alibaba

Foxconn pulls back on its $10 billion factory commitment

Posted by | alibaba, Amazon, Asia, China, Foxconn, Gaming, Government, india, Kakao, korea, Media, nexon, Policy, wisconsin | No Comments

Well that didn’t last long.

In 2017, Foxconn announced the largest investment of a foreign company in the United States when it selected Mount Pleasant, Wisconsin for a new manufacturing facility. Buttressed by huge economic development grants from Wisconsin, an endorsement from President Trump, and Foxconn CEO Terry Gou’s vision of a maker America, the plant was designed to turn a small town and its environs into the futuristic “Wisconn Valley.”

Now, those dreams are coming apart faster than you can say “Made in America.”

In an interview with Reuters, a special assistant to Gou says that those plans are being remarkably scaled back. Originally designed to be an advanced LCD factory, the new Foxconn facility will instead be a much more modest (but still needed!) research center for engineers.

It’s a huge loss for Wisconsin, but the greater shock may be just how obvious all of this was. I wrote about the boondoggle just a few weeks ago, as had Bruce Murphy at The Verge a few weeks before that. Sruthi Pinnamaneni produced an excellent podcast on Reply All about how much the economic development of Mount Pleasant tore the small town asunder.

The story in short: the economics of the factory never made sense, and economics was always going to win over the hopes and dreams of politicians like Wisconsin governor Scott Walker, who championed the deal. Despite bells and whistles, televisions are a commodity product (unlike, say, airfoils), and thus the cost structure is much more compatible with efficient Asian supply chains than with American expensive labor.

Yet, that wasn’t the only part of the project that never made any sense. Foxconn was building in what was essentially the middle of nowhere, without the sort of dense ecosystem of suppliers and sub-suppliers required for making a major factory hum. (Plus, as a native of Minnesota, I can also attest that Wisconsin is a pile of garbage).

Those suppliers are everything for manufacturers. Just this past weekend, Jack Nicas at the New York Times observed that Apple’s advanced manufacturing facility in Austin, Texas struggled to find the right parts it needed to assemble its top-of-the-line computer, the Mac Pro:

But when Apple began making the $3,000 computer in Austin, Tex., it struggled to find enough screws, according to three people who worked on the project and spoke on the condition of anonymity because of confidentiality agreements.

In China, Apple relied on factories that can produce vast quantities of custom screws on short notice. In Texas, where they say everything is bigger, it turned out the screw suppliers were not.

There are of course huge manufacturing ecosystems in the United States — everything from cars in Detroit, to planes in Washington, to advanced medical devices in several major bio-hubs. But consumer electronics is one that has for the most part been lost to Singapore, Taiwan, Korea, and of course, China.

Geopolitically, Foxconn’s factory made a modicum of sense. With the increasing protectionism emanating from Western capitals, Foxconn could have used some geographical diversity in the event of a tariff fight. The company is Taiwanese, but manufacturers many of its products on the mainland.

And of course, a research center is still an enormous gain for a region of Wisconsin that could absolutely use high-income, professional jobs. Maybe the process of rolling out a next-generation manufacturing ecosystem will take more time than originally anticipated, but nothing is stopping further expansion in the future.

Yet, one can’t help but gaze at the remarkable naïveté of Wisconsin politicians who offered billions only to find that even massive subsidies aren’t enough. It’s a competitive world out there, and the United States has little experience in these fights.

India may put friction on foreign firms to protect domestic startups

Indian Prime Minister Narendra Modi. (MONEY SHARMA/AFP/Getty Images)

One of the major battles for tech supremacy is over the future of the Indian IT market, which is rapidly bringing more than a billion people onto the internet and giving them robust software services. I’ve talked a bit about data sovereignty, which mandates that Indian data be stored in Indian data centers by Indian companies, pushing out foreign companies like Amazon, Google, and Alibaba.

Now, it looks like India is taking a page from the Asian tiger-school of development, and is going to increasingly favor domestic firms over foreign ones in key industries. Newley Purnell and Rajesh Roy report in the WSJ:

The secretary of India’s Telecommunications Department, Aruna Sundararajan, last week told a gathering of Indian startups in a closed-door meeting in the tech hub of Bangalore that the government will introduce a “national champion” policy “very soon” to encourage the rise of Indian companies, according to a person familiar with the matter. She said Indian policy makers had noted the success of China’s internet giants, Alibaba Group Holding Ltd. and Tencent Holdings Ltd. , the person said. She didn’t immediately respond to a request for more details on the program or its timing.

The idea of national champions is simple. Unlike the innovation world of Silicon Valley, there are obvious sectors in an economy that need to be fulfilled. Food and clothes have to be sold, deliveries made, all kinds of industrial goods need to be built. Rather than creating a competitive market that requires high levels of duplicate capital investment, the government can designate a few companies to take the lead in each market to ensure that they can invest for growth rather than in, say, marketing costs.

If done well, such policies can rapidly industrialize a country’s economic base. When done poorly, the lack of competition can create lethargy among entrepreneurs, who have already won their markets without even trying.

The linchpin is whether the government pushes companies to excel and sets aggressive growth targets. In Korea and China, the central governments actively monitored corporate growth during their catch-up years, and transferred businesses to new entrepreneurs if business leaders failed to perform. Can India push its companies as hard without market forces?

As the technology industry matures in the West, entrepreneurs will look for overseas as their future growth hubs. The challenge is whether they will be let in at all.

Video game geopolitics

Nexon’s MapleStory2 game is one of its most profitable (Screenshot from Nexon) .

Korea and Japan are two of the epicenters of the video game industry, and now one of its top companies is on the auction block, raising tough questions about media ownership.

Nexon founder Kim Jung Ju announced a few weeks ago that he was intending to sell all of his controlling $9 billion stake in the leading video game company. The company has since executed something of a multi-stage auction process to determine who should buy those shares. One leading candidate we’ve learned is Kakao, the leading internet portal and chatting app in Korea.

The other leading candidate is China-based Tencent, which owns exclusive distribution rights in China of some of Nexon’s most important titles.

Tencent has been increasingly under the sway of China’s government, which froze video game licensing last year as it worked to increase content regulation over the industry. Now the question is whether it will be politically palatable to sell a leading star of Korea’s video game industry to its economic rival.

From the Financial Times:

Mr Wi added that Nexon would be an attractive target for Tencent, which pays about Won1tn in annual royalties to the South Korean game developer. But selling the company to Tencent would be “politically burdensome” for Mr Kim, given unfavourable public opinion in South Korea towards such a sale, he cautioned.

“Political risks are high for the deal. Being criticised for selling the company to a foreign rival, especially a Chinese one, would be the last thing that Mr Kim wants,” said Mr Wi.

Such concerns around Chinese media ownership have become acute throughout the world, but we haven’t seen these concerns as much in the video game industry. Clearly, times have changed.

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What’s Next

  • More work on societal resilience

This newsletter is written with the assistance of Arman Tabatabai from New York

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China’s Baidu says its answer to Alexa is now on 200M devices

Posted by | Alexa, alibaba, alibaba group, Android, apollo, artificial intelligence, Asia, AutoNavi, Baidu, China, Ford, Microsoft, search engine, smart home devices, smartphones, Transportation, voice assistant, volvo, Weibo | No Comments

A Chinese voice assistant has been rapidly gaining ground in recent months. DuerOS, Baidu’s answer to Amazon’s Alexa, reached over 200 million devices, China’s top search engine announced on its Weibo official account last Friday.

To put that number into context, more than 100 million devices pre-installed with Alexa have been sold, Amazon recently said. Google just announced it expected Assitant to be on 1 billion devices by the end of this month.

Voice interaction technology is part of Baidu’s strategy to reposition itself from a heavy reliance on search businesses towards artificial intelligence. The grand plan took a hit when the world-renown scientist Lu Qi stepped down as Baidu’s chief operating officer, though the segment appears to have scored healthy growth lately, with DuerOS more than doubling from a base of 90 million installs since last June.

When it comes to how many devices actually use DuerOS regularly, the number is much less significant: 35 million machines a month at the time Baidu’s general manager for smart home devices announced the figure last November.

Like Alexa, which has made its way into both Amazon-built Echo speakers and OEMs, DuerOS also takes a platform play to power both Baidu-built and third-party devices.

Interestingly, DuerOS has achieved all that with fewer capabilities and a narrower partnership network than its American counterpart. By the end of 2018, Alexa could perform more than 56,000 skills. Devices from over 4,500 brands can now be controlled with Alexa, says Amazon. By comparison, Baidu’s voice assistant had 800 different skills, its chief architect Zhong Lei revealed at the company’s November event. It was compatible with 85 brands at the time.

This may well imply that DuerOS’s allies include heavy-hitters with outsize user bases. Baidu itself could be one as it owns one of China’s biggest navigation app, which is second to Alibaba’s AutoNavi in terms of number of installs, according to data from iResearch. Baidu said in October that at least 140 million people had activated the voice assistant of its Maps service.

Furthermore, Baidu speakers have managed to crack a previously duopolistic market. A report from Canalys shows that Baidu clocked in a skyrocketing 711 percent quarter-to-quarter growth to become China’s third-biggest vendor of smart speakers during Q3 last year. Top players Alibaba and Xiaomi, on the other hand, both had a sluggish season.

While Baidu deploys DuerOS to get home appliances talking, it has doubled down on smart vehicles with Apollo . The system, which the company calls the Android for autonomous driving, counted 130 OEMs, parts suppliers and other forms of partners as of last October. It’s attracted global automakers Volvo and Ford who want a foothold in China’s self-driving movement. Outside China, Apollo has looked to Microsoft Azure Cloud as it hunts for international partnerships.

Baidu has yet to prove commercial success for its young AI segment, but its conversational data trove holds potential for a lucrative future. Baidu became China’s top advertising business in part by harnessing what people search on its engine. Down the road, its AI-focused incarnation could apply the same data-crunching process to what people say to their machines.

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Chinese app developers have invaded India

Posted by | alibaba, Android, Apps, Asia, bytedance, China, Flash, food delivery, india, oppo, Paytm, sensor tower, SnapDeal, Tencent, tiktok, WeChat, Xiaomi | No Comments

If you’ve conquered China, then India — the world’s second-largest country based on population — is the obvious next port of call, and that’s exactly what has happened in the world of consumer apps.

Following the lead of Chinese smartphone makers like Xiaomi and Oppo, which have dominated mobile sales in India for some time, the content behind the touchscreen glass in India is increasingly now from China, too. That’s according to a report from FactorDaily, which found that 44 of the top 100 Android apps in India were developed by Chinese companies, up from just 18 one year prior. (The focus is on Android because it is the overwhelming choice of operating system among India’s estimated 500 million internet users.)

The list of top Chinese apps includes major names like ByteDance, the world’s highest-valued startup, which offers TikTok and local language news app Helo in India, and Alibaba’s UCbrowser, as well as lesser-known quantities like Tencent-backed NewsDog and quiet-yet-prolific streaming app maker Bigo.

Citing data from Sensor Tower, the report found that five of the top 10 Android apps in India are from China, up from just two at the end of 2017.

For anyone who has been watching the Indian technology scene in recent years, this “Chinese app store invasion” will be of little surprise, although the speed of change has been unexpected.

China’s two biggest companies, Alibaba and Tencent, have poured significant amounts into promising Indian startups in recent years, setting the stage for others to follow suit and move into India in search of growth.

Alibaba bought into Snapdeal and Paytm via multi-hundred-million-dollar investments in 2015, and the pace has only quickened since then. In 2017, Tencent invested in Gaana (music streaming) and Swiggy (food delivery) in major deals, having backed Byju’s (education) and Ola (ride-hailing) the year prior. The pair also launched local cloud computing services inside India last year.

Beyond those two, Xiaomi has gone beyond selling phones to back local companies and develop local services for its customers.

That local approach appears to have been the key for those app makers which have found success in India. Rather than taking a very rigid approach like Chinese messaging app WeChat — owned by Tencent, which failed in India — the likes of ByteDance have developed local teams and, in some cases, entirely local apps dedicated to India. With the next hundreds of millions of internet users in India tipped to come from more rural parts of the country, vernacular languages, local content and voice-enabled tech are some of the key strategies that, like their phone-making cousins, Chinese app developers will need to focus on to ensure that they aren’t just a flash in the pan in India.

You can read more at FactorDaily.

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JioSaavn becomes India’s answer to Spotify and Apple Music

Posted by | alibaba, Amazon, Android, apple music, Asia, China, computing, Dhingana, digital audio, digital media, executive, funding, Fundings & Exits, india, Internet, JioSaavn, Media, New York, Pandora, pandora radio, rdio, reliance jio, saavn, Software, Spotify, Tencent, tencent music, tiger global, Times Internet, Walmart | No Comments

India finally has its answer to Spotify after Reliance Jio merged its music service with Saavn, the startup it acquired earlier this year.

The deal itself isn’t new — it was announced back in March — but it has reached its logical conclusion after two apps were merged to create a single entity, JioSaavn, which is valued at $1 billion. For the first time, India has a credible rival to global names like Spotify and Apple Music through the combination of a venture capital-funded business, Saavn, and good old-fashioned telecom, JioMusic from Reliance’s disruptive Jio operator brand.

This merger deal comes days after reports suggested that Spotify is preparing to (finally) enter the Indian market, a move that has been in the planning for more than a year as we have reported.

That would set up an interesting battle between global names Spotify and Apple and local players JioSaavn and Gaana, a project from media firm Times Internet, which is also backed by China’s Tencent.

It isn’t uncommon to see international firms compete in Asia — Walmart and Amazon are the two major e-commerce players, while Chinese firms Alibaba and Tencent have busily snapped up stakes in promising internet companies for the past couple of years — but that competition has finally come to the streaming space.

There have certainly been misses over the years.

Early India-based pioneer Dhingana was scooped by Rdio back in 2014, having initial shut down its service due to financial issues. Ultimately, though, Rdio itself went bankrupt and was sold to Pandora, leaving both Rdio and Dhingana in the startup graveyard.

Saavn, the early competitor to Dhingana, seemed destined to a similar fate, at least from the outside. But it hit the big time in 2015 when it raised $100 million from Tiger Global, the New York hedge fund that made ambitious bets on a number of India’s most promising internet firms. That gave it the fuel to reach this merger deal with JioMusic.

Unlike Dhingana’s fire sale, Saavn’s executive team continues on under the JioSaavn banner.

The coming-together is certainly a far more solid outcome than the Rdio deal. JioSaavn has some 45 million songs — including a slate of originals started by Saavn — and access to the Jio network, which claims more than 250 million subscribers.

JioSaavn is available across iOS, Android, web and Reliance Jio’s own app store

The JioMusic service will be freemium, but Jio subscribers will get a 90-day trial of the ad-free “Pro” service. The company maintains five offices — including outposts in Mountain View and New York — with more than 200 employees, while Reliance has committed to pumping $100 million into the business for “growth and expansion of the platform.”

While it is linked to Reliance and Jio, JioMusic is a private business that counts Reliance as a stakeholder. You’d imagine that remaining private is a major carrot that has kept Saavn founders — Rishi Malhotra, Paramdeep Singh and Vinodh Bhat — part of the business post-merger.

The window certainly seems open for streaming IPOs — Spotify went public this past April through an unconventional listing that valued its business around $30 billion, while China’s Tencent Music is in the process of a listing that could raise $1.2 billion and value it around that $30 billion mark, too. JioSaavn might be the next streamer to test the public markets.

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Tencent leads $50M investment in NewsDog, an app vying to be India’s Toutiao

Posted by | alibaba, alibaba group, Android, App Annie, Apps, artificial intelligence, Asia, Baidu, Fundings & Exits, Goldman Sachs, india, legend capital, Media, Paytm, practo, Princeton University, TC, Tencent, Times Internet, Toutiao, Tsinghua University | No Comments

The growth of China’s Bytedance, an ambitious $30 billion tech firm, and its highly addictive Toutiao news aggregator app has set off a search for services with similar growth potential across the world.

India, second in population only to China with rapidly growing internet access, is an obvious place to look, and would-be pretender to the Toutiao crown has been found in the shape of NewsDog, a Chinese company that stumbled on success in India. Today, NewsDog announced a $50 million Series C round led by Chinese internet giant Tencent.

Toutiao is a phenomenon in China. The app has around 200 million daily users, and it is one of the few new tech products to emerge in a China where Tencent and Alibaba dominate the consumer app landscape. Point in case, it is so mainstream now that it has even run into issues with China’s internet censors. Toutiao is essentially a news aggregation service that lets consumers catch their daily reads and discover stories with an experience tailored to their habits and likes.

That’s very much the style of NewsDog, which claims over 50 million users. The service has branched out to cover 10 of Indians many languages, while it recently established a platform — ‘WeMedia’ — that augments its content aggregation by allowing users to submit stories, too.

This round is a major milestone for the company. In a competitive environment, it is the largest fundraising round from a news app company in India while it more obviously brings Tencent, the $500 billion tech giant, on board with its experience and support. Other investors include Chinese VCs Danhua Capital (DHVC) and Legend Capital as well as Chinese mobile app firm DotC United.

NewsDog’s competition includes Dailyhunt — which is backed by Toutiao-owner Bytedance — Inshorts, which counts Tiger Global among its investors, and NewsPoint, which is owned by media firm Times Internet.

One other competition is UC News, a service from Alibaba-owned UC Web, which, like NewsDog, is Chinese.

NewsDog was launched in 2016 by CEO Forrest Chen Yukun, a computer science graduate from Tsinghua University graduate, and Yi Ma, who holds a PhD from Princeton University and previously worked at Baidu and Goldman Sachs .

Data from App Annie shows that NewsDog is the top news app in the Google Play Store in India — Android is the country’s dominant operating system — ahead of Dailyhunt and NewsPoint in second and third, respectively. According to Sensor Tower, another app download analytics service, the app has 43 million installs and its downloads grew 76 percent year-on-year in the first quarter of the year.

NewsDog plans to use this new funding to pull further ahead of the competition by focusing on adding more languages and deepening its content library.

The company said it is already using machine learning to help produce an experience that is customized to users — the experience that Toutiao pioneered in China — and it plans to double down on that.

“Poly culture and multiple languages make content matching an incredibly hard problem,” Chen said in a statement. “So far, we have made good initial progress but content business is like an endless journey. There is no finish line, you have to just keep running.”

NewsDog is aiming to reach 100 million users as its next milestone as India’s internet population surges. The country is tipped to reach 500 million internet users by June 2018, according to a report from the Internet and Mobile Association of India (IAMAI) and Kantar IMRB. That’s up from 481 million six months prior, but internet penetration in rural areas is at just 20 percent compared with 65 percent in urban India which indicates even more growth potential.

For Tencent, meanwhile, this investment is another upping of its pace in India.

Initially, the company was slow to put money to work in India, where Alibaba entered early to buy stakes in the likes of Paytm, but gradually Tencent has got its checkbook out. Its most notable India-based deals include WhatsApp challenger Hike, healthcare platform Practo, and music service Gaana. This year, it is reportedly focusing on finding promising early-stage startups where it can invest $5-15 million.

In NewsDog, Tencent will hope to jump on the news aggregator train that it missed in China, giving Bytedance an opportunity to become a major Chinese consumer brand.

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Attack of the clones

Posted by | alibaba, Entertainment, fiction, film, Gadgets, lego, reading, TC, Tie Fighter | No Comments

Lego – or LEGO – is expensive and kids – my kids in particular – want a lot of it. Our basement looks like the returns department of a major toy store, covered from corner to corner with toys and, most notably, and endless minefield of little building blocks. And we enjoy building models and imaginative play and my youngest child, Guthrie, loves Star Wars. But all that quality plastic is expensive and the Star Wars kits are the most expensive of all. What are we to do? Add his favorites to holiday gift registries so his grandparents can buy it for him? Spend hundreds of dollars on ships that crash and leave a field of debris and minifigs for miles? Or do we turn to the Internet, that fount of all solace, and find Lepin.

A long time ago in a galaxy far, far away there were Lego knock-offs. The most popular come from a company called Lepin which I first learned about from this surprisingly complete review of the First Order Tie Fighter set. This video, which features a surprisingly thorough look at Lego vs. Lepin, was a family favorite for a while, taking precedence over the Star Wars trailers and Bad Lip Reading my kids usually watched. They were mesmerized by the slow and steady pace of the video and I was mesmerized by the thought that I could save some money on my Lego.

Before you get excited about the morality or legality of these knock offs understand that I well know that Lego deserves every penny they get. After building the Lepin set I began to better understand the care that goes into a good Lego set and the satisfaction of having a product that doesn’t fall apart mid-flight. That said, this was an experiment and it was truly to surprising to see such a complete and blatant copy of Lego’s kit come in a plain brown paper sack. Unlike other knock-offs I’ve seen – swap meet Louis and fake Rolexes, for example – the Lepin kit was a one-to-one copy of the original, albeit with a few major issues.

So I hit Alibaba and bought the Tie Fighter kit, a model that at once pushed all the right nostalgia buttons for me and the excitement buttons for my children and was sufficiently complex and expensive that we didn’t want to order the real model. I would build this Tie Fighter… for science.

The kit cost $48 with $12 shipping and arrived in two weeks. It came in a plain brown padded envelope with an instruction manual and little bags of pieces. The Lepin pieces aren’t organized in any discernible way although some of the larger pieces are stuck together in the same bag while smaller pieces are crammed inside multiple smaller bags. There is no bag order and the manual does not expect you to open any bag first. Basically your best bet is to dump out all the pieces and get building.

The first thing you’ll notice is that the pegs are completely smooth with a few indented where the injection mold went in. These blocks have no Lego branding and are instead disturbingly bare, as if someone had sandblasted away the logos on a real kit. The minifigs are also problematic. The faces and painting aren’t quite as crisp as Lego’s and the accessories – in this case a little hose connecting to the pilot’s helmet – was oddly connected to the helmet itself, a cost-saving measure that looks like it could snap off and get lost fairly easily.

Once you’ve organized your pieces you can begin assembling the kit. This is when you meet another cost-saving measure. The manual shows only the piece you just assembled in color. The rest of the pieces are greyed out. This means you don’t know what the kit is supposed to look like as it’s being built which makes it especially hard to assemble the internals. Further, the entire manual is chock full of steps. While the Lego kit paces you through each step, placing one or two steps on the page, this manual is chock full of them. It’s very easy to get lost.

We built this model in two days. My son was able to build quite a bit of it but I stepped in at the end because I liked the challenge and he got bored. Soon we discovered the fatal flaw in the Lepin system: the models don’t stick together.

My wife’s father used to make injection molded toys. He always speaks reverentially of Lego, repeating to us over and over that the company repeatedly destroys is plastic molds to make new ones, thereby ensuring that each piece is crisp, clean, and straight. The molds, you see, are the most expensive part of the process, costing tens of thousands of dollars to manufacture. To create new molds for something as complex as this is wildly costly but, as far as plastics lore goes, Lego is more than willing to spend that cash.

Lepin isn’t.

As you begin building you’ll find that some of the straight pieces curl up. The hinges don’t quite stick together. The big boards don’t quite match. As you build you find yourself wondering if the whole thing will hold and, in the end, it won’t. For example, this model uses four little U clamps that stick out on each side to connect to four bars embedded into the wings. These U clamps sometimes seem to click into place but when they don’t the wings fall off and break, requiring another ten minutes of rebuilding. These are not built for rough play – or any play at all – because even the hatch into which you slide your pilots will fall off if you close the door all the way. The tolerances – those sweet, Danish, Lego tolerances – are gone here, leaving behind something that is best displayed on a shelf.

If you or your kid are fine with having knock-off Lego on a high shelf where no one can get a better look at it then by all means pick up a model or two. But understand you will be disappointed. While this is a near exact clone of the original kit, the little differences add up to a mess. This Tie Fighter is currently next to our hermit crab cage, untouched, while Poe Dameron’s X-Wing is regularly strafing Storm Troopers and the rest of the Lego is being repurposed into bases, houses, and Minecraft adventures. The only toy that isn’t being played with is the Lepin kit.

That says a lot. Sure you can save money, but should you? Lego shouldn’t cost so much and our kids shouldn’t want so much of it but, in the end, aren’t we teaching them the value of tactile play, the power of building out of constituent parts. Further, I won’t begrudge a kid who wants to play with Lego the ability to build their own Tie Fighter if this is all they can afford. But, in the end, Lego wins in a head-to-head, minifig claws down.

Should you buy Lepin? The stalwart brand defender in me says no. However, if you’re looking to save a buck and want to give your kids the joy of building a knock-off – but not the joys of playing with it – then you can probably get away with this little bit of C-3PFaux. May the Force, as they say, be ever in your favor.

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Our digital future will be shaped by increasingly mobile technologies coming from China

Posted by | alibaba, alibaba group, Amazon, america, america online, Android, Apple, AWS, China, Column, eCommerce, Expedia, Facebook, Getty-Images, Google, Michael Moritz, Mobile, operating systems, Priceline, shanghai, smartphone, TC, United States, WeChat, world wide web, Yahoo | No Comments

Since the dawn of the internet, the titans of this industry have fought to win the “starting point” — the place that users start their online experiences. In other words, the place where they begin “browsing.” The advent of the dial-up era had America Online mailing a CD to every home in America, which passed the baton to Yahoo’s categorical listings, which was swallowed by Google’s indexing of the world’s information — winning the “starting point” was everything.

As the mobile revolution continues to explode across the world, the battle for the starting point has intensified. For a period of time, people believed it would be the hardware, then it became clear that the software mattered most. Then conversation shifted to a debate between operating systems (Android or iOS) and moved on to social properties and messaging apps, where people were spending most of their time. Today, my belief is we’re hovering somewhere between apps and operating systems. That being said, the interface layer will always be evolving.

The starting point, just like a rocket’s launchpad, is only important because of what comes after. The battle to win that coveted position, although often disguised as many other things, is really a battle to become the starting point of commerce.  

Google’s philosophy includes a commitment to get users “off their page” as quickly as possible…to get that user to form a habit and come back to their starting point. The real (yet somewhat veiled) goal, in my opinion, is to get users to search and find the things they want to buy.

Of course, Google “does no evil” while aggregating the world’s information, but they pay their bills by sending purchases to Priceline, Expedia, Amazon and the rest of the digital economy.  

Facebook, on the other hand, has become a starting point through its monopolization of users’ time, attention and data. Through this effort, it’s developed an advertising business that shatters records quarter after quarter.

Google and Facebook, this famed duopoly, represent 89 percent of new advertising spending in 2017. Their dominance is unrivaled… for now.

Change is urgently being demanded by market forces — shifts in consumer habits, intolerable rising costs to advertisers and through a nearly universal dissatisfaction with the advertising models that have dominated (plagued) the U.S. digital economy.  All of which is being accelerated by mobile. Terrible experiences for users still persist in our online experiences, deliver low efficacy for advertisers and fraud is rampant. The march away from the glut of advertising excess may be most symbolically seen in the explosion of ad blockers. Further evidence of the “need for a correction of this broken industry” is Oracle’s willingness to pay $850 million for a company that polices ads (probably the best entrepreneurs I know ran this company, so no surprise).

As an entrepreneur, my job is to predict the future. When reflecting on what I’ve learned thus far in my journey, it’s become clear that two truths can guide us in making smarter decisions about our digital future:

Every day, retailers, advertisers, brands and marketers get smarter. This means that every day, they will push the platforms, their partners and the places they rely on for users to be more “performance driven.” More transactional.

Paying for views, bots (Russian or otherwise) or anything other than “dollars” will become less and less popular over time. It’s no secret that Amazon, the world’s most powerful company (imho), relies so heavily on its Associates Program (its home-built partnership and affiliate platform). This channel is the highest performing form of paid acquisition that retailers have, and in fact, it’s rumored that the success of Amazon’s affiliate program led to the development of AWS due to large spikes in partner traffic.

Chinese flag overlooking The Bund, Shanghai, China (Photo: Rolf Bruderer/Getty Images)

When thinking about our digital future, look down and look east. Look down and admire your phone — this will serve as your portal to the digital world for the next decade, and our dependence will only continue to grow. The explosive adoption of this form factor is continuing to outpace any technological trend in history.

Now, look east and recognize that what happens in China will happen here, in the West, eventually. The Chinese market skipped the PC-driven digital revolution — and adopted the digital era via the smartphone. Some really smart investors have built strategies around this thesis and have quietly been reaping rewards due to their clairvoyance.  

China has historically been categorized as a market full of knock-offs and copycats — but times have changed. Some of the world’s largest and most innovative companies have come out of China over the past decade. The entrepreneurial work ethic in China (as praised recently by arguably the world’s greatest investor, Michael Moritz), the speed of innovation and the ability to quickly scale and reach meaningful populations have caused Chinese companies to leapfrog the market cap of many of their U.S. counterparts.  

The most interesting component of the Chinese digital economy’s growth is that it is fundamentally more “pure” than the U.S. market’s. I say this because the Chinese market is inherently “transactional.” As Andreessen Horowitz writes, WeChat, China’s  most valuable company, has become the “starting point” and hub for all user actions. Their revenue diversity is much more “Amazon” than “Google” or “Facebook” — it’s much more pure. They make money off the transactions driven from their platform, and advertising is far less important in their strategy.

The obsession with replicating WeChat took the tech industry by storm two years ago — and for some misplaced reason, everyone thought we needed to build messaging bots to compete.  

What shouldn’t be lost is our obsession with the purity and power of the business models being created in China. The fabric that binds the Chinese digital economy and has fostered its seemingly boundless growth is the magic combination of commerce and mobile. Singles Day, the Chinese version of Black Friday, drove $25 billion in sales on Alibaba — 90 percent of which were on mobile.

The lesson we’ve learned thus far in both the U.S. and in China is that “consumers spending money” creates the most durable consumer businesses. Google, putting aside all its moonshots and heroic mission statements, is a “starting point” powered by a shopping engine. If you disagree, look at where their revenue comes from…

Google’s recent announcement of Shopping Actions and their movement to a “pay per transaction model” signals a turning point that could forever change the landscape of the digital economy.  

Google’s multi-front battle against Apple, Facebook and Amazon is weighted. Amazon is the most threatening. It’s the most durable business of the four — and its model is unbounded on two fronts that almost everyone I know would bet their future on, 1) people buying more online, where Amazon makes a disproportionate amount of every dollar spent, and 2) companies needing more cloud computing power (more servers), where Amazon makes a disproportionate amount of every dollar spent.  

To add insult to injury, Amazon is threatening Google by becoming a starting point itself — 55 percent of product searches now originate at Amazon, up from 30 percent just a year ago.

Google, recognizing consumer behavior was changing in mobile (less searching) and the inferiority of their model when compared to the durability and growth prospects of Amazon, needed to respond. Google needed a model that supported boundless growth and one that created a “win-win” for its advertising partners — one that resembled Amazon’s relationship with its merchants — not one that continued to increase costs to retailers while capitalizing on their monopolization of search traffic.

Google knows that with its position as the starting point — with Google.com, Google Apps and Android — it has to become a part of the transaction to prevail in the long term. With users in mobile demanding fewer ads and more utility (demanding experiences that look and feel a lot more like what has prevailed in China), Google has every reason in the world to look down and to look east — to become a part of the transaction — to take its piece.  

A collision course for Google and the retailers it relies upon for revenue was on the horizon. Search activity per user was declining in mobile and user acquisition costs were growing quarter over quarter. Businesses are repeatedly failing to compete with Amazon, and unless Google could create an economically viable growth model for retailers, no one would stand a chance against the commerce juggernaut — not the retailers nor Google itself. 

As I’ve believed for a long time, becoming a part of the transaction is the most favorable business model for all parties; sources of traffic make money when retailers sell things, and, most importantly, this only happens when users find the things they want.  

Shopping Actions is Google’s first ambitious step to satisfy all three parties — businesses and business models all over the world will feel this impact.  

Good work, Sundar.

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Beijing’s public transport system gets an app for paying fares — but Apple isn’t invited

Posted by | alibaba, Android, Apple, Apple Pay, Asia, China, computing, e-commerce, mobile commerce, mobile payments, smartphones, technology, WeChat | No Comments

 Apple continues to be locked out of China’s massive mobile payments space. The latest reminder came this week when Beijing’s transportation system opened up to smartphone payments… via an Android app. Already Tencent’s WeChat Pay and Alibaba’s Alipay services dominate China’s mobile payment space, which is estimated to have processed $3 trillion last year,… Read More

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Gfresh raises $20 million to transform the way seafood is bought and sold

Posted by | alibaba, Anthony Wan, Apps, Asia, eCommerce, food, Fundings & Exits, Gfresh, legend capital, live seafood, marketplace, Mobile, mobile apps, perishable goods, Riverhill Fund, Series A, Shanghai startup, Simon Xie Shihuang, Startups, TC, Venture Capital | No Comments

A live crab sold on the Gfresh marketplace. Seafood consumption is soaring in China, along with increases in average disposable income there. But live, edible fish and shellfish are challenging to buy, sell and transport across borders within and beyond China. As a result of the complexities in shipping live fish, and complying with health and customs regulations, tons of seafood are wasted each year, at a time when our oceans are… Read More

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