Technology in China: China’s tech trailblazers
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avinash shahi
Aug 5, 2016, 5:20:23 AM8/5/16
to sayeverything, worldopinion
GOOGLE left. Facebook is blocked. Amazon is struggling to make
headway. And if further proof were needed that China’s tech market is
a world apart, this week seemed to provide conclusive evidence. Uber,
a ride-hailing service that is the world’s most valuable startup,
decided to sell its local unit to Didi Chuxing, a Chinese rival (see
article). Its China dream, like those of so many before, is dead.
http://www.economist.com/news/leaders/21703371-western-caricature-chinese-internet-firms-needs-reboot-chinas-tech-trailblazers
For many, the lessons of this latest capitulation are clear. China is
a sort of technological Galapagos island, a distinct and isolated
environment in which local firms flourish. Chinese firms are protected
from external competition by government regulation and the Great
Firewall. And that protection means that they need not innovate but
can thrive by copying business models developed in the West. In short,
China is closed, its firms are cosseted and their talent is for
mimicry.
At first sight, Uber’s retreat appears to fit this damning profile.
The startup has ceded China to Didi: it will concentrate on its home
market and elsewhere. Uber’s surrender was caused partly by
regulations, issued at the end of July by the Chinese authorities,
that in effect outlawed subsidies—Uber spent $1 billion a year in
incentives to Chinese drivers and riders. Now Didi, whose forerunner
firms were founded in 2012, three years after Uber introduced
ride-hailing, can make hay. But look more closely and a more positive
picture emerges—not just of Didi, but of China’s technology firms as a
whole.
Getting the message
The usual story about the isolated nature of the Chinese market is
that foreign firms are either blocked altogether or hobbled by
regulators. The government has indeed restricted competition in some
areas—which is why China has subpar clones of Western firms, such as
Baidu in search or Renren, an ailing knock-off of Facebook. But China
is not as impenetrable as its critics suggest. WhatsApp, the world’s
most popular messaging app, which is owned by Facebook, is freely
available in China; yet it is dwarfed by WeChat, China’s leading app
(which has also fought off Alibaba, a formidable local internet
giant). China is the largest market for Apple’s iPhone. And Uber made
a valiant effort to establish itself in China, the world’s largest
ride-hailing market: a 17.7% stake in Didi is not a bad consolation
prize. Nor are Chinese tech giants walling themselves off from the
rest of the world. They have invested in American startups, including
Snapchat and Lyft, and bought mobile-gaming firms like Supercell of
Finland and Playtika of Israel.
Being present in the Chinese market is all very well, comes the
retort, but not if you are stopped from winning. That gives too little
credit to China’s tech leaders. Ride-hailing, like many online
businesses, is a cut-throat, winner-takes-all market: Didi itself is
the product of a 2015 merger of two local firms. Uber was outcompeted.
Globally, Uber arranged its billionth ride at the end of 2015, after
five years in business; Didi arranged 1.4 billion rides in 2015 alone,
just in China. Uber struggled to raise its market share in China above
10%. Didi understood the local culture, integrated better with
social-media platforms and got taxi drivers onside by incorporating
them into its app from the beginning. In outlawing subsidies, the
regulators called time on a fight the American firm had already lost.
Similarly, whatever the settings of the Great Firewall, there is
nothing outside China that offers WeChat’s combination of features. It
has over 700m monthly users, and combines messaging, voice calls,
browsing, gaming and payments (see article). It can be used for
everything from paying parking tickets to booking a hospital
appointment, ordering food or paying for a cup of coffee. WeChat is
not so much an app as an entire mobile operating system, and accounts
for more than one-third of all time spent online by Chinese mobile
users; HSBC, a bank, values the app at over $80 billion. To Chinese
users, Western apps look hopelessly backward.
WeChat is the best riposte to the condescending, widely held belief
that Chinese internet firms are merely imitators of Western ones, and
cannot innovate themselves. But it is not the only example. Alibaba
kick-started Chinese e-commerce with the clever trick of holding
payments in escrow, helping buyers and sellers establish trust. It now
offers services that exploit its vast customer database, including
credit-scoring, digital marketing, and vetting visa applicants and
users of dating sites. Didi’s ride-hailing app includes novel features
such as on-demand bus services and the option to request a test-drive
of a new car. Sina Weibo, the Chinese equivalent of Twitter, has a
built-in payments system and supports premium content, both features
that Twitter lacks. With revenue from payments, virtual goods and
gaming, Chinese internet firms are also much less dependent on online
ads than Western rivals.
As a result, the flow of ideas between China and the West is now
two-way. Facebook’s efforts to incorporate payments and commerce into
its Messenger app are inspired by WeChat, as is Snapchat’s expansion
from a messaging app into a media portal, and the sudden enthusiasm of
Google, Facebook and Microsoft for bots (smart software that chats
with customers). Western consumers are having their experience of the
mobile internet shaped by a Chinese success story. Companies that want
a glimpse of the future of mobile commerce should look not just to
Silicon Valley but also to the other side of the Pacific.
Digital dragons
Policymakers should study China, too. No other place will reveal more
about the advantages and drawbacks of winner-takes-all digital
markets. As WeChat shows, a single dominant app, particularly with a
payments system included, is amazingly convenient for users. But
monopolies can also spell danger. Now that Didi has a 90% market share
and no serious rivals to speak of, riders can expect to pay more and
drivers to be paid less. How to strike the balance between convenience
and dominance is the great question for regulators in the digital age.
One lesson is already clear: compared with Renren and Baidu, Didi and
WeChat were strengthened by fierce rivalries. If China’s tech
trailblazers aim to become truly global champions, then competition is
their friend. Watch closely, world.
--
Avinash Shahi
Doctoral student at Centre for Law and Governance JNU
headway. And if further proof were needed that China’s tech market is
a world apart, this week seemed to provide conclusive evidence. Uber,
a ride-hailing service that is the world’s most valuable startup,
decided to sell its local unit to Didi Chuxing, a Chinese rival (see
article). Its China dream, like those of so many before, is dead.
http://www.economist.com/news/leaders/21703371-western-caricature-chinese-internet-firms-needs-reboot-chinas-tech-trailblazers
For many, the lessons of this latest capitulation are clear. China is
a sort of technological Galapagos island, a distinct and isolated
environment in which local firms flourish. Chinese firms are protected
from external competition by government regulation and the Great
Firewall. And that protection means that they need not innovate but
can thrive by copying business models developed in the West. In short,
China is closed, its firms are cosseted and their talent is for
mimicry.
At first sight, Uber’s retreat appears to fit this damning profile.
The startup has ceded China to Didi: it will concentrate on its home
market and elsewhere. Uber’s surrender was caused partly by
regulations, issued at the end of July by the Chinese authorities,
that in effect outlawed subsidies—Uber spent $1 billion a year in
incentives to Chinese drivers and riders. Now Didi, whose forerunner
firms were founded in 2012, three years after Uber introduced
ride-hailing, can make hay. But look more closely and a more positive
picture emerges—not just of Didi, but of China’s technology firms as a
whole.
Getting the message
The usual story about the isolated nature of the Chinese market is
that foreign firms are either blocked altogether or hobbled by
regulators. The government has indeed restricted competition in some
areas—which is why China has subpar clones of Western firms, such as
Baidu in search or Renren, an ailing knock-off of Facebook. But China
is not as impenetrable as its critics suggest. WhatsApp, the world’s
most popular messaging app, which is owned by Facebook, is freely
available in China; yet it is dwarfed by WeChat, China’s leading app
(which has also fought off Alibaba, a formidable local internet
giant). China is the largest market for Apple’s iPhone. And Uber made
a valiant effort to establish itself in China, the world’s largest
ride-hailing market: a 17.7% stake in Didi is not a bad consolation
prize. Nor are Chinese tech giants walling themselves off from the
rest of the world. They have invested in American startups, including
Snapchat and Lyft, and bought mobile-gaming firms like Supercell of
Finland and Playtika of Israel.
Being present in the Chinese market is all very well, comes the
retort, but not if you are stopped from winning. That gives too little
credit to China’s tech leaders. Ride-hailing, like many online
businesses, is a cut-throat, winner-takes-all market: Didi itself is
the product of a 2015 merger of two local firms. Uber was outcompeted.
Globally, Uber arranged its billionth ride at the end of 2015, after
five years in business; Didi arranged 1.4 billion rides in 2015 alone,
just in China. Uber struggled to raise its market share in China above
10%. Didi understood the local culture, integrated better with
social-media platforms and got taxi drivers onside by incorporating
them into its app from the beginning. In outlawing subsidies, the
regulators called time on a fight the American firm had already lost.
Similarly, whatever the settings of the Great Firewall, there is
nothing outside China that offers WeChat’s combination of features. It
has over 700m monthly users, and combines messaging, voice calls,
browsing, gaming and payments (see article). It can be used for
everything from paying parking tickets to booking a hospital
appointment, ordering food or paying for a cup of coffee. WeChat is
not so much an app as an entire mobile operating system, and accounts
for more than one-third of all time spent online by Chinese mobile
users; HSBC, a bank, values the app at over $80 billion. To Chinese
users, Western apps look hopelessly backward.
WeChat is the best riposte to the condescending, widely held belief
that Chinese internet firms are merely imitators of Western ones, and
cannot innovate themselves. But it is not the only example. Alibaba
kick-started Chinese e-commerce with the clever trick of holding
payments in escrow, helping buyers and sellers establish trust. It now
offers services that exploit its vast customer database, including
credit-scoring, digital marketing, and vetting visa applicants and
users of dating sites. Didi’s ride-hailing app includes novel features
such as on-demand bus services and the option to request a test-drive
of a new car. Sina Weibo, the Chinese equivalent of Twitter, has a
built-in payments system and supports premium content, both features
that Twitter lacks. With revenue from payments, virtual goods and
gaming, Chinese internet firms are also much less dependent on online
ads than Western rivals.
As a result, the flow of ideas between China and the West is now
two-way. Facebook’s efforts to incorporate payments and commerce into
its Messenger app are inspired by WeChat, as is Snapchat’s expansion
from a messaging app into a media portal, and the sudden enthusiasm of
Google, Facebook and Microsoft for bots (smart software that chats
with customers). Western consumers are having their experience of the
mobile internet shaped by a Chinese success story. Companies that want
a glimpse of the future of mobile commerce should look not just to
Silicon Valley but also to the other side of the Pacific.
Digital dragons
Policymakers should study China, too. No other place will reveal more
about the advantages and drawbacks of winner-takes-all digital
markets. As WeChat shows, a single dominant app, particularly with a
payments system included, is amazingly convenient for users. But
monopolies can also spell danger. Now that Didi has a 90% market share
and no serious rivals to speak of, riders can expect to pay more and
drivers to be paid less. How to strike the balance between convenience
and dominance is the great question for regulators in the digital age.
One lesson is already clear: compared with Renren and Baidu, Didi and
WeChat were strengthened by fierce rivalries. If China’s tech
trailblazers aim to become truly global champions, then competition is
their friend. Watch closely, world.
--
Avinash Shahi
Doctoral student at Centre for Law and Governance JNU
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