A Delivery Guy on Every Street Corner…Literally

Building an internet company in China can be very different than that of the USA. Google began its advertising business in the US by using telephone and online sales to acquire business advertisers. When Baidu Mobile first started its search business in China, the best way to attract advertisers to its online search engine was to send representatives directly to small businesses door-to-door. With the massive amount of inexpensive labor this made sense in China.

This inexpensive labor pool in China has always been a competitive advantage for China and this is no more obvious in the massive logistics and delivery infrastructure that has been leveraged by Alibaba, Tao Bao and other online ecommerce platforms in China. Unlike the US which has Fedex, UPS and other large players, most deliveries in China are handled by small independent delivery people riding an electric scooter and under contract to Alibaba etc. Jack Ma (Founder of Alibaba) recently revealed that 2M delivery people already exist in China but that number will rise to 10M in the next 10 years. Already there are 30M packages being delivered today in China rising to 300M in next 10 years.

But it is not only online marketplace companies that are getting into the delivery business, Baidu (China’s internet search giant) is now doing food delivery in dense urban areas.  Smaller O2O (offline to online businesses) are also innovating around delivery. A company that I recently visited in Shanghai called Z+ is taking it to a whole new level by leveraging neighborhood based entrepreneurs to do staple food delivery right from their own apartment.

The delivery world in the US is certainly being innovated through such players as Munchery, Postmates and even Uber but perhaps some of the real learnings can come from managing a large, diverse and independent delivery system such as what has already been done in China for the last 10 years. They certainly got it figured it out when I can order something and have it delivered in 10 minutes!

If you like this post, then please check out our other thoughts at www.impact10x.com/blog or email us at info@impact10x.com.

Wechat Marketing: How to get a Wife in 30 days

I’ve been back and forth between China and the USA for a good many years and in that time many things have changed on how I have been able to communicate between the 2 countries. It used to be the good old wired landline (and lots of long distance charges!), then to Microsoft MSN Messenger (is that around any more?), then to Skype and now the last couple of years it is using Wechat.  Wechat is an mobile phone based instant messaging App like none other. One of the leading Apps in China at 750 million users it has a plethora of features from online banking, video calling, instant messaging etc etc.  But just like any other powerful tool, it also has some interesting unintended uses that are just being discovered and explored. In fact, a friend leveraged a Wechat feature to meet new people and in a short 30 days was married!

So what are the secrets of Wechat marketing? Lets take a look at how to use some of the features that  are being used today to reach customers:

  1. People NearBy: this is a location awareness feature that allows you to browse people that are nearby you.  If you are in the mood to chat or send some interesting information then this is the way you can do it. In the US, there are many established dating apps like eHarmony, PlentyOfFish, match.com and new entrants like Tinder, League Dating app etc.  Putting together Wechcat with more robust “dating funnel” features from these other Apps would certainly be an interesting “habit forming” feature.
  2. QR Code scanning: walking down a road in Shanghai I noticed a table where there were a bunch of excited people looking at their phone playing with an App and eating oranges. It turns out distribution of Apps in China is not typically done online (like the App stores or through online ads) but actually is physically done by setting up a table and giving away food to people in exchange for downloading the App.  The QR scanner feature on Wechat allows App developers to easily get peoples’ account information quickly and also allows the user to be exposed instantly to the App in exchange for some goodies. Win-win!
  3. Company Groups: online business communication and group communication is now primarily done through Wechat. These group chats allow people to seamlessly communicate on any issue instantly.  It also allows companies to setup their own private group, which people to subscribe to and get updates from the business.  I’ve personally seen dozens of such groups setup on people’s accounts.

With all the marketing noise in China it is a never ending battle to capture the attention of the Chinese consumer.  Wechat is certainly a key marketing platform to any business trying to grab a piece of that attention.

If you like this post, then please check out our other thoughts atwww.impact10x.com/blog or email us atinfo@impact10x.com.

China App Hacks That Are as Addictive as Good Dumplings

In March 2016, the largest gathering of Buddhist Monks since the Qing Dynasty reigned over 2000 years ago took place in a small mountain town of WuTaiSha, China. With my family having roots in Sri Lankan Buddhism and my wife who was a newly minted “Master Administrator” of one of the many Buddhist temple groups in China, we took the long voyage to participate in this gathering. It was a live 3-day spectacular gathering of people and monks showing their devotion to the Buddhist way of life. As intensive and social as this event was, there also is a very heavy use by Chinese Buddhist Temples to spread their teachings through the online environment. Wechat groups which aggregate hundreds of followers and managed by volunteers help to keep the community vibrant and alive. What is surprising though is that it just maybe the subtle features of Wechat that keep the community alive rather than the actual teachings of Buddhism.

One such innovative feature on Wechat is called “Red Packets” which allows a member of a group to send any amount of money at any time to other members of the group. The brilliant (and habit forming) part of this feature is that people don’t know how much is actually being sent. A typical example is:  Bill sends a red packet of $10 to the group. The people on the group gets notified via the App that someone has sent a packet of money which is an unknown amount. People then have the option to accept and whoever accepts splits the money.   At one point, my wife had asked her Buddhist group to send in some information on how many times they had done something. No response from the group. She then decided to send $1 as a “red packet” to see if people were actually online. Virtually everyone responded and accepted the packet! The power of small monetary awards in China can go a long way!

Another China App that brilliantly tapped into their members motivation was Didi Dache, which is the largest taxi based App service in China. Because of the large demand for Taxi services during peak hours it can be very difficult to get a Taxi in any reasonable amount of time.  In this case, the taxi drivers had all the control and would be able to accept or deny rides at their discretion. Some clever passengers decided to use the “voice chat” feature to not only tell the taxi driver where they were located but to make the messages funny and enticing for the driver to choose them over others. The drivers actually benefitted the most, giving them some humour and power of their otherwise dreary driving day on the congested streets of China. By adding a little bit of mystery to every ride request, the Didi Dache App added some fun to their driving day.

Basketball is gaining a lot of traction in China as a sport. Michael Jordan to this day is still an icon in Chinese culture even after retiring 13 years go.  This is no more evident in the shoes that bear his name and that Nike sells as an exclusive product every couple of months.  These exclusive deals are typically sold out online in seconds.  People would literally by waiting online at the precise moment of the opening of the web page to get on the list. Because of the overwhelming demand, even if you get on the list there is still a random selection process that happens afterward.  The list is constantly being updated which causes consumers to continually monitor the Nike App to get the latest information.   By adding randomness, exclusivity and time pressure the Nike App cleverly retains the attention of those shoe addicts for the duration of the deal!

Thanks to the work of Nir Eyal (author of Hooked) and research at Harvard, habit forming tactics are now an integral part of the design of the best Apps in the world. China Apps have certainly embraced their own unique twist on it.

If you like this post, then please check out our other thoughts at www.impact10x.com/blog or email us at info@impact10x.com.

Your FACE is very important in China

Investments in the stock market can be a very complicated affair. Depending upon the level of rigor that is taken in looking at the business performance, understanding the management team, competitive understanding and customer value…it could be a long time to come to any conclusion to invest in any given company. Or maybe it is as simple as figuring out what your neighbor, colleague or friend is doing and just copy them.

Sitting down with an Ad Tech company based in Shanghai it was interesting to find out the profile of the Chinese investors that decided to invest in their company. It turns out most of the motivation for their Chinese investors was a reflection of their friends desire to invest. But not because of the rigorous analysis of the market opportunity that these friends had done or that they were good past investors, it was simply a reaction to the fact that these friends were of the same or lessor economic status as them. The attitude was “if that guy is investing, then we can definitely invest”.  Now this could be simplifying things but there is a very real historical and cultural importance of “face” or reputation in China.

Maintaining face and reputation is important in China and is an implicit tool that could be used to market and sell to the Chinese consumer. Here are a couple of clever examples of this:

  1. A microfinance company based in China that provides student loans and requires a family member to be a co-signer on the loan. The co-signer in this case does not necessarily have to own collateral but is mainly used as a form of social pressure to ensure payback of the loan. If the student does not payback the loan, the co-signer loses face or their own reputation.
  2. One of the more popular Restaurant Review Apps in China (similar to Yelp) is called DianPing. The people that reviews these restaurants number in the 10’s of millions. Unlike Yelp though, the reviewers are also rated by the App which motivates them to do even more reviews. An example of their rating system goes from 1 to 5. The more reviews you do the more your level goes up. A system of reputation and face for reviewers.
  3. Taobao.com which operates under the Alibaba brand has an even more complicated level system for reviewers of products that are sold on their site.  Taobao.com is the equivalent of Amazon.com in China. Their system has over 5 levels in each of the major categories going from heart, white diamond, gold diamond, white crown and then golden crown. That’s over 25 levels which are used as a sign of reputation and status for these reviewers!

Using these subtle “face” techniques can be an important part of any marketing and sales tool targeting China consumers and businesses.

If you like this post, then please check out our other thoughts at www.impact10x.com/blog or email us at info@impact10x.com.

Will Amazon Succeed In China Where Google Failed?

By some measures the Chinese government budget for internal security exceeds that of their armed forces. This security budget includes such things as electronic information monitoring in addition to the use of security forces to manage the internal safety of their citizens.  One common view of Google’s pullout of China was primarily due to Chinese regulations and restrictions around information flow which is a central foundation to Google’s search business.  While not as important to Amazon’s business, information and data is still central to many decisions to the value of their online shopping platform. So will Amazon succeed in navigating the online terrain in China where Google did not?  So far, they seem to be doing a good job.

In a recent presentation to a Tech incubator called DreamT located in downtown Shanghai and in suburban Jiading, I had the opportunity to understand more deeply how Amazon’s EC2 Cloud infrastructure is being deployed.  The incubator does specific cash and in-kind investments to tech companies who are deploying apps or websites that need access to fast, secure and reliable cloud infrastructure. One of the main in-kind investments is access to EC2 servers for one year which is funded entirely by the China based Amazon cloud business.   Although not a significant investment to the startups this does provide some great benefits to Amazon including exposure to start-ups, china based tech entrepreneurs and goodwill to the government.  The Amazon EC2 infrastructure allows internet based companies to bypass the 8 firewall points that regulate internet traffic in and out of China. This allows a better consumer experience for any foreign based companies that want to setup a ecommerce, app or website to access the Chinese consumer.

It remains to be seen how the online shopping platform of Amazon in China will do as they compete head on with local favorites Taobao.com and Alibaba.com but this strategy of co-investments, co-branding and partnerships with local incubators seems to be a good long term bet in the world of Chinese cloud infrastructure.

Taking a Closer Look at Shanghai’s Unique Tech Approach

Shenzhen was the Chinese epicenter of a massive economic shift to manufacturing in the early 1980s and the attraction to most foreign manufacturing companies setting up there was the promise of inexpensive labor.  On a visit to Shenzhen City (near Hong Kong) a couple of years ago I was surprised to learn how much that is changed when a large US optical manufacturing customer was in the process of moving its operations to Vietnam due to the rising cost of labor in China. The shift of manufacturing from China to other countries has also signaled a shift of Chinese companies focusing more on technology and business innovation. Nowhere is that  more obvious than in Shanghai where smaller districts are all setting up innovation hubs and incubators to build the foundation for this innovation economy.

Impact10x had a recent opportunity to speak at one technology park called Keiji50 in the Jiading area of Shanghai. The main focus of this park was  IOT/wearable devices and housed probably 10-20 companies on its campus.  Companies building versions of Google glass, Smart Mirrors and even Smart Coffee machines adorned its demonstration room. Especially interesting was the fact that the center also did China based VC investments through a quasi-government funded organization. We had an opportunity to talk to their Partners to find out a little more about how their VC investments worked in China. It seems most investments were made after a working prototype had been demonstrated and with maximum investments of 3M RMB (approximately $500K USD).  Seed capital financing did not seem to be something that they were particularly comfortable with as some of the frameworks/tools they used to evaluate innovations were based on mass appeal to a broad consumer audience. Most true breakthroughs start with a small core of leading edge customers which then lead to growth.

Another piece of their investment approach was the emphasis on patents or other more basic scientific intellectual property which could be a competitive barrier to entry.  Although this has traditionally made sense 5-10 years ago, with the massive shift to more open source platforms, crowd sourcing and any new innovation being circulated around the planet at light-speed…basing your competitive advantage solely on protection of information is quickly being eroded. As Bill Gates recently said “intellectual property has the shelf life of a banana”.

Stay tuned for the next couple of blog posts as we will be posting some more of our discoveries on China and Shanghai based incubators and technology parks.

 

China Invents the “Lean Startup” for Countries 40 years Ago

The enormous transformation of China from the starving Chinese farmers of the 1960’s to having skylines full of gleaming skyscrapers in 2016 is a testamount to the incredible power of perseverance and experimentation. Deng Xiaoping who rose to lead in China in 1978 is generally accepted as a key figure who lead and drove this transformation. His philosophy was a simple one “to experiment, to take risks, and to not be afraid of making mistakes; when you make them, just correct them”. In Ezra Vogel’s biography of the leader “Deng Xiaoping and the Transformation of China”, the word “experiment” happens no less than 78 times throughout the book.  This book was recently promoted by Bill Gates as one of the best books to read on China.

The Impact10x team had an opportunity to share our views on innovation to China tech entrepreneurs and engineers on invitation from IC CAFE, a technology incubator and china venture capital fund located in the east part of Shanghai.  The best known innovators of our time like Steve Jobs and Elon Musk were the standard part of our discussion but Deng Xiaoping took a special place as an example of a leader who emphasized execution over guessing.  It maybe the hottest thing now in Silicon Valley to be a “lean startup” but lets not forget that this idea of experimentation and fail fast was what started the incredible transformation of China over 30 years ago.

Thanks to Xiaoming, Sean and Yixin from the Impact10x team in joining and supporting the seminar!

If you like this post, please check out some others at Venture Capital in China or contact us at info@impact10x.com. 

Impact10x Talks at Massive Tech Incubator in Alibaba.com Hometown

Shanghai literally means “On the sea” (shang: on, hai:sea) which shows up in its very distinctive flat coastal landscape. In fact, the highest hills you will see are the roads that lead up to massive bridges in the city. But go about 2 hours driving west to a city called “Hangzhou” and you get to see some of the greener more mountainous areas of China.  Known for its tourism and lake district this city is now getting known for its new innovative technology companies including the global giant Alibaba which has its headquarters there.

The Chines government recently built a massive technology incubator there under the “High Tech Zone Plan-5050” initiative which is to create even more tech companies.   The incubator finances IOT, Internet and software tech companies through competitions and local china based venture capital. The young companies that we met were impressive doing innovative App services to companies serving the up-and-coming DIY generation of Makers.

What was clear on our visit is the government still seems be the main actor in most financing and promotion activities but that there is definitely a generational reversal going on between older workers concerned about money, health, emotion and entertainment (in that order) and the younger generation being more concerned about entertainment, emotion, health and money (in that order). Those innovative tech companies that can satisfy these emerging Chinese needs have the potential to be the next big winners.

Ghost Tech Parks Attracting Some Beijing Attention

China is facing the largest migration in human history of 400 million people moving from rural to urban areas in the next 10 years. Urban areas especially along the coastal areas promise higher wages and a better standard of living as compared to the interior of China. To manage this mass migration, the Chinese government has made a high priority the development of cities interior to China to stem the flow to coastal areas. In some cases, this accelerated thinking has led to interior cities which are heavily built out with shining apartments and office buildings but has a feel of a ghost town.

On an invited visit to a Technology Park in the Yixing area of China (a city 1 hour west of Shanghai) some of this was painfully obvious. Wide streets, massive buildings, large beautiful courtyards, tree lined gardens but with a scattering of people walking around. This particular Technology Park was recently recognized as a National Research Park  by the Government in which only a handful have been given this honor.  The officials who ran the Park enthusiastically welcomed our conversation around bringing internet and IOT technology into the Park.

As the government continues to invest heavily into building out these innovation parks the question for this strategy is whether these gleaming towers will attract and grow the right innovative companies or whether its just putting some lipstick on a pig. What is for sure is that the approach being taken in investment models, company management and technology development is uniquely Chinese with no shortage of ambition to build out this next phase of China’s growth.