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Global Tech Innovation

China’s Pioneering Consumer Tech Businesses

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In China, a young live-streaming star can pull in as much as $40,000 monthly in virtual gifts from online fans who cheer on their dancing, singing and jokes set to catchy music. The Chinese company that popularized this made-in-China business model is Nasdaq-listed YY Inc. It takes a chunk of revenue from virtual tips such as roses bought by audiences for top video performers. 

China’s live-streaming market took off a few years ago. Today, it’s a $5 billion business and a highly popular form of entertainment. YY, with as many as 90 million viewers and $2.3 billion in revenues, is one of China’s giants in this booming sector.  

The Chinese web has evolved beyond just copying Facebook, YouTube and Google, to innovating its own mobile-first digital platforms and ways of making money. All these services simply presume that users have smartphones, which in China, with 783 million such users, is a reasonable bet.

China is inventing not just virtual gifting but new types of mobile apps for social commerce as well as all-in-one services and mini-shops integrated within an app. China invented and popularized several other types of money-making mobile apps that the West is only beginning to adopt: short video apps, super apps and social commerce. China is also going all in on artificial intelligence to precisely match users with digital advertising and content, and leveraging key opinion leaders to influence and spark online shopping.   

A good contrast between West and East comes by comparing music streaming services Spotify and Tencent Music Entertainment. Spotify’s 83 million subscribers surpass Tencent’s music streaming service by a multiple of three. But Spotify isn’t profitable, while Tencent’s business is. Unlike Spotify, the Chinese live-streamer primarily relies on virtual gifts and selling online tickets for pastimes like karaoke live-streaming. It pulled in $267 million in profits on $2.76 billion revenues in 2018.

“Chinese apps are more advanced in content, social networking and commerce,” observes Hans Tung, a managing partner at venture investor firm GGV Capital in Menlo Park, California. He is a long-time startup investor in both China and the U.S.  

A prominent example is TikTok and its 15-second, user-created music videos. TikTok is the creation of Beijing-based ByteDance, the world’s most valuable unicorn at $75 billion. Its offbeat content, popular with teens through such fare as boyish pranks, clever tricks, and lots of lip-syncing, has spread to 500 million users globally. Some were picked up when it took over the social media app Musical.ly, which had a substantial youthful following in the U.S. (Musical.ly itself was created by a Chinese company.) TikTok makes money through sales of virtual goods and by showing advertising, and keeps viewers engaged by using AI to match their interests with ads and content.

The quick uptake of TikTok in the U.S. over the past two years caught Facebook by surprise. In November 2018, Facebook quietly launched its own TikTok competitor, Lasso, which let users create short, fun videos.

Another idea now filtering into the West is China’s so-called “super apps.” They represent a different model of app design from those created in Silicon Valley.  China’s multi-functional app Meituan, for example, combines services that resemble Yelp, Booking.com, GrubHub, Uber Eats, Kayak, Fandango and OpenTable in one Swiss Army-like array of services.  

This Chinese advanced app model contrasts with the common Western method of siloing apps for each service. But it lets the super apps capture and retain users within an umbrella and scale more quickly.

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The most well-known of China’s super apps is WeChat, with 1 billion users and functions that mix elements reminiscent of Facebook, Twitter, Skype, WhatsApp, Instagram and Amazon. Created by Chinese tech giant Tencent, WeChat has evolved from text messaging into an all-in-one stool for mobile commerce and payments. Facebook appears finally to be catching on, copying WeChat’s messaging feature of private exchanges within groups, and also getting into payments with its proposed cryptocurrency, Libra.  

WeChat’s innovative mini-shops represent another new business model that emerged from China’s mobile-first digital universe. These mini-shops blend content, ad units, and commerce seamlessly. They link to sales and products that can only be accessed within WeChat. Mini-shops run on lightweight apps that are already integrated within WeChat. “WeChat is becoming a default operating system and is fueling another wave of growth. Apps are being built on top of WeChat now,” notes venture capitalist Tung.   

American marketers angling for the Chinese market are starting to experiment with operating WeChat mini-shops themselves. Tesla, for example, has used such programs to allow users to schedule a test drive, find a charging station, and then share their experience.

Social commerce or shopping intertwined with social media and entertainment is another made-in-China business model innovation. Shanghai-based cosmetics and fashion shopping app, Xiaohongshu or Little Red Book, lets regular customers and key opinion leaders post reviews and share shopping experiences, hobbies and lifestyles. It commands 200 million users.  Kim Kardashian has used it to share her makeup tips and promote her KKW Beauty Line to fans in the large China market. Little Red Book’s usefulness for American celebrities pushing products is one of many growing signs that China’s increasingly sophisticated digital universe is helping define the future of tech-based business. The idea China might out-innovate the West is no longer a ludicrous concept.

Rebecca A. Fannin is the author of Tech Titans of China, published September 3.

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