Chinaccelerator MD William Bao Bean had a podcast interview with Adam Bao, the founder of the emerging technology media The Harbinger. William shared his insights on how China’s Internet Economy started and developed, as well as the opportunities in the future. Due to the article length, we separated the interview to 2 episodes.
中国加速的董事总经理宾威廉接受了科技媒体新星The Harbinger创始人Adam Bao的采访，就其所观察到中国互联网经济的发展进行了分享。本文章将分为上下两部分发布。
A Brief History of China’s Internet Economy
Q1: Given that you’ve spent the last twenty years in China and Asia, why don’t we start with some of your overall views on the major trends you’ve witnessed.
We can break down China’s internet development into three phases. The first phase was early companies – Sina, Sohu, NetEase, and to some extent, Baidu and Tencent. The CEOs and leadership teams of these companies are still, for the most part, leading these companies. These companies addressed very basic problems, such as search, commerce, games, and news.
我们可以把中国的互联网发展分为三个阶段。 第一阶段是早期的公司，包括新浪、搜狐和网易，百度和腾讯在某种程度上也属于这一阶段。 他们的CEO和领导班子大部分仍然在领导着这些公司，他们解决了诸如搜索、商业、游戏和新闻等非常基本的问题。
The second phase was a second generation of entrepreneurs filling in the gaps. They solved problems like, if you have health insurance, what kind of services does that health insurance cover? If you need to travel somewhere, how do you travel and how do you book your travel? The second generation grew up in the shadow of the first generation. What happened was, for the most part, the first generation tried to kill these second-generation companies. Either crush them, buy them, or undermine them.
第二阶段是那些填补空白的第二代创业者。他们解决了许多问题，例如如果你有健康保险，健康保险包括哪些服务？ 如果你需要去某个地方旅行，你如何旅行以及如何预订旅行？ 第二代公司在第一代的影响下发展。而大多数情况下，第一代公司都在试图扼杀这些第二代公司。 他们所作出的选择，要么粉碎他们、收购他们，或要么破坏他们。
Now we have the third generation. Most of the companies are social because that’s what VCs have been funding. But the third generation has learned from the lessons of the second generation in that they need to be differentiated; it’s no longer enough to just be the first player in the market, the first or fastest to raise capital, because the big guys – Baidu to some extent, but mostly Tencent, Alibaba, and Xiaomi – these companies are dominating almost every single sector. And for the first time, you’re seeing Chinese VCs investing in hardcore tech, and not just the startup with the first-mover advantage or the player with the most users, because differentiation is critical in hardcore tech and there is very strong competition from the BAT + Xiaomi.
现在我们有了第三代公司。 这些公司大多是社会性的，这也是风投资金所关注的。但第三代从第二代中吸取了教训，就是需要有所区分。如今，仅仅成为市场上第一个玩家、成为第一个或是最快筹集到资金的企业是不够的，因为市场中的大公司，包括百度，大多数情况下是腾讯、阿里巴巴和小米， 这些公司几乎占据了所有行业的每一个部分。而且中国的风投投资核心技术，不仅仅投资那些拥有先发优势的或者拥有最多用户量的公司，因为差异化在核心技术上是至关重要的。 针对此，BAT和小米之间就有非常激烈的竞争。
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.
Q3: Just to clarify, you’re not saying that users buy things within the VR experience. Rather, they are more inclined to buy more product because they’ve had a great experience overall?
Say you have a box of biscuits, a box of crackers or cookies. And it’s ¥100 a box of cookies – $14 for a box of cookies – that’s a very expensive box of cookies. Now people in China are very concerned about where their food comes from, where the cookies come from. But I don’t care about how worried you are about poison, $14 for a box of cookies is still a lot of money. One of the great things that you can do with a video or text or pictures is tell where the cookies come from. This is the family in Italy that started the bakery in the small city with local producers who make these cookies.
But what you can do with VR is you can be inside the bakery, you can meet the cookie maker, you can go to the lavender fields where the bees collect the pollen to make the honey that flavors the cookies. So you can have a personal relationship with the brand, with the products, with the place where the product comes from, and that’s very important to China and Chinese consumers. You can go inside a virtual world and buy a box of cookies, but the most important thing is not so much having a new medium in which to push a button and buy these cookies, but more so a new medium in which to get educated about that particular product.
Thanks to the Harbinger.