Global tech and business model disruption

Arriving at Shanghai, a visitor is immediately struck by how widespread the use of smartphones by the Chinese consumer is. During the cab ride to the hotel, one may be surprised to see a white-haired senior driver monitoring three devices simultaneously, one of which used as a GPS. Strolling around town, the visitor can observe people checking out a dock-less bike using sharing apps, like Uber for bikes, or paying for items purchased in a very small family shop using a payment app. It is quite interesting to see such shops, which typically do not have the financial structure to support a point-of-sale system, integrated to the tech world. It is equally notable to realize that all a consumer needs is a smartphone and an account with one of the Chinese tech giants to shop.

A visitor without a WeChat or Alipay account may feel excluded from a world of convenience and flexibility. From transferring money to a colleague, purchasing subway tickets, to paying for the specialty tea in the vending machine. Unlike the consumers from other emerging economies, such as that of Brazil and India, the Chinese seem to have leapfrogged the physical store-to-desktop-to-laptop-to-smartphone pattern observed in the U.S. After chatting with and casually observing locals, it seems that a good portion of the population started shopping online directly from their smartphones, before ever owning or using a desktop or laptop to connect to a website. Perusing information on the subject, it seems that about 500 million Chinese consumers access the Internet on a mobile device. This is a staggering number, which dimensions become clearer when we compare them to the size of the U.S. population. The Chinese technology industry seems to have pulled ahead of their western counterparts in a few respects, to include the early shift from e-commerce to m(mobile)-commerce and low altitude airborne delivery. As “a-commerce” (to use Amazon as example) starts blending in bricks-and-mortars through acquisitions in search of platform dominance and growth, it is informative to look at some differences between the biggest Chinese Internet companies and their U.S. peers.

While many U.S. Internet companies such as Facebook and Twitter focus on specific areas (there are exceptions like Amazon), Chinese companies seem to attempt to play in a wider field. Tecent’s WeChat app, a mixture of Facebook, Twitter, Skype and more, illustrates the broad spectrum of activities typically pursued by Chinese companies, extending from cloud computing to digital payment. WeChat is disrupting the CRM aspect of supply networks by becoming an intermediary platform between businesses and consumers. Once a business registers an account, consumers can follow the business by simply scanning its QR code on the website or at a physical location. This is a very attractive feature, as we can use their accounts to sign up for services without the hassle of having to fill up registration forms. Through WeChat Pay, a business can scan a unique QR code generated by the customer detailing the transaction to complete the exchange. Some consumers that may not otherwise have been part of the financial system, now only need a smartphone and an official account to become integrated. Returning to the dock-less bike example, one can scan the QR code in a bike to check it out and then use a WeChat account to pay for the service, all without ever contacting a customer representative, registering an account with the bike company, or handling cash or a credit card.

Some analysts suggest that this attempt at platform dominance and intermediation is facilitated by the lightly regulated Chinese market, while in the U.S. such moves are increasingly monitored. Amazon’s recent acquisitions have attracted a lot of public attention and some have expressed concerns that the company is becoming too dominant. Another example is the disruption of drone technologies in China. While in the U.S. drones are unlikely to enter delivery service before 2020, JD.com has already been experimenting with drone and robot deliveries in a few Chinese locations and is planning to expand routes in 2017. In addition, the company is currently working on the development of a drone with a one-ton payload capacity, expected to enter service around 2020. Amazon’s drone program focuses on last-mile delivery one house at a time, which awaits the rules being developed by the FAA and the implementation of an air traffic control system that will work in low-altitudes. In contrast, JD.com focuses on city to countryside delivery carrying up to 15 different packages to a specific village landing pad. A local representative familiar with the area subsequently completes the delivery.

JD’s focus on rural areas illustrates another difference that is a major boost to Chinese companies’ attempt at platform domination in the high-tech industry. Due to some inefficiencies of the economy, they do not need to leap-frog existing bricks-and-mortars due to lack of infrastructure. While in the U.S. Amazon just acquired Whole Foods to arguably expand its retail footprint, smaller cities in China lack big retail centers and retail networks. Such limited distribution network inflates prices in remote areas, so the delivery service provided by high tech companies are advantageous. As logistics is costly for online retailers and margins are typically slim, similar to their western peers such as Amazon, they are investing heavily in high tech fulfillment and market expansion. The consequent attempt towards market domination is shaping up a burgeoning new economy in China and a legion of m-commerce consumers. Interesting, new consumer protection laws have recently been approved in the country introducing penalties for fraud and false advertising, and making allowances for product return. This contributes towards the expansion on high tech retailers.

As we continue speculating the motivations behind Amazon’s acquisition of Whole Foods, the strategies and reinvention of business models observed in China offer us an opportunity to imagine what’s ahead. In an increasingly platform-centric business landscape, creativity, innovation, and reinvention will ever more rule the day.