Opportunities in the Future
Q2: But in the past five years in particular, there has been a rise in mobile O2O (online to offline), especially in entertainment – for example, live video in social commerce, which is something that Chinaccelerator was quite involved in. So when it comes to these hot areas, the so-called “Fengkou (风口)”, can you talk a little bit more about, from Chinaccelerator’s perspective and your own investing experience, the areas that you focus on and why?
I think entrepreneurs and to a great extent, the VCs that fund them, are a lot like sheep. They flock to the “hot” areas. Every year there is usually a hot area. Back in the day when we had video, video was a hot area, which later evolved into video streaming. But there are many video companies – Youku, Tudou, and other ones that are mostly all dead. iQiyi came in later. These video companies battled it out with the understanding that there would be only one or two winners.
With the phase two or the second generation companies, the ones that Baidu, Alibaba, and Tencent started to acquire, there were greater opportunities for VCs to invest because you didn’t have to be the number one player, you could be the number two, three, or four because maybe only one company would IPO but the other two or three would be acquired by Baidu, Tencent, or Alibaba.
Now the opportunity has largely passed because just about every single sector has strong players in it. You have heavy operations and light operations. An internet company is light operations. The opportunity has shifted from light operations to heavy operations, from online to offline, because this is an area that is tougher for the big players – Baidu, Tencent, Alibaba – to dominate because they have an internet background. It’s easy for them to do well online with their light operations background, but when you go offline – when you’re dealing with delivery logistics, when you’re dealing with cars, for example – it’s a different skill set.
What we’ve seen more of recently is that in order to get into heavy operations areas, the BATs have been developing their capabilities by taking large strategic stakes or outright acquiring leading Chinese startups. And so, what’s the next opportunity? A lot of the VCs are hot on AR and VR. They’re also looking at artificial intelligence and machine learning. These are our technologies. They’re awesome tools, but in the end a startup needs to solve a specific problem. At Chinaccelerator, we focus on solving problems. We leverage technology to solve those problems.
Chinaccelerator Demo Day11 中国加速第十一期路演日
I will give an example. If you look at the two major areas where companies can use VR/AR to make money, they are entertainment and commerce. There’s been a huge focus on VR/AR for entertainment, whereas Chinaccelerator’s focus is commerce, and we’re using AR and VR as a tool to solve a problem, which is selling stuff. People have been trying to sell stuff for the last two thousand years. And technology has made selling stuff a lot easier, a lot more effective. We started out with text in the old Mad Men days, the advertising days. And then we got pictures, first in black and white and then in color. More recently we got video and television. Now we are using VR and AR as a medium to tell stories in order to sell a product, and amazingly, we’ve proven that it works.
For example, we were sending gift boxes with the VR cardboard – something you can pop your phone into, put on your face, and get an admittedly not great, but an okay VR experience. It was a present, and usually when you receive a present you don’t order more of what’s in the box. But we’ve got a thirty-percent follow-on order rate, which means that people who didn’t buy the box and didn’t necessarily want the box but got it as a gift and didn’t know how much the stuff cost – and these were not cheap products – would pop on the VR, experience the story behind the product, and then thirty-percent of them went and bought more than one of the products.
So we sort of calculated MVP (minimum viable product) from this test, and now that company is going to the next level in terms of using a technology to solve a problem.