1. An Update From
China
Norm Johnston 24/09/2013
Background
A reoccurring piece of feedback on our weekly digital PoV’s is that most of them are focused on
Silicon Valley: Twitter, Facebook, Google et al. Many clients have asked for more coverage on what’s
happening elsewhere in the world, particularly in China given its emergence as the world’s largest
Internet population ($564m and counting) and a hotbed of innovation and competition to rival
anyone in California. I was fortunate enough to spend a week in Shanghai and Beijing recently
getting up to speed on the latest developments in China.
The Xiaomi Phenomenon
The Internet continues to gain momentum, particularly through mobile devices, which will be the
main means of accessing the Internet for the 58% of Chinese currently not connected. Smartphones
penetration levels are climbing rapidly, with over 420m smartphones in existence now and 10m
new mobile broadband subscriptions activated every month. We had the honor of hearing from Lei
Jun, the founder of mobile phenomenon Xiaomi and the “Steve Jobs of China” (complete with black
t-shirt and jeans). Xiaomi offers low-cost Apple-like iPhones with an on-going Amazon pricing model
for services and apps. It’s been a massive hit, quickly climbing to a 5% market share, higher than
Apples (4.8%), with demand incredibly strong: according to reports, there are 7m people waiting to
buy the phone, with bold predictions of international expansion and sales in the future. Could
Xiaomi be one of the first Chinese start-ups to become a true worldwide hit? Stay tuned.
e-Commerce is BIG
E-commerce continues to grow at an outstanding rate in China and has now reached $1.4 trillion.
Alibaba, fueled by Taobao and T-Mall, has become the world’s largest online retailer, selling more
than $170bn in goods in 2012, more than eBay and Amazon combined. M-commerce alone will
reach $41.4b by 2015, rising along smartphone penetration levels; nearly 60% of Chinese
smartphone users have made a purchase on their portable device. Any marketer in China should be
developing a strong e-commerce strategy as the brand’s future market share will inevitably linked
to its online sales given current trends.
The Chinese Search and Social Wars
Similar to Silicon Valley, most of the major Chinese online players continue to jockey for position
against each other, mainly through acquisitions and new products. Robin Li, Baidu’s founder and
CEO (“the Larry Page of China”), talked about its recent $1.9b acquisition of 91 Wireless, an Android
application store. Given Android’s dominant market share in the region (over 70%), and the Chinese
preference for using apps (88% of Chinese mobile users time is spent on apps), Baidu has wisely
become the largest mobile app shop in China, all integrated into your search results. Now to be
outflanked, social networking giant Tencent recently acquired a $448m stake in search engine
Sogou. Tencent has also had some incredible success with its new WeChat social app; in a very
short time it has racked up over 400m registered users. WeChat is an excellent product, arguably
superior to Facebook in many ways, particularly in its integration of QR codes for quick offline
content redemption and purchase.
Summary
China has historically been accused of duplicating successful Silicon Valley models in China. In fact
the press often associates Chinese companies and people with familiar entities and faces from the
West. It helps us quickly understand who they are and what they do, e.g., “Lei Jun is the Steve Jobs
of China”. However, what’s clear from my visit is that the Chinese industry has moved on, and is
now innovating, acquiring, and expanding at a remarkable pace of its own. Don’t be surprised if
sometime soon we see a future Western entrepreneur called the “Lei Jun of Silicon Valley”.