinese market. 

And all things considered, they didn’t do at all badly: They rolled out aggressively into many Chinese cities, and for a while even enjoyed a market share lead in some of those cities, like Chengdu and Xiamen. 

That despite all this Uber ultimately surrendered to Didi Chuxing shows just how tough local competition has become, and should give would-be entrants even greater pause. I doubt that within my lifetime I’ll see a major U.S.-based Internet company win a market share lead over domestic Chinese competitors. (Conversely, I doubt even more strongly that I’ll see a Chinese Internet company make significant inroads into any major Western market). 

The China Internet market will prove elusive to American Internet players even when censorship and other Chinese government policies aren’t significant factors—and just to be clear, they weren’t real factors in Uber’s case: some municipal governments may have played favorites, but Beijing mostly kept out of the ride share war that’s raged on for the last few years. This was a fair fight—or more precisely, both parties were free to fight dirty. 

But it was an uphill fight for Uber from the beginning. A manager is, after all, always at a natural disadvantage when competing with an entrepreneur; the entrepreneur always has more skin in the game. And when that entrepreneur is focused on a single market, has nearly inexhaustible resources, can draw on the strength of China’s two largest Internet companies (Tencent and Alibaba both, since Didi’s absorption of Kuaidi in February 2015), and is determined to destroy its competition by any means, you know who to bet on. 

Uber got good terms of surrender, though. The devotion of that much time, attention and capital by Uber’s senior management toward a market destined to bleed money for the foreseeable future just didn’t make sense. Now Uber ends up with 20 percent of the merged entity, and that’s nothing to sneeze at.

More opinions in ChinaFile.

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Uber did not lose in China, it was a draw - William Bao Bean

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American internet companies have lost in the competitive China market one after another: Google, Facebook, Ebay, Twitter, YouTube. Compared to them Uber did an amazing job, says innovation expert William Bao Bean to LA Times. "It was a draw."

LA Times:

It took years for Google to realize that many Chinese couldn’t pronounce its name. The company ultimately had to rebrand itself GuGe in China. Even then, many people still chose to call it GoGo. Given the abject failures of most U.S. tech companies in China, Uber’s deal with Didi doesn’t look bad to some observers. Uber, after all, isn’t leaving China, and it still has a sizable stake in the growing ride-hailing space — not that the bar was particularly high. Microsoft, for instance, isn’t giving-up on China even though an estimated 95% of its copies of Microsoft Office in the country were pirated at one point. 

“They’re the first international Internet company that didn’t lose,” William Bao Bean, a Shanghai-based partner at SOS Ventures and the managing director of Chinaccelerator, said of Uber. “They fought to a draw. And for an American Internet company, that’s as good as a win.”

More in LA Times.

William Bao Bean is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Has Facebook become a WeChat clone? A discussion with William Bao Bean.

Uber is not down after the China deal - Andy Mok

Andy Mok

Uber threw in the towel at the killing ride-hailing wars in China, but that does not mean Uber is out, especially on a global level, says Andy Mok, managing Director at Red Pagoda Resources, especially on a global level, he tells Bloomberg. "They want to be the Cisco of the physical world."

Bloomberg:

By shedding its losses in China, the move may clear Uber’s path to an eventual initial public offering. And as part of its deal, Kalanick joins Didi’s board -- literally gaining a seat at the table as the effort to dominate the world’s largest ride-sharing arena unfolds. 

So never count Uber out, at least on a global level, said Andy Mok, Managing Director at Red Pagoda Resources in Beijing. 

“They want to be a Cisco of the physical world, the network that routes physical people and objects,” said Mok. “In a way, this frees up space for more technology development.”

More in Bloomberg.

Andy Mok is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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How Apple avoids paying tax in the US - Paul Gillis

Paul Gillis

Companies have a range of legitimate ways to avoid paying tax in the US. Apple is using one of them by not setting up a venture arm for its overseas investment, but by directly reinvesting its revenue from overseas, for example its hefty investments in car-hailing service Didi, says Beida accounting professor Paul Gillis to Marketplace.

Marketplace:

But Apple does face one possible disadvantage with its investments. Most of Apple’s cash is overseas, which means Apple would face a large tax burden if it tries to bring it back to the U.S. 

On one hand, Apple has already found a use for this capital with its investment in Didi. Paul Gillis, a professor at Peking University’s Guanghua School of Management, said Apple will likely use profit from Chinese sales held in its corporate subsidiaries in China for the Didi investment. Investing the capital, instead of trying to bring it back to the U.S., avoids a 5% to 10% tax China charges for removing proceeds from the country as well as U.S. repatriation taxes 

“Using it to buy an interest in Didi is a legitimate way to use those funds without any tax consequences because those funds remain in China and remain Chinese assets,” Gillis said. “That wouldn’t be evading taxes doing that. They’re just making a decision not to take the money back to the U.S. and doing something else.”

More in Marketplace.

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