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Decoding the Chinese Internet
A white paper on China's Internet economy
September 2017
China Internet report-EN-FINAL.pptx 1
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 2
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
2016
2015
2014
2017
Foreword
Number of Internet users in China reached 253
million, overtaking the 220 million in the U.S.
Alibaba's GMV reached $248 billion, greater than that
of Amazon and eBay combined.
Mobile payment transaction volume in China
reached $8.5 trillion, 70 times that of the U.S.
Three technologies (incl. autonomous driving, etc.)
developed by Baidu were selected by MIT Tech
Review as “10 Breakthrough Technologies in 2017”.
P2P lending volume in China reached $66.9 billion,
4 times that in the U.S.
As of April, Ant Financial’s Yu’ebao surpassed JP
Morgan, with $165.6 billion AUM, becoming the world’s
biggest money market fund.
2013
2008
Shared bikes, a concept that originated in China,
attracted U.S. startups to follow suit. OFO, after only 2
years, made the CrunchBase unicorn list with a $1
billion valuation.
Context: The Chinese Internet is
attracting increasing global attention
Alibaba, overtook Wal-Mart for the first time with a
GMW of $490 bn, and became the world’s largest retail
platform
China and the U.S. are the dual engines
driving the global Internet economy.
However, these two markets are vastly
different. Jack Ma, chairman of Alibaba said,
“If the US is a car-based country, then China
today is driven by the Internet and mobile
phones.”
This report was led by the Boston
Consulting Group, in collaboration by the
leading Chinese Internet giants Alibaba and
Baidu. We hope that it will encourage further
consideration and discussions on the
Chinese Internet market.
This report aims to unveil the key
characteristics of the Chinese Internet
market, and explore their root causes.
Sources: Literature research, BCG analysis.
China Internet report-EN-FINAL.pptx 4
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 5
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Size: China is one of the world's largest Internet markets
The largest by Internet users and 2nd largest by online spending
710m Internet users in China, almost as
many as India and the US combined
China is leading the world except the US
in online spending
Top 10 countries by number of Internet users 2016 (100 Mn) Top 10 countries by online spending 2016 ($bn)
Sources: CNNIC, Internet Live Stats, BCG analysis.
Market characteristics
7.1
4.6
2.9
1.4
1.2
0.9
1.0
Mexico
Indonesia
China
US
Brazil
0.7Germany
Nigeria
Russia
0.6
Japan
0.6
India
1,133
967
352
335
309
217
209
180
155
74Italy
-3X
Germany
Russia
Japan
China
France
Brazil
India
UK
US
Almost 3x that of
Germany
China Internet report-EN-FINAL.pptx 6
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
2000 2005 2010 2015 2020
800
600
400
200
0
130
290
460
710
60
70
120
Growth: China is one of the fastest-growing Internet markets
High growth witnessed in both Internet users and online spending
Internet users (m)
31%
32%
CAGR of online spending in selected countries 2012-2016
China
India
US
Japan
Germany
Brazil
CAGR
25%
5%
30%
7%
6%
22%
8%UK
Sources: CNNIC, Internet Live Stats, BCG analysis.
Number of Internet users in China grew
at 25% p.a. over the past 15 years
Chinese online spending grew at
32% p.a. over the past 5 years
32%
31%
16%
12%
8%
7%
6%
6%
5%
South
Korea
France
Germany
India
China
US
Brazil
Russia
Japan
Market characteristics
China Internet report-EN-FINAL.pptx 7
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Potential: Huge potential is yet to be unlocked despite rapid
growth, with Internet penetration lagging behind G20 peers
Internet penetration of G20 countries (% as of July 2016)
20.4
34.3
45.1
50.052.0
56.4
64.765.6
69.271.2
85.585.685.786.488.088.588.5
91.192.0
52.2
India IndonesiaMexicoTurkeySouth
Africa
ChinaBrazilSaudi
Arabia
ItalyArgentinaRussiaAustraliaEUSouth
Korea
FranceGermanyCanadaUSJapanUK
Sources: Internet Live Stats.
Developed
countries
Emerging
countries
Market characteristics
China Internet report-EN-FINAL.pptx 8
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Internet-driven economy: Internet-related activities contribute
6.9% of China's GDP, among the highest in the world
China is the world's 2nd most Internet-driven economy
2.4
2.8
3.43.6
4.0
5.45.65.6
6.9
8.0
Germany Canada France Russia BrazilUSIndiaJapanChinaSouth Korea
Share of Internet-driven GDP of total GDP (%, 2016)
Note: eGDP is an indicator developed by BCG to size the Internet economy of a country. It was used for the first time in “The Connected World” series report – The Internet Economy in the G20, a
collaboration between BCG and Google in 2012. eGDP is calculated based on consumption, investment, state expenditure, imports and exports related to online retailing, network access and
equipment. South Korea and India are rank highly due to the higher output value of ICT equipment imports and exports. If these areas are excluded from the calculation, China tops the list (6.4%),
while South Korea and India drop to the 3rd (5.8%) and 8th place (3.2%) respectively
Sources: National Bureau of Statistics of China, BCG analysis.
Market characteristics
China Internet report-EN-FINAL.pptx 9
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Impact: The global influence of Chinese Internet players is
rising
China accounts for 5 of the 10
largest public Internet companies in the
world (as of June 30, 2017)
Chinese unicorns accounted for
29% of the world’s total unicorns
by quantity and 41% by valuation
Quantity distribution of
global unicorns
Valuation distribution of
global unicorns
China
Other
50%
29%
21%
Total #: 221
US
46%
41%
13%
Total market cap: $79.6 Bn
US
China
Other
Note: Based on CrunchBase unicorn list as of May 31, 2017, which contained 63 Chinese unicorns and 112 U.S. unicorns valued at $1Bn or more.
Sources: CrunchBase, BCG analysis.
Global Top 10 Internet public companies
by market capitalization ($bn)
64Netflix
62Baidu
Jingdong 56
NetEase 39
636Google
463Amazon
438Facebook
356Alibaba
336Tencent
92Priceline
Market characteristics
China Internet report-EN-FINAL.pptx 10
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Sources: eMarketer, Analysys International, iResearch, Company financial statements, BCG analysis.
Market structure: Market share of e-commerce and online
finance are substantially larger in China than in US
China vs the U.S.: Internet market
revenue breakdown 2016 (%, estimate)
23
23
44
27
15
3
17
6
12
U.S.China
Other business/living services
Public services
Basic applications
Online finance
Social network/entertainment
E-commerce
13
5
12
Market characteristics
China Internet report-EN-FINAL.pptx 11
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 12
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
User demographics: Chinese Internet users are on average 14
years younger than their US counterparts
Age distribution of
Chinese Internet users 2016
Age distribution of
US Internet users 2016
Other than the younger population, the substantially lower Internet penetration
among older people has contributed to the younger Internet user base in China
User characteristics
Penetration
by age group
Penetration
by age group
12%
21%
39%
88%
91%
51%Below 20
20-29
30-39
40-49
50-59
Below 25
25-34
35-44
45-54
55-65
60+ 65+
20%
17%
17%
18%
15%
13%
30%
24%
13%
5%
24%
4%
Average age: ~28 Average age: ~42
Sources: National Bureau of Statistics of China, Otcom, BCG analysis.
66%
82%
99%
99%
93%
46%
China Internet report-EN-FINAL.pptx 13
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Device preference: Chinese Internet users prefer to access
the Internet using a mobile phone; 25% are mobile-native
90
76
32
78 83
51
-20%
+12%
Tablet
-8%
Mobile Desktop / laptop
China is ahead of the US by 12.4% in mobile
phone penetration for Internet access
1 in 4 Chinese Internet users is
mobile native
11%
USChina
25%
Percentage of users who access the
Internet only on mobile (2016, %)
USChina
Penetration of devices for Internet access (2015, %)
User characteristics
Sources: National Bureau of Statistics of China, US Bureau of Census, CNNIC, Pew Research Center, ComScore, BCG analysis.
China Internet report-EN-FINAL.pptx 14
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
App preference: Chinese mobile Internet users are more
willing to try new apps but also drop them sooner
Number of apps installed
per Internet user 2015
China
App user retention 2015
(apps without push messaging, %)
Example: Mobile Internet users
33
36
40
32
26
46
42
39 38
Tier 3+
cities
Tier 3
cities
Tier 2
cities
Tier 1
cities
World
avg.
FranceSouth
Korea
JapanUS
15
1
22234
5
8
15
43
37
223334
5
7
11
25
1
No. of times app is used (app lifecycle)
11+1098765432
USChina
43% of apps are used only
once by Chinese Internet users
Only 15% of apps are used
11+ times by Chinese
Internet users
User characteristics
Sources: Google’s ”Global Mobile Research”, National Bureau of Statistics of China, Localytics, eMarketer, BCG analysis.
China Internet report-EN-FINAL.pptx 15
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
App preference: many apps adopted much faster in China
than in the US
2000 2005 2010 2015 2017
Social networks:
Instant
messaging 3 years
(Yet to reach 50%)
Public
services:
Ride-sharing 3 years
(Yet to reach 50%)
Online finance:
mobile
payment
(Yet to reach 50%)
4 years
E-commerce
9 years
14 years
China vs. U.S: Time to reach 50% user penetration1
Entertainment:
Online video
6 years
(Yet to reach 50%)
User characteristics
1. User penetration is defined as the ratio of an app’s registered users to the total number of Internet users of the year
Source: BCG analysis.
China Internet report-EN-FINAL.pptx 16
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Online spending preference: Chinese Internet users shop
more frequently, both on desktop and mobile
16%
10%
48%
24%
30%
44%
6%
22%
1-4 times per month
≥1 time per week
≥1 time per day
China US
<1 time per month
24%
15%
26%
40%
28%
46%
17%
US
3%
China
User characteristics
Source: “Understanding e-commerce in China and the U.S.” by IAB (Interactive Advertising Bureau).
Online shopping frequency
on desktop (2016)
Online shopping frequency
on mobile (2016)
China Internet report-EN-FINAL.pptx 17
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 18
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Competitive landscape: competition is intensifying;
ecosystems led by Internet giants are forming and expanding
vvip-u.com
Tencent
Netease
Perfect World
Ant Financial
Tencent-
Tenpay
UnionPay
Tencent
fund.eastmoney.com
Alibaba
Tencent
Weibo
immomo.com
Suning
JD
Lufax
Toutiao
Netease
iQiyi
Tencent Video
Youku Tudou
Baidu
Haosou (360 Search)
Ant Financial
Competition characteristics
CR3 of the Chinese Internet Industry by segment (%)
(The horizontal axis indicates the relative revenue of each segment; the vertical axis indicates
the market shares of top 3 players within each segment, based on revenue or transaction volume)
1. Within “Other” (companies outside of top 3), there may also be players belonging to Baidu, Alibaba and Tencent alliances; 2. DiDi: held by both Tencent and Alibaba; Baidu also became Didi's
shareholder due to prior investment in Uber, which was later acquired by DiDi; 3. All statistics are based on 2016 data.
Sources: iResearch, iiMedia, Sootoo Research, Analysys, BDR, Trustdata, annual reports, BCG analysis.
Social
media
~85%
Online
video
~55%
Online games
~60%
Search
~95%
News
~55%
Ride
sharing
~95%
Local
living
services
~85%
Online
tourism
~95%
Non-payment
Online finance
Finance
~40%
Payment
Online
finance
~85%
CtripFeizhuLY.com
DidiYidaoCARInc.
E-commerce
~90%
Meituan-DianpingKoubeiBaidu
30 60 10010 20 40 50
(Market share estimated based on revenue) (Market share estimated based on transaction volume)
Baidu alliance
Alibaba alliance
Tencent alliance
CR3
0
China Internet report-EN-FINAL.pptx 19
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Draft—for discussion only
Competition patterns: highly fad-driven, leading to large number of
companies at peak, few survivors, and shorter company life span
0
1,000
2,000
3,000
4,000
5,000
2008 2010 2012 2014
# of companies
0
1,000
2,000
3,000
4,000
2012 2013 2014 2015 2016
# of players
0
100
200
300
400
2010 2012 2014 2016
# of players
Fad 1: Group buying Fad 2: P2P lending Fad 3: Live streaming
Note: The U.S. stats (number of companies) are synthesized based on data from Venture Radar, TechCrunch and CB insights, and cross-checked with stats from other sources. Some extent of
underestimation may exist given most data are disclosure-based.
Sources: iResearch, WDZJ.com, Wallstreet Fintech Club, Venture Radar, TechCrunch, CB Insights, BCG analysis.
Fewer than 650
a year in the U.S.
Fewer than 100
a year in the U.S.
Fewer than 50
a year in the U.S.
China U.S.
Competition characteristics
China Internet report-EN-FINAL.pptx 20
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Competition patterns: On the flipside, overnight success is
more likely in China
Chinese Internet
startups:
Distribution of time
to $1bn valuation1
(1997-2017)
U.S. Internet
startups:
Distribution of time
to $1bn valuation1
(1997-2017)
1. Sample contains 63 Chinese and 112 US unicorn companies which were founded during 1997-2015
Sources: CrunchBase, BCG analysis.
0
10
20
30
40
10 yrs
above
3%
10 yrs
3%
9 yrs
6%
8 yrs
0%
7 yrs
5%
6 yrs
2%
5 yrs
5%
4 yrs
19%
3 yrs
11%
2 yrs
35%
1 yr
11%
0
10
20
10 yrs
above
19%
10 yrs
4%
9 yrs
7%
8 yrs
12%
7 yrs
10%
6 yrs
8%
5 yrs
11%
4 yrs
16%
3 yrs
5%
2 yrs
8%
1 yr
1%
~46% unicorns made it within 2 years
~9% unicorns made it within 2 years
Avg: 4 yrs
Avg: 7 yrs
Average time to unicorn: 4 years
Average time to unicorn: 7 years
Competition characteristics
China Internet report-EN-FINAL.pptx 21
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 22
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Key characteristics of the Chinese Internet economy
China is one of the two largest global Internet markets, exerting a significant influence
• China has an Internet user base of 710m, almost equivalent to India and the US combined, and
generates the second most online spending in the world
• China ranks highly in terms of the quantity and valuation of Internet giants and unicorns
The Chinese Internet market developed rapidly in the past and still has substantial future
growth potential.
• In recent years, the number of Internet users has been growing at 25% p.a. and online spending
has been growing at 32% p.a.
• Huge potential is yet to be unlocked with only 52% Internet penetration, among the lowest in the
G20
Adoption of many Internet products and services in China quicker than in the US
• Transaction volume of mobile payments in China has reached 70 times that of the US, many
emerging apps in China achieved >50% user coverage within three years
• China has younger Internet users, who are more willing to try new apps and services
The Chinese Internet market is highly dynamic and volatile
• Fierce competition between a vast number of players accelerates and magnifies the emergence,
peak, and decline of each fad, leading to shorter industry life cycles, higher market volatility, and
shorter company life spans
Rapid
development
Large scale and
unique
Highly dynamic
and volatile
China Internet report-EN-FINAL.pptx 23
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Draft—for discussion only
Key questions concerning the Chinese Internet economy
Question 1: How has the Chinese Internet market maintained
such strong growth despite its large scale?
Question 2: Why is the Chinese Internet market so dynamic
and volatile?
Question 3: What are the key factors for success in the Chinese
Internet market? Why have so many global giants failed in this
market?
Question 4: How will the characteristics of the Chinese
Internet market evolve in the future?
Question 5: What will be the impact of more Chinese Internet
companies going global?
China Internet report-EN-FINAL.pptx 25
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 26
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Internet
industry
Impacted
industries with
high transparency
e.g. IT, Mobile,
Internet
Impacted almost
all industries
Three core driving forces have propelled the Chinese Internet
boom, of which "leapfrogging" is the most important
Industries impacted by each driving force
Overall
economic
dividend
• Demographic dividend: a considerable base of
young consumers
• Talent dividend: large supply of cheap engineers
• Capital dividend: loose monetary policy and
vibrant capital market
• Infrastructure dividend: significant government-
led investment in infrastructure
2
High
transparency
• Open information: Internet-based products, services, and
business models enable fast info and knowledge transmission
• Shared resources: open source allows for faster technological
advancement
3
“Leapfrog
ging”
• Compared with developed countries, many traditional industries in China are backward
and have underserved needs and room for growth (e.g. retail coverage, non-cash
payments etc.)
• Internet-based solutions solve these pain points outright and have even become the
predominant force in some domains
1
Source: BCG analysis.
China Internet report-EN-FINAL.pptx 27
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Draft—for discussion only
Unlike mature nations, underdeveloped traditional industries
in China created leapfrog growth opportunities for the Internet
Role of the Internet
Source: BCG analysis.
Two types of development paths
Timeline
Industry efficiency
Industrial era Internet eraIT era
“Leapfrogging”3
• Limited room for development given
maturity of traditional industries;
consumer habits well established
• The Internet produced incremental
industry upgrades on top of existing
solid foundations
“Incremental upgrading”
• Market maturity was still low when
China entered the Internet era, with
ample underserved segments and
room for development in traditional
industries
• Internet-based solutions achieved
“leapfrog growth” by addressing these
pain points and filling market voids,
and even became the predominant
force in some domains
"Leapfrogging"
China Internet report-EN-FINAL.pptx 28
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The impact of "leapfrogging" is reflected in the unique structure of
the Chinese Internet market
For example, e-commerce and online finance represent a big proportion of the market
China vs. the US: Internet revenue
breakdown 2016 (%)
China vs. the US: Online finance
revenue breakdown 2016 (%)
32
83
34
13
34
Other
(Incl. third-party
online payment,
online asset
management,
online insurance)
Online lending
Mobile payment
US
4
China
23
23
44
27
15
3
17
6
13
12
China
12
E-commerce1
Social network/
Entertainment2
US
5
Other commercial/
living services6
Online finance3
Basic applications4
Public services5
1.E-commerce includes C2C, B2C and B2B e-commerce; 2.Social network/entertainment include social media, online games, online video and online music; 3.Online finance includes 3rd party online
payment, mobile payment, online asset management, online credit, online insurance; 4.Basic applications include maps and online news; 5.Public services include ride sharing, online healthcare and
online education; 6. Other business/living services include online tourism and local living services.
Note: Percentages are calculated based on revenue by segment; 3rd party online payment within online finance has some overlaps with other online transactions
Sources: eMarketer, Analysys International, iResearch, company financial statements, BCG analysis.
A
B
China Internet report-EN-FINAL.pptx 29
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Draft—for discussion only
When e-commerce started in China, offline retail had low
coverage, and was highly fragmented and inefficient
Compared with the US, offline retail in China was not
mature enough to fully address consumer demands
Insufficient offline retail coverage...
Majority of market occupied by fragmented
and inefficient independent channels
Retail floor space per thousand ppl (m2, 2005) Groceries sales channel breakdown (2005)
1 2
USAChina
Chain retail channel
Independent
retail channel, i.e.
mom-and-pop stores
China USA
18
1,150
1,100
1,050
50
0
1,105
47%
82%
53%
18%
E-commerceA
Sources: National Bureau of Statistics, Euromonitor, BCG analysis.
China Internet report-EN-FINAL.pptx 30
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Draft—for discussion only
The rise of e-commerce compensated for the under-coverage
and efficiency gaps in offline retail
E-commerce leveraged the rapidly
penetrating Internet to serve nationwide
E-commerce bypassed distribution layers
to deliver highly efficient transactions
Sources: World Bank, CNNIC, National Bureau of Statistics, Ali Research analysis, BCG analysis.
201120102009
Online retail
Offline retail
Transaction efficiency of online retail versus offline retail
(taking 2009–2011 data as an example)
Sales output per 1 RMB of input (RMB)
Internet coverage 2005-2015
(penetration in population, %)
50
34
9
65
51
14
74
72
68
201520102005
US
China(urban)
China
E-commerceA
China Internet report-EN-FINAL.pptx 31
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The unique demographic environment enabled efficient logistics,
facilitating e-commerce development
Massive supply of low-cost labor
Higher Chinese residential density
greatly boosted logistics efficiency
Average courier salary
2016 ($/hour)
Number of couriers
2016 (10K)
China vs. US: population density 2016 (ppl/km²)
4
13
0
5
10
15
USChina
72
203
0
50
100
150
200
250
USChina
143
34
0
50
100
150
China US
E-commerceA
Sources: Glassdoor, BCG analysis.
China Internet report-EN-FINAL.pptx 32
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Therefore, e-commerce "leapfrogged"; China's e-commerce
share of total retail sales was 1.5x the U.S. in 2016
16.4
13.8
9.9
6.5
4.3
2.5
1.0
0.30.20.2
10.1
9.2
8.4
7.6
6.7
6.0
5.2
4.64.34.0
~1.5x
2016201520142013201220112010200920082007
China vs US: online retail as % of total retail sales
China outpaced the
U.S. for the first time
in e-commerce
penetration
USChina
E-commerceA
Sources: National Bureau of Statistics of China, Euromonitor, Ali research, BCG analysis.
China Internet report-EN-FINAL.pptx 33
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
When mobile payments were introduced, cash dominated offline transactions
in China, while the US had a well-established credit card ecosystem
Mobile paymentsB
Payment methods in China vs the US in 2011 (%)
65
26
17
41
18
14
19
Others
(e.g. checks)
USChina
Online
Cash
Credit card
Sources: Euromonitor, BCG analysis.
China Internet report-EN-FINAL.pptx 34
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Consumers were not used to paying by credit card due to
weak payment infrastructure and low credit card penetration
Underdeveloped payment infrastructure
with low POS penetration
China vs US: No. of POS terminals per 10,000 people 2011
36
287US
China
Low penetration of credit cards
Rationales
• Large number of micro businesses: many micro
businesses are not qualified to apply for POS terminals due
to complicated application criteria and procedure
• Stringent review by acquirers on issuance of POS: :
acquirers in China are strict with issuance of POS terminals
given precedent of POS fraud
Sources: Payment & Clearing Association of China, BCG analysis.
0.2
1.7US
China
China versus US: No. of credit cards per person 2011
• Underdeveloped individual credit scoring system: a
complicated review process is required for card applicants
given inadequate credit scoring records
• Late adoption of credit card and consumer education
in early stage: China is a late adopter of credit cards and
consumers are less aware of credit card usage
Mobile paymentsB
China Internet report-EN-FINAL.pptx 35
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Mobile payments directly replaced cash payments and
achieved explosive growth in China
Sources: BCG Global Payments Model, Forrester Research, eMarketer, Euromonitor Passport, BCG analysis.
Payment method 2015 vs. 2011 (%)
... with the transaction volume
surging to 70x that of the US by 2016
Mobile payments rose as the substitute
for cash payment in China...
3rd-party mobile payment value ($bn)
8,521 ~70x
U.S.
112
China
Mobile paymentsB
47
65
24 26
25
17
49 41
17 18
14
1410
19
12
Cash
Credit card
Mobile
Online
Other
(e.g. checks)
2011
U.S.
2015
U.S.
1
2011
China
2015
China
1
Online
Mobile
Credit
card
Cash
Other
China Internet report-EN-FINAL.pptx 36
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 37
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Chinese Internet companies focus more on application-driven than tech-
driven innovation, according to a survey of around 40 industry experts1
1. Including 15 experts from Baidu, 15 experts from Alibaba, 5 experts from DiDi, and 5 experts from BCG. Survey was based on CrunchBase unicorn list as of May 31, 2017, which contained 63
Chinese unicorns and 112 U.S. unicorns valued at $1Bn or more.
Sources: CrunchBase, BCG analysis.
Application-
driven
innovation
90% 61%
39%
10%
Tech-driven
innovation
Key sources of
value creation
Companies that create
value from content, apps,
and business model
innovations, and applying
or optimizing mature
technologies
Companies that invent
technologies or create
value principally from
technologies
57
6
68
44
China Internet report-EN-FINAL.pptx 38
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Draft—for discussion only
Though they are application-driven, Chinese Internet companies have made
many unique innovations by combining of tech with app and business model
Security
solution
Payment
method
Wealth mgmt
User experience
Alipay’s innovations as an example (compared with Paypal)
Media of
payment
Unique innovations by Alipay
Useracquisition
"Express
Payment"
"Escrow
transactions"
(E.g. QR
payment,
fingerprint
payment, facial
refonition
payment... )
C2B
commercial
transactions
Medical
Shared bikes
Chain stores & supermarkets
Education
Insurance
Catering consumption
/
/
/
/
/
/
/
/ /
C2G public
transactions
eGovernment
Utility bill
Transportation
“Ant Forest”
…
Caring donation
/
/
/
C2C personal
transactions
…
AA payment
Transfer
Red envelope
Paypal.me
/
/
Sources: Ant Financial, Literature research, BCG analysis.
Credit scoring
Yu'ebaoPaypal MMF
Credit-based everyday item lending
Credit-based lodging
Credit-based cell phone leasing
Consumer loan &
instalment
“Sesame Credit”
PayPal Credit
/
/
/
/ Credit-based cell phone plans
Tourism
/
…
China Internet report-EN-FINAL.pptx 39
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Alipay's many unique innovations were driven by market
requirements with Chinese characteristics
Market requirement with
Chinese characteristics
E-commerce had just been introduced into
China; lack of trust between online consumers
and merchants
Certain domains in China are
immature, therefore require
innovative solutions which can
make up for the missing pieces
and achieve immediate results
Online/offline integrated
application scenarios can be
leveraged to realize fastest
customer acquisition
Starting point
Complicated online banking procedures and
poor user experience
To acquire customers within a short time by
developing a variety of application scenarios
Lack of well-established individual credit
scoring infrastructure
Unique Alipay
innovations
1
2
C2Bcommercialtrade&
C2Gpublictrade
Insurance
…
Transportation
Education
Healthcare
eGovernment
Utility bill
Shared bike
Credit-based cell
phone leasing
Credit-based
everyday item
lending
Credit-based
lodging
“Express Payment”
Escrow transaction
Creditreference
(“SesameCredit”)
Security
solution
Payment
method
Credit-based cell
phone plans
Source: BCG analysis.
China Internet report-EN-FINAL.pptx 40
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
13
26
43
4
23
11
11
0
Alipay's healthcare application case: integration of online and offline
outpatient process to optimize traditional healthcare services
Registration
Waiting
for inquiry
Inspection &
payment
Inspection
report claim
Inquiry Inspection
Medical
consultation
Medicine dispensing/
treatment
Payment for
medication
Doctor-patient
interactionOnline
Offline
Move
certain
steps of
the
outpatient
process
online
Total
outpatient
process
shortened
by 60%
on
average
Sources: Alibaba, Literature research, BCG analysis.
Registration to consultationWaiting for registration Consultation to payment Payment to dispensing
Alipay
channel
42
Traditional
channel
90
1 2 3
Case study: Guangzhou Women and Children's Medical Center
Average time spent by a patient in hospital (minutes)
No more waiting for registration
• Selection of department (doctor)
and time slot
• Payment and registration on
Alipay
• Reminder of registered time and
attention items
• Queuing status of current
department viewable on mobile
Reduced the time from registration to
consultation by ~40%
• Notification on when to see doctors and get
drugs
• Inquiry of the queuing status on mobile phone
• Real-time inspection bill alert and one-click
payment
• Redirection to diagnosis room for inspection
after completion of payment
• Real-time e-diagnosis report available on
mobile
Reduced the time from consultation to
payment by ~80%
• Real-time medicine billing alerts and
one-click payment
• Redirection to pharmacy for drug claim
after completion of payment
• Detailed bill breakdown available on
mobile and one-click payment of the out-
of-pocket portion
China Internet report-EN-FINAL.pptx 41
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Draft—for discussion only
Company innovation behaviors driven by Chinese market
requirements lead to higher market dynamics and volatility
Market requirement
with Chinese
characteristics
Certain domains in China
are immature, therefore
require innovative
solutions which can make
up for the missing pieces
and achieve immediate
results
Online/offline integrated
application scenarios can
be leveraged to realize
fastest customer
acquisition
1
2
Innovation behaviors
of companies
Impact on the Chinese
Internet market
Source: BCG analysis.
Lower innovation threshold,
larger quantity of players,
fads being more easily
formed
More frequent innovation,
more product and
application variations, higher
market volatility
Focus on micro innovation
and modification-based
innovation
Emphasis on immediate
results and implementation
Focus on online and offline
integration
China Internet report-EN-FINAL.pptx 42
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 43
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Unique KSFs are required for Internet players to succeed in
the unique Chinese market
Localization
(“China-for-
China”)
capabilities
Quick market
response
Online/offline
integration
capabilities
Ecosystem
building
capabilities
1
2
3
4
KSFs
• Different economic, social and cultural environments lead to huge deviation in user needs
between China and the US.
• Multi-level economic and social structures lead to highly diverse user needs within China
• The Chinese Internet's focus on application-driven innovation poses requirement for
companies to have in-depth understanding of Chinese consumer needs and customize
product offerings
• Application-driven market leads to more micro and modification-based innovations
• Such micro and modification-based innovations require staying close to changes in consumer
demand, agility to market, and immediate results
• In some domains, the Chinese Internet companies played the role of driving "leapfrogging"
of traditional industries and had to engage in offline operations
• To quickly expand scale, Chinese Internet companies need an offline team to develop
business and educate the market
• To achieve "leapfrog growth", Chinese Internet players need to build integrated
online/offline ecosystems in vertical sectors
• The Chinese Internet market features “ecosystem-based competition,” which requires
companies to have strong ecosystem capabilities
An Internet market with Chinese characteristics
Source: BCG analysis.
China Internet report-EN-FINAL.pptx 44
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Quick market response case study: QQ vs MSN
QQ vs. MSN: MSN launched 4 key offerings later than QQ
and was slow in handling Chinese customer complaints
1. QQ giant attachment supports online transmission of files no larger than 1 Gigabyte.
Sources: zol.com, Literature research.
Launched QQ
group chat offering
OICQ was launched
with offline messaging
functionality
Launched online drive
offering
Launched "QQ giant
attachment1"
functionality
2008 2010 20141995 20001999 2004 2005
9 years late in
launching offline
messaging
4 years late in
launching online drive
6 years late in
launching group chat
5 years late in
launching large file
transfer
Launched large file
transmission
functionality
• Launched offline messaging
functionality
• Launched Windows Live
SkyDrive
• Launched group chat offering
MSN officially
left the
Chinese
market
MSN was
launched
2
China Internet report-EN-FINAL.pptx 45
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Online/offline integration capability case study: The Chinese
Internet is more demanding for offline operations than the U.S.
O2O
take-out
service
P2P
Short-
term
lodging
~1000
Tens of
thousands
~30k
~1500
~5000
~60
• Own and outsourcing
take-out delivery team
• Limited involvement
in delivery
• Offline branches to
enhance customer
acquisition and risk
control
• Online customer
acquisition and risk
control
• Offering online search
and booking services,
an offline apartments
and related services
• Mostly an online
platform to bridge
tenants and house
owners
China vs. the U.S. by
team size of Internet companies
3
Sources: Literature research, BCG analysis.
China Internet report-EN-FINAL.pptx 46
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Ecosystem building case study: Didi's powerful ecosystem is
an indispensable contributor to its success
Didi's ecosystem
GPS
Navigation
Payment
• Partners with the top 3 mobile map apps in China
• Over 500 million mobile users
• Over 40 million daily active users
Marketing
channels
• WeChat wallet drives traffic to Didi; WeChat users can use Didi car-hailing
service without installing the Didi app
• Red packet sharing feature, enabling one-click sharing with friends on
WeChat, Moments, Weibo, and Alipay
• After payment using WeChat, the user will be automatically subscribed to the
Didi public WeChat account
• Didi’s official Weibo account has 1.91 million followers, creating strong word
of mouth
• Hundreds of millions of monthly active payment users
4
Sources: Literature research, BCG analysis.
China Internet report-EN-FINAL.pptx 47
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 48
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Chinese Internet market characteristics: future trends
Overall rapid
development will
continue, with
certain driving
forces weakening
Overall economic dividend will decline, but the other driving forces shall remain
• Demographic dividend( ↓): the aging of population will continue and reduce advantages in younger demographics
• Talent dividend( - ): the reflux of overseas talents will accelerate, but advantage in labor cost will shrink
• Capital dividend( ↓): monetary policy is expected to tighten a bit, and capital market will mature and rationalize
• Infrastructure dividend( - ): government-led and policy-promoted investment in infrastructure will continue
Leading Internet players, e.g. BAT have laid strong foundations for future development of the industry and
accelerated emergence of new players
New development
models will create
new rapid
development
opportunities
Advantages derived from "leapfrogging" will help Chinese Internet players lead the way in new
development models
• For example, the core of New Retail model lies in deep integration of online and offline
• Advantages derived from “leapfrogging”: The role of the Internet offers new solutions to address
needs that are underserved by traditional industries, therefore Chinese Internet companies have
naturally focused on online and offline integration and ecosystem building
Alibaba is a showcase of a Chinese Internet player as a fast mover with a new development
model
Market will remain
dynamic but be
less volatile
Chinese Internet players are likely to shift from application-driven to tech-driven innovation. Take AI for
example:
• China is almost able to compete with US and Japan in AI technology
• The massive user base and wide variety of application scenarios in China will reinforce the AI technology
optimization cycle
The gradual shift to tech-driven innovation will to some extent change market behaviors and stabilize the
market
1
2
3
Source: BCG analysis.
China Internet report-EN-FINAL.pptx 49
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
BAT have laid the foundation for the future development of the
industry and accelerated the emergence of new Internet players
Sources: Baidu, BCG analysis.
Shared bikes: reliance on strong foundations to achieve rapid go-to-market and explosive growth
E.g. Leading shared bike player OFO received total orders of over 5 million one year after its launch,
and over 10 million another 3 months later
User habits
Transaction behaviors
formed via development
of new communication
technologies (e.g. QR
code payments)
Mobile payment
Pervasive third-party
mobile payment tools
(WeChat Payment,
Alipay) covering online
and offline scenarios
Traffic entrance
Hundreds of millions of
customers on WeChat
and Alipay’s platforms
offer a massive user
base for emerging apps
(users don’t have to
download these apps)
Location based
service
Electronic fence solution
for better management
of shared bikes
1 Overall rapid development will continue
China Internet report-EN-FINAL.pptx 50
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Advantages from “leapfrogging” will help Chinese Internet
players pioneer new development models in certain sectors
“Pure e-commerce will vanish soon. When the
moment comes, ‘e-commerce’ will be replaced by
‘new retail’...”
Jack Ma at Alibaba’s 2016 Computing Conference
“Ubiquitous consumption scenarios” –
Integrating online/offline channels
“Digitalized consumers” –
Creating consistent customer experience
“Production starts upon receiving the order” –
Operating efficiently end to end
...can help Chinese Internet players pioneer new
development models (for example "new retail")
Advantages derived from “leapfrogging”
(E-commerce for example)...
Chinese e-commerce players have put more effort into
offline services given weak infrastructure
• Natural focus on online/offline integration, leading
to a more complete ecosystem
• A holistic data chain covering sales, payment and
finance, which offers insights into consumer demand
trends and can help optimize product planning and
supply chain, and enable efficient end-to-end
operations
• Logistics networks of fast response and broad
coverage, which benefits inter-channel integration and
customer experience optimization
• Highly open retail ecosystem, which can adapt to
different market conditions
a
b
c
2 New development models will bring new opportunities
Sources: Ali Research, BCG analysis.
China Internet report-EN-FINAL.pptx 51
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Chinese players made good progress in new dvpmt models
e.g. Alibaba proposed the new concept of "5 new forces1 and a fair competition environment"
New
Retail
• Worked with Nestle to create “FLIPSIDE Cafe” and leveraged big data mining and
estimation to boost sales conversions. Tmall flagship store achieved 20x of usual sales
volume on day 1.
• Launched TAO CAFE, a self-service cafe that tracks consumer in-store behaviors and
continuously improves the customer experience based on big data analytics
• Launched Hema Supermarket to integrate online and offline channels, by first setting up
offline stores to establish brand awareness and then directing consumers online
New
manu-
facturing
• Tmall has established partnerships with 40 brands in 7 industries on custom manufacturing,
e.g. with:
– Mondelez on snack packaging, Malianghang on sound wave rings, Budweiser on
recording bottles etc.
• Helped SOGAL leverage big data for custom manufacturing to improve user experience,
delivery speed, and inventory efficiency
New
Financial
services
• Ant Financial is committed to offering inclusive financial services
• Over the past six years, Ant Microfinance has lent over 1tn RMB to small and micro
businesses, with an average loan balance below RMB 30,000; over 1.75 million of the
borrowers were in the agriculture business
"5 new forces1 and a fair
competition environment" Progress and interim results
2
1. Composed of New Retail, New Manufacturing, New Financial Services, New Energy, and New Technology
Sources: Ali Research, Literature research.
New development models will bring new opportunities
China Internet report-EN-FINAL.pptx 52
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Draft—for discussion only
We have noticed the rising trend of Chinese companies
shifting from application-driven to tech-driven innovation
China ranks 2nd for the
number of AI companies
Number of AI companies (2016)
Number of AI patent applications
has surpassed Japan
Number of AI patent applications (2016)
Source: Wuzhen Institute.
83132136160173228233
366
709
2,905
SwitzerlandSpainFranceGermanyIsraelCanadaIndiaUKChinaUS
578597
1,8032,3102,459
4,0534,386
14,604
15,745
26,891
AustriaAustralia RussiaUKSouth
Korea
CanadaGermanyJapanChinaUS
65% of AI companies in
the world are in the U.S,
China and UK
The U.S, China, and
Japan applied for 74%
of AI patents globally
3 Market will remain dynamic but will be less volatile
China Internet report-EN-FINAL.pptx 53
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
0
25
50
75
100
125
150
175
200
225
250
275
300
325
350
2011 2012 2013 2014 2015
China leads in the number of published papers and cited
papers in deep learning
No. of cited papers on deep learning1No. of published papers on deep learning
However, China still lags behind the US in the quantity and quality
of breakthrough research, and the influence of research
0
10
20
30
40
50
60
70
80
90
2011 2012 2013 2014 2015
China
US
UK
Australia
Canada
Japan Australia
UK
JapanUSA
China Canada
3
1. The statistics do not exclude number of self-citations. If excluded, China would rank the 2nd place by number of citied deep learning related papers in 2015 (second only to the US).
Sources: Web of Science - White House, Wuzhen Institute, Sinovation Ventures, Scimago Journal.
Market will remain dynamic but will be less volatile
China Internet report-EN-FINAL.pptx 54
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Draft—for discussion only
Leading Chinese players have also made achievements in
algorithms and open source platforms
Open source platform:
Baidu’s PaddlePaddle, Apollo
In 2016, Baidu open-sourced PaddlePaddle, a
deep learning algorithm platform developed in
2013, and achieved fast iteration and upgrades
by applying the platform to ~30 Baidu products
and services
• E.g. estimated delivery time of take-outs,
prediction of occurrence of online drive failures,
accurate recommendation of information,
identification and classification of massive
images, virus and spam detection, machine
translation and autonomous driving etc.
Demonstrated fast growth and dynamic activities
despite short time since open-source
• PaddlePaddle generated 1326 topics within nine
months after going open-source
Machine translation: Baidu's Neural
Machine Translation (NMT) system
Baidu launched its Neural Machine Translation (NMT)
system in May 2015
• It only took Baidu 8 months from ideation (in Sep. 2014)
to the launch of Internet-based NMT system (May 2015)
NMT has significant technological highlights
"Unlike traditional approaches which separate sentences
into small pieces, NMT makes full use of contextual
information to code and decode the sentence as a whole so
as to generate more a fluent translation"
—Hua WU, Chairman of Technical Committee (TC), Baidu
“Baidu launched the world’s first Internet NMT. Google and
Microsoft didn't launch similar systems until September
2016”
—Hua WU, Chairman of Technical Committee (TC), Baidu
Paddle
Paddle
Apollo
Launched Project Apollo to provide an open,
complete & reliable platform for its partners in
automotive/autonomous driving sectors
Will build an ecosystem consisting of OEMs,
ADAS manufacturers, and suppliers of sensors
and other auto components
3
Sources: Baidu, Literature research.
Market will remain dynamic but will be less volatile
China Internet report-EN-FINAL.pptx 55
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
In April 2017, Baidu announced
Project Apollo to create an open platform for
autonomous driving technologies
Open source model may help Baidu realize
leapfrog growth in autonomous driving solutions
As an Internet company lacking in manufacturing
expertise, Baidu will complete its ecosystem using an
open source model. Baidu can exchange technology for
data, which will promote its technological advancement.
Compared with their US counterparts, Chinese Internet
companies have advantages in their open source model as
they have closer relationship with OEMs.
• Traditional manufacturing in China is still underdeveloped,
thus OEMs are more willing to embrace and partner with
Internet companies. An example is the strategic partnership
between Baidu and Chery Automobile.
– “Chery and Baidu have jointly developed 20 L4-level
autonomous cars. We will further cooperation with
Baidu on technology sharing and R&D collaboration."—
Lu Weiyi, President of the Research Institute, Chery
Automobile
Case study: Baidu’s Project Apollo provides an open, complete and
reliable platform for automotive/autonomous driving partners
Project plan
“Baidu will provide its OEM and autonomous driving
partners with an open, complete and secure software
platform; offer a complete SW/HW and service
system suite composed of a vehicle platform, a HW
platform, a SW platform, and cloud data services;
open code or capabilities in environment
perception, route planning, vehicle control and in-
vehicle OS, as well as the full set of development and
testing tools; select and ally with vehicle and sensor
partners with the highest synergy and compatibility so
as to lower the entry barrier and help traditional
OEMs set up their own autonomous driving systems
more quickly.”
Baidu is the first company of its kind in the world to open up its own
technologies and platforms and share capabilities to such an extent.
Progress
Over 60 auto companies and over 200 models have
joined Baidu’s platform. Baidu is building an ecosystem
consisting of OEMs, ADAS manufacturers, and
suppliers of sensors and other components.
3
Sources: Baidu, Literature research.
Market will remain dynamic but will be less volatile
China Internet report-EN-FINAL.pptx 56
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Application
The massive user base and rich variety of applications will
reinforce each other and accelerate algorithm optimization
• Over 10m user profile tags; over 100m multi-round dialog
requests/global total POIs
• Over 1bn knowledge graph entities/speech/audio
• Over 10bn knowledge/search requests/videos
• Over 100bn images; over 1tn web pages
Com-
puting
power
Reinforcement cycle
B. Massive
amount of
data
generated
by huge
user base
Numerous
use cases
thanks to
complexity
and
unique
characteris
tics of the
Chinese
market
a
b
a
Data
b
Algo-
rithm
More
accurate
algorithms
promote
wider
application
Massive
amounts of
data
accelerate
algorithm
optimization
Quality
applications
generate
massive
amounts of
data
Baidu’s DuerOS
Customized
voice solutions
for smart TV
sets, set-top-box,
projector, etc.
Smart
TV
DuerOS-
powered smart
speaker helps
users access
entertainment
resources
efficiently
Smart
speaker
Low-cost and
energy-
conservative
smart toys allow
device and
module
manufacturers to
accelerate
product updates
Smart
toys
Allow wearables
to have real
intelligence and
be able to deliver
hands-free
services
Smart
wearables
Phone
understands
what the user
says and acts as
a personal
assistant to help
the user handle
their busy
lifestyle
Smartphones
Dialog-based AI system DuerOS
Info search
Useful tools
Chat & leisure
Mobile phone
instructions
Lifestyle
services
Personal
assistant
Smart home
Knowledge &
education
~100
capabilities
in 10
categories
3
Sources: Baidu, Literature research.
Market will remain dynamic but will be less volatile
China Internet report-EN-FINAL.pptx 57
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Agenda
Foreword
Characteristics of the Chinese Internet market
• Market characteristics
• User characteristics
• Competition characteristics
• Summary of Chinese characteristics
Decoding the characteristics of the Chinese Internet market
• Question 1: How has the Chinese Internet market maintained such strong growth?
• Question 2: Why is the Chinese Internet market particularly dynamic and volatile?
• Question 3: What are the key factors for success in the Chinese Internet market? Why have
global giants failed in this market?
• Question 4: How will the characteristics of the Chinese Internet market evolve in the future?
• Question 5: What will be the impact of more Chinese Internet companies going global?
China Internet report-EN-FINAL.pptx 58
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
53% 54%
36%
11%
47% 46%
64%
89%
95% 99%
FacebookAmazon1 Alibaba Tencent
5% 1%
Baidu
Domestic
Overseas
Google
Though they are late to expand globally, Chinese Internet players have
started to explore overseas markets with established domestic leadership
Alibaba
Baidu
Didi
• Globalization strategy for five businesses: e-commerce, Ant Financial, Cainiao,
cloud computing, and the UC web browser
• Main strategy is to promote its technology and services as well as to invest in
local players in overseas markets
• Aims to generate 50% of total GMV overseas by 2025
2016 revenue breakdown
(domestic vs overseas)
• Globalization of car hailing app: mainly through investment and strategic
alliances
• Exploration around international tourism (e.g. overseas car rental)
• International collaboration on emerging technology R&D (e.g. AI, big data)
• Set up Globalization Business Unit to roll out Didi’s products, technologies and
services globally
1. The domestic market of Amazon includes North America; and revenue from software is not included in operating revenue (<10%)
Sources: Company reports, Literature research, BCG analysis.
Tencent
• Social networks: mainly promote WeChat and invest in local instant messaging
software companies; prioritize emerging markets such as SE Asia, including
Indonesia, Thailand, and Malaysia
• Games: make acquisitions globally and form strategic alliances
• Tencent cloud: establish overseas service nodes & data centers to provide
cloud services abroad
• Baidu leveraged its edges in software development, strategic acquisition &
machine learning to offer AI-powered global products, and became the first
Chinese Internet player in AI sector to go global
• Prioritize markets with large population or emerging economies with huge
growth potential (e.g. US, Japan, India, Brazil, Indonesia, Thailand, Egypt)
• Build localized content platform, and use AI to empower products (e.g. Input
method, DAP ad. Platforms...); 2 billion users across ~200 countries and
regions, and 360 million monthly active users across the globe
Chinese Internet giants currently only
generate a small proportion of
revenue overseas
But they have gradually shifted their
strategic focus to overseas expansion
China Internet report-EN-FINAL.pptx 59
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
The unique characteristics of the Chinese Internet market will
indirectly influence how Chinese companies expand overseas
Unique characteristics of
Chinese Internet market
As reflected in behaviors of
overseas expansion
Impact on Chinese
Internet company
characteristics
Chinese Internet players have tended to approach overseas expansion with a more flexible model in
recent years, e.g. strategic investment, shareholding, alliances to quickly adapt to local markets
"Leapfrogging", developing
rapidly in an immature
market,
filling market voids
Application-driven,
highly dynamic and volatile
market environment
Role and value prop:
Proficient at
addressing pain
points of traditional
industries in an
immature market
Business logic:
Emphasis on
staying close to the
market, quick
response, and
immediate results
• More active in helping shape market environment, e.g.
investing in infrastructure (logistics, warehousing,
etc.), working with governments to solve social
problems
• Attach equal importance to online and offline
business development
• Prefer to enter markets similar to China (featured by
large scale, strong local demand, immaturity in
traditional industries), replicate China success, and
build up ecosystems
• More willing to work with partners to strike a balance
between control and responsiveness, and create win-
win results
• Tend to keep local partner brands and teams, to
ensure market recognition and responsiveness to
local market demand
• Open up various resources (customers, businesses,
etc.) on its own platform to the local partner
Source: BCG analysis.
China Internet report-EN-FINAL.pptx 60
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Alibaba case study: actively investing in local mobile payment providers
in India and SE Asia and coaching them into local market leaders
In November 2016, Ant Financial
signed a strategic partnership
agreement with Ascend Money,
a Thai payment player, to
replicate the inclusive financial
services model to Thailand
In February 2017, Ant Financial
invested in Mynt, the largest
fintech company in Philippines,
which owns GCash, the nation’s
largest e-wallet with over 3
million users
On April 12, 2017, Ant Financial
announced a JV with Indonesia’s
Emtek Group to co-develop
mobile payment products
1. Data as of H1 2017
Sources: TechCrunch, People’s Daily, BCG analysis.
• Alibaba has been pushing forward
“Mashangtao” strategy (a QR code
based shopping experience) since 2014
• Ant Financial was the first to launch
the concept of “QR code Payment”,
which has now become a mainstream
payment method in China
Ant Financial: a pioneer
in QR code payment
Helped Paytm to become
the world’s 3rd largest
mobile payment platform
Shareholding & investment
• Invested in Paytm, a payment platform
under Indian company One97 in 2015,
and became the biggest shareholder
Technology transfer
• Paytm became the first Indian company
to adopt QR code payment
• Ant Financial helped Paytm to build up
risk management system
People training
• Established Ant Technical University to
provide training courses tailored to
local partners
• Set up personnel certification standards
to facilitate the formation of industry
standards and practices for mobile
payment
Acquired 74% market share,
220m mobile payment
users1, and more than 2m
merchants in India
China Internet report-EN-FINAL.pptx 61
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Impact of the overseas expansion of Chinese Internet
companies on the global Internet market
Impact on local Internet companies
Adopt an open attitude to consider win-win
opportunities, faced with Chinese entrants
• Capital: can we obtain strategic capital (for marketing,
customer acquisition, subsidy) or make jointly
investment in infrastructure (e.g. logistics, warehouses,
etc.)?
• Key technology/growth experience: can we acquire key
technologies, talents with well-rounded online/offline
expertise, and company growth experience?
• Platform resources: can we persuade the Chinese
partner to open up resources including customers and
merchants on their own platforms?
Must be prepared for the potential impact of new
Chinese entrants, such as massive subsidies,
ecosystem restructuring, and develop solutions in
advance.
Impact on global Internet giants
Consider how to partner with Chinese Internet
companies in emerging markets
• Tencent, Microsoft and eBay jointly invested in the
Indian e-commerce player Flipkart in 2017. Besides
financial investment, Tencent will also be involved in
strategies to create synergies between social media
and e-commerce
• Didi became an investor and partner of global top 7
leading ride-sharing players including Uber, Lyft, Grab,
Ola, 99, Taxify, and Careem
Learn from the different business logic of Chinese
players, especially in emerging markets—how to adapt
flexibly to local conditions, and better overcome
challenges of immature markets
• Cooperate with local brands and ecosystems
• Operate offline teams and invest in improving
infrastructure
Source: BCG analysis.
China Internet report-EN-FINAL.pptx 62
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Authors and steering committee
Authors
Shu Li Boston Consulting Group Partner and Managing Director li.shu@bcg.com
Francois Candelon Boston Consulting Group Senior Partner and Managing Director candelon.francois@bcg.com
Daniel Wu Boston Consulting Group Principal
Jeffrey Wu Boston Consulting Group Project Leader
Cynthia Hu Boston Consulting Group Consultant
Alex Ho Boston Consulting Group Consultant
Xin Cheng AliResearch Senior Expert longhai.cx@alibaba-inc.com
Fei Song AliResearch Senior Expert fei.song@alibaba-inc.com
Zhoupei Xie AliResearch Senior Expert zhoupei.xiezp@alibaba-inc.com
Linli Huang Baidu Development Research Center Director huanglinli@baidu.com
Qiang Wang Baidu Development Research Center Senior Researcher wangqiang23@baidu.com
Steering Committee
Francois Candelon Boston Consulting Group Senior Partner and Managing Director
Shu Li Boston Consulting Group Partner and Managing Director
Derek Kennedy Boston Consulting Group Senior Partner and Managing Director
Jean-Francois Van
Kerckhove
Boston Consulting Group Partner and Managing Director
Hongbing Gao Alibaba Group VP, Director of AliResearch
Cheng Zhao Baidu Chief Editor, GM of Public Affairs
China Internet report-EN-FINAL.pptx 63
Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved.
Draft—for discussion only
Disclaimer
The services and materials provided by The Boston Consulting Group (BCG) are subject to BCG's Standard Terms (a copy of which
is available upon request) or such other agreement as may have been previously executed by BCG. BCG does not provide legal,
accounting, or tax advice. The Client is responsible for obtaining independent advice concerning these matters. This advice may
affect the guidance given by BCG. Further, BCG has made no undertaking to update these materials after the date hereof,
notwithstanding that such information may become outdated or inaccurate.
The materials contained in this presentation are designed for the sole use by the board of directors or senior management of the
Client and solely for the limited purposes described in the presentation. The materials shall not be copied or given to any person or
entity other than the Client ("Third Party") without the prior written consent of BCG. These materials serve only as the focus for
discussion; they are incomplete without the accompanying oral commentary and may not be relied on as a stand-alone document.
Further, Third Parties may not, and it is unreasonable for any Third Party to, rely on these materials for any purpose whatsoever. To
the fullest extent permitted by law (and except to the extent otherwise agreed in a signed writing by BCG), BCG shall have no liability
whatsoever to any Third Party, and any Third Party hereby waives any rights and claims it may have at any time against BCG with
regard to the services, this presentation, or other materials, including the accuracy or completeness thereof. Receipt and review of
this document shall be deemed agreement with and consideration for the foregoing.
BCG does not provide fairness opinions or valuations of market transactions, and these materials should not be relied on or construed
as such. Further, the financial evaluations, projected market and financial information, and conclusions contained in these materials
are based upon standard valuation methodologies, are not definitive forecasts, and are not guaranteed by BCG. BCG has used public
and/or confidential data and assumptions provided to BCG by the Client. BCG has not independently verified the data and
assumptions used in these analyses. Changes in the underlying data or operating assumptions will clearly impact the analyses and
conclusions.
Thank you
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Decoding the Chinese Internet

  • 1. Decoding the Chinese Internet A white paper on China's Internet economy September 2017
  • 2. China Internet report-EN-FINAL.pptx 1 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 3. China Internet report-EN-FINAL.pptx 2 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only 2016 2015 2014 2017 Foreword Number of Internet users in China reached 253 million, overtaking the 220 million in the U.S. Alibaba's GMV reached $248 billion, greater than that of Amazon and eBay combined. Mobile payment transaction volume in China reached $8.5 trillion, 70 times that of the U.S. Three technologies (incl. autonomous driving, etc.) developed by Baidu were selected by MIT Tech Review as “10 Breakthrough Technologies in 2017”. P2P lending volume in China reached $66.9 billion, 4 times that in the U.S. As of April, Ant Financial’s Yu’ebao surpassed JP Morgan, with $165.6 billion AUM, becoming the world’s biggest money market fund. 2013 2008 Shared bikes, a concept that originated in China, attracted U.S. startups to follow suit. OFO, after only 2 years, made the CrunchBase unicorn list with a $1 billion valuation. Context: The Chinese Internet is attracting increasing global attention Alibaba, overtook Wal-Mart for the first time with a GMW of $490 bn, and became the world’s largest retail platform China and the U.S. are the dual engines driving the global Internet economy. However, these two markets are vastly different. Jack Ma, chairman of Alibaba said, “If the US is a car-based country, then China today is driven by the Internet and mobile phones.” This report was led by the Boston Consulting Group, in collaboration by the leading Chinese Internet giants Alibaba and Baidu. We hope that it will encourage further consideration and discussions on the Chinese Internet market. This report aims to unveil the key characteristics of the Chinese Internet market, and explore their root causes. Sources: Literature research, BCG analysis.
  • 4. China Internet report-EN-FINAL.pptx 4 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 5. China Internet report-EN-FINAL.pptx 5 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Size: China is one of the world's largest Internet markets The largest by Internet users and 2nd largest by online spending 710m Internet users in China, almost as many as India and the US combined China is leading the world except the US in online spending Top 10 countries by number of Internet users 2016 (100 Mn) Top 10 countries by online spending 2016 ($bn) Sources: CNNIC, Internet Live Stats, BCG analysis. Market characteristics 7.1 4.6 2.9 1.4 1.2 0.9 1.0 Mexico Indonesia China US Brazil 0.7Germany Nigeria Russia 0.6 Japan 0.6 India 1,133 967 352 335 309 217 209 180 155 74Italy -3X Germany Russia Japan China France Brazil India UK US Almost 3x that of Germany
  • 6. China Internet report-EN-FINAL.pptx 6 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only 2000 2005 2010 2015 2020 800 600 400 200 0 130 290 460 710 60 70 120 Growth: China is one of the fastest-growing Internet markets High growth witnessed in both Internet users and online spending Internet users (m) 31% 32% CAGR of online spending in selected countries 2012-2016 China India US Japan Germany Brazil CAGR 25% 5% 30% 7% 6% 22% 8%UK Sources: CNNIC, Internet Live Stats, BCG analysis. Number of Internet users in China grew at 25% p.a. over the past 15 years Chinese online spending grew at 32% p.a. over the past 5 years 32% 31% 16% 12% 8% 7% 6% 6% 5% South Korea France Germany India China US Brazil Russia Japan Market characteristics
  • 7. China Internet report-EN-FINAL.pptx 7 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Potential: Huge potential is yet to be unlocked despite rapid growth, with Internet penetration lagging behind G20 peers Internet penetration of G20 countries (% as of July 2016) 20.4 34.3 45.1 50.052.0 56.4 64.765.6 69.271.2 85.585.685.786.488.088.588.5 91.192.0 52.2 India IndonesiaMexicoTurkeySouth Africa ChinaBrazilSaudi Arabia ItalyArgentinaRussiaAustraliaEUSouth Korea FranceGermanyCanadaUSJapanUK Sources: Internet Live Stats. Developed countries Emerging countries Market characteristics
  • 8. China Internet report-EN-FINAL.pptx 8 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Internet-driven economy: Internet-related activities contribute 6.9% of China's GDP, among the highest in the world China is the world's 2nd most Internet-driven economy 2.4 2.8 3.43.6 4.0 5.45.65.6 6.9 8.0 Germany Canada France Russia BrazilUSIndiaJapanChinaSouth Korea Share of Internet-driven GDP of total GDP (%, 2016) Note: eGDP is an indicator developed by BCG to size the Internet economy of a country. It was used for the first time in “The Connected World” series report – The Internet Economy in the G20, a collaboration between BCG and Google in 2012. eGDP is calculated based on consumption, investment, state expenditure, imports and exports related to online retailing, network access and equipment. South Korea and India are rank highly due to the higher output value of ICT equipment imports and exports. If these areas are excluded from the calculation, China tops the list (6.4%), while South Korea and India drop to the 3rd (5.8%) and 8th place (3.2%) respectively Sources: National Bureau of Statistics of China, BCG analysis. Market characteristics
  • 9. China Internet report-EN-FINAL.pptx 9 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Impact: The global influence of Chinese Internet players is rising China accounts for 5 of the 10 largest public Internet companies in the world (as of June 30, 2017) Chinese unicorns accounted for 29% of the world’s total unicorns by quantity and 41% by valuation Quantity distribution of global unicorns Valuation distribution of global unicorns China Other 50% 29% 21% Total #: 221 US 46% 41% 13% Total market cap: $79.6 Bn US China Other Note: Based on CrunchBase unicorn list as of May 31, 2017, which contained 63 Chinese unicorns and 112 U.S. unicorns valued at $1Bn or more. Sources: CrunchBase, BCG analysis. Global Top 10 Internet public companies by market capitalization ($bn) 64Netflix 62Baidu Jingdong 56 NetEase 39 636Google 463Amazon 438Facebook 356Alibaba 336Tencent 92Priceline Market characteristics
  • 10. China Internet report-EN-FINAL.pptx 10 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Sources: eMarketer, Analysys International, iResearch, Company financial statements, BCG analysis. Market structure: Market share of e-commerce and online finance are substantially larger in China than in US China vs the U.S.: Internet market revenue breakdown 2016 (%, estimate) 23 23 44 27 15 3 17 6 12 U.S.China Other business/living services Public services Basic applications Online finance Social network/entertainment E-commerce 13 5 12 Market characteristics
  • 11. China Internet report-EN-FINAL.pptx 11 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 12. China Internet report-EN-FINAL.pptx 12 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only User demographics: Chinese Internet users are on average 14 years younger than their US counterparts Age distribution of Chinese Internet users 2016 Age distribution of US Internet users 2016 Other than the younger population, the substantially lower Internet penetration among older people has contributed to the younger Internet user base in China User characteristics Penetration by age group Penetration by age group 12% 21% 39% 88% 91% 51%Below 20 20-29 30-39 40-49 50-59 Below 25 25-34 35-44 45-54 55-65 60+ 65+ 20% 17% 17% 18% 15% 13% 30% 24% 13% 5% 24% 4% Average age: ~28 Average age: ~42 Sources: National Bureau of Statistics of China, Otcom, BCG analysis. 66% 82% 99% 99% 93% 46%
  • 13. China Internet report-EN-FINAL.pptx 13 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Device preference: Chinese Internet users prefer to access the Internet using a mobile phone; 25% are mobile-native 90 76 32 78 83 51 -20% +12% Tablet -8% Mobile Desktop / laptop China is ahead of the US by 12.4% in mobile phone penetration for Internet access 1 in 4 Chinese Internet users is mobile native 11% USChina 25% Percentage of users who access the Internet only on mobile (2016, %) USChina Penetration of devices for Internet access (2015, %) User characteristics Sources: National Bureau of Statistics of China, US Bureau of Census, CNNIC, Pew Research Center, ComScore, BCG analysis.
  • 14. China Internet report-EN-FINAL.pptx 14 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only App preference: Chinese mobile Internet users are more willing to try new apps but also drop them sooner Number of apps installed per Internet user 2015 China App user retention 2015 (apps without push messaging, %) Example: Mobile Internet users 33 36 40 32 26 46 42 39 38 Tier 3+ cities Tier 3 cities Tier 2 cities Tier 1 cities World avg. FranceSouth Korea JapanUS 15 1 22234 5 8 15 43 37 223334 5 7 11 25 1 No. of times app is used (app lifecycle) 11+1098765432 USChina 43% of apps are used only once by Chinese Internet users Only 15% of apps are used 11+ times by Chinese Internet users User characteristics Sources: Google’s ”Global Mobile Research”, National Bureau of Statistics of China, Localytics, eMarketer, BCG analysis.
  • 15. China Internet report-EN-FINAL.pptx 15 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only App preference: many apps adopted much faster in China than in the US 2000 2005 2010 2015 2017 Social networks: Instant messaging 3 years (Yet to reach 50%) Public services: Ride-sharing 3 years (Yet to reach 50%) Online finance: mobile payment (Yet to reach 50%) 4 years E-commerce 9 years 14 years China vs. U.S: Time to reach 50% user penetration1 Entertainment: Online video 6 years (Yet to reach 50%) User characteristics 1. User penetration is defined as the ratio of an app’s registered users to the total number of Internet users of the year Source: BCG analysis.
  • 16. China Internet report-EN-FINAL.pptx 16 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Online spending preference: Chinese Internet users shop more frequently, both on desktop and mobile 16% 10% 48% 24% 30% 44% 6% 22% 1-4 times per month ≥1 time per week ≥1 time per day China US <1 time per month 24% 15% 26% 40% 28% 46% 17% US 3% China User characteristics Source: “Understanding e-commerce in China and the U.S.” by IAB (Interactive Advertising Bureau). Online shopping frequency on desktop (2016) Online shopping frequency on mobile (2016)
  • 17. China Internet report-EN-FINAL.pptx 17 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 18. China Internet report-EN-FINAL.pptx 18 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Competitive landscape: competition is intensifying; ecosystems led by Internet giants are forming and expanding vvip-u.com Tencent Netease Perfect World Ant Financial Tencent- Tenpay UnionPay Tencent fund.eastmoney.com Alibaba Tencent Weibo immomo.com Suning JD Lufax Toutiao Netease iQiyi Tencent Video Youku Tudou Baidu Haosou (360 Search) Ant Financial Competition characteristics CR3 of the Chinese Internet Industry by segment (%) (The horizontal axis indicates the relative revenue of each segment; the vertical axis indicates the market shares of top 3 players within each segment, based on revenue or transaction volume) 1. Within “Other” (companies outside of top 3), there may also be players belonging to Baidu, Alibaba and Tencent alliances; 2. DiDi: held by both Tencent and Alibaba; Baidu also became Didi's shareholder due to prior investment in Uber, which was later acquired by DiDi; 3. All statistics are based on 2016 data. Sources: iResearch, iiMedia, Sootoo Research, Analysys, BDR, Trustdata, annual reports, BCG analysis. Social media ~85% Online video ~55% Online games ~60% Search ~95% News ~55% Ride sharing ~95% Local living services ~85% Online tourism ~95% Non-payment Online finance Finance ~40% Payment Online finance ~85% CtripFeizhuLY.com DidiYidaoCARInc. E-commerce ~90% Meituan-DianpingKoubeiBaidu 30 60 10010 20 40 50 (Market share estimated based on revenue) (Market share estimated based on transaction volume) Baidu alliance Alibaba alliance Tencent alliance CR3 0
  • 19. China Internet report-EN-FINAL.pptx 19 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Competition patterns: highly fad-driven, leading to large number of companies at peak, few survivors, and shorter company life span 0 1,000 2,000 3,000 4,000 5,000 2008 2010 2012 2014 # of companies 0 1,000 2,000 3,000 4,000 2012 2013 2014 2015 2016 # of players 0 100 200 300 400 2010 2012 2014 2016 # of players Fad 1: Group buying Fad 2: P2P lending Fad 3: Live streaming Note: The U.S. stats (number of companies) are synthesized based on data from Venture Radar, TechCrunch and CB insights, and cross-checked with stats from other sources. Some extent of underestimation may exist given most data are disclosure-based. Sources: iResearch, WDZJ.com, Wallstreet Fintech Club, Venture Radar, TechCrunch, CB Insights, BCG analysis. Fewer than 650 a year in the U.S. Fewer than 100 a year in the U.S. Fewer than 50 a year in the U.S. China U.S. Competition characteristics
  • 20. China Internet report-EN-FINAL.pptx 20 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Competition patterns: On the flipside, overnight success is more likely in China Chinese Internet startups: Distribution of time to $1bn valuation1 (1997-2017) U.S. Internet startups: Distribution of time to $1bn valuation1 (1997-2017) 1. Sample contains 63 Chinese and 112 US unicorn companies which were founded during 1997-2015 Sources: CrunchBase, BCG analysis. 0 10 20 30 40 10 yrs above 3% 10 yrs 3% 9 yrs 6% 8 yrs 0% 7 yrs 5% 6 yrs 2% 5 yrs 5% 4 yrs 19% 3 yrs 11% 2 yrs 35% 1 yr 11% 0 10 20 10 yrs above 19% 10 yrs 4% 9 yrs 7% 8 yrs 12% 7 yrs 10% 6 yrs 8% 5 yrs 11% 4 yrs 16% 3 yrs 5% 2 yrs 8% 1 yr 1% ~46% unicorns made it within 2 years ~9% unicorns made it within 2 years Avg: 4 yrs Avg: 7 yrs Average time to unicorn: 4 years Average time to unicorn: 7 years Competition characteristics
  • 21. China Internet report-EN-FINAL.pptx 21 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 22. China Internet report-EN-FINAL.pptx 22 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Key characteristics of the Chinese Internet economy China is one of the two largest global Internet markets, exerting a significant influence • China has an Internet user base of 710m, almost equivalent to India and the US combined, and generates the second most online spending in the world • China ranks highly in terms of the quantity and valuation of Internet giants and unicorns The Chinese Internet market developed rapidly in the past and still has substantial future growth potential. • In recent years, the number of Internet users has been growing at 25% p.a. and online spending has been growing at 32% p.a. • Huge potential is yet to be unlocked with only 52% Internet penetration, among the lowest in the G20 Adoption of many Internet products and services in China quicker than in the US • Transaction volume of mobile payments in China has reached 70 times that of the US, many emerging apps in China achieved >50% user coverage within three years • China has younger Internet users, who are more willing to try new apps and services The Chinese Internet market is highly dynamic and volatile • Fierce competition between a vast number of players accelerates and magnifies the emergence, peak, and decline of each fad, leading to shorter industry life cycles, higher market volatility, and shorter company life spans Rapid development Large scale and unique Highly dynamic and volatile
  • 23. China Internet report-EN-FINAL.pptx 23 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Key questions concerning the Chinese Internet economy Question 1: How has the Chinese Internet market maintained such strong growth despite its large scale? Question 2: Why is the Chinese Internet market so dynamic and volatile? Question 3: What are the key factors for success in the Chinese Internet market? Why have so many global giants failed in this market? Question 4: How will the characteristics of the Chinese Internet market evolve in the future? Question 5: What will be the impact of more Chinese Internet companies going global?
  • 24. China Internet report-EN-FINAL.pptx 25 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 25. China Internet report-EN-FINAL.pptx 26 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Internet industry Impacted industries with high transparency e.g. IT, Mobile, Internet Impacted almost all industries Three core driving forces have propelled the Chinese Internet boom, of which "leapfrogging" is the most important Industries impacted by each driving force Overall economic dividend • Demographic dividend: a considerable base of young consumers • Talent dividend: large supply of cheap engineers • Capital dividend: loose monetary policy and vibrant capital market • Infrastructure dividend: significant government- led investment in infrastructure 2 High transparency • Open information: Internet-based products, services, and business models enable fast info and knowledge transmission • Shared resources: open source allows for faster technological advancement 3 “Leapfrog ging” • Compared with developed countries, many traditional industries in China are backward and have underserved needs and room for growth (e.g. retail coverage, non-cash payments etc.) • Internet-based solutions solve these pain points outright and have even become the predominant force in some domains 1 Source: BCG analysis.
  • 26. China Internet report-EN-FINAL.pptx 27 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Unlike mature nations, underdeveloped traditional industries in China created leapfrog growth opportunities for the Internet Role of the Internet Source: BCG analysis. Two types of development paths Timeline Industry efficiency Industrial era Internet eraIT era “Leapfrogging”3 • Limited room for development given maturity of traditional industries; consumer habits well established • The Internet produced incremental industry upgrades on top of existing solid foundations “Incremental upgrading” • Market maturity was still low when China entered the Internet era, with ample underserved segments and room for development in traditional industries • Internet-based solutions achieved “leapfrog growth” by addressing these pain points and filling market voids, and even became the predominant force in some domains "Leapfrogging"
  • 27. China Internet report-EN-FINAL.pptx 28 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only The impact of "leapfrogging" is reflected in the unique structure of the Chinese Internet market For example, e-commerce and online finance represent a big proportion of the market China vs. the US: Internet revenue breakdown 2016 (%) China vs. the US: Online finance revenue breakdown 2016 (%) 32 83 34 13 34 Other (Incl. third-party online payment, online asset management, online insurance) Online lending Mobile payment US 4 China 23 23 44 27 15 3 17 6 13 12 China 12 E-commerce1 Social network/ Entertainment2 US 5 Other commercial/ living services6 Online finance3 Basic applications4 Public services5 1.E-commerce includes C2C, B2C and B2B e-commerce; 2.Social network/entertainment include social media, online games, online video and online music; 3.Online finance includes 3rd party online payment, mobile payment, online asset management, online credit, online insurance; 4.Basic applications include maps and online news; 5.Public services include ride sharing, online healthcare and online education; 6. Other business/living services include online tourism and local living services. Note: Percentages are calculated based on revenue by segment; 3rd party online payment within online finance has some overlaps with other online transactions Sources: eMarketer, Analysys International, iResearch, company financial statements, BCG analysis. A B
  • 28. China Internet report-EN-FINAL.pptx 29 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only When e-commerce started in China, offline retail had low coverage, and was highly fragmented and inefficient Compared with the US, offline retail in China was not mature enough to fully address consumer demands Insufficient offline retail coverage... Majority of market occupied by fragmented and inefficient independent channels Retail floor space per thousand ppl (m2, 2005) Groceries sales channel breakdown (2005) 1 2 USAChina Chain retail channel Independent retail channel, i.e. mom-and-pop stores China USA 18 1,150 1,100 1,050 50 0 1,105 47% 82% 53% 18% E-commerceA Sources: National Bureau of Statistics, Euromonitor, BCG analysis.
  • 29. China Internet report-EN-FINAL.pptx 30 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only The rise of e-commerce compensated for the under-coverage and efficiency gaps in offline retail E-commerce leveraged the rapidly penetrating Internet to serve nationwide E-commerce bypassed distribution layers to deliver highly efficient transactions Sources: World Bank, CNNIC, National Bureau of Statistics, Ali Research analysis, BCG analysis. 201120102009 Online retail Offline retail Transaction efficiency of online retail versus offline retail (taking 2009–2011 data as an example) Sales output per 1 RMB of input (RMB) Internet coverage 2005-2015 (penetration in population, %) 50 34 9 65 51 14 74 72 68 201520102005 US China(urban) China E-commerceA
  • 30. China Internet report-EN-FINAL.pptx 31 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only The unique demographic environment enabled efficient logistics, facilitating e-commerce development Massive supply of low-cost labor Higher Chinese residential density greatly boosted logistics efficiency Average courier salary 2016 ($/hour) Number of couriers 2016 (10K) China vs. US: population density 2016 (ppl/km²) 4 13 0 5 10 15 USChina 72 203 0 50 100 150 200 250 USChina 143 34 0 50 100 150 China US E-commerceA Sources: Glassdoor, BCG analysis.
  • 31. China Internet report-EN-FINAL.pptx 32 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Therefore, e-commerce "leapfrogged"; China's e-commerce share of total retail sales was 1.5x the U.S. in 2016 16.4 13.8 9.9 6.5 4.3 2.5 1.0 0.30.20.2 10.1 9.2 8.4 7.6 6.7 6.0 5.2 4.64.34.0 ~1.5x 2016201520142013201220112010200920082007 China vs US: online retail as % of total retail sales China outpaced the U.S. for the first time in e-commerce penetration USChina E-commerceA Sources: National Bureau of Statistics of China, Euromonitor, Ali research, BCG analysis.
  • 32. China Internet report-EN-FINAL.pptx 33 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only When mobile payments were introduced, cash dominated offline transactions in China, while the US had a well-established credit card ecosystem Mobile paymentsB Payment methods in China vs the US in 2011 (%) 65 26 17 41 18 14 19 Others (e.g. checks) USChina Online Cash Credit card Sources: Euromonitor, BCG analysis.
  • 33. China Internet report-EN-FINAL.pptx 34 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Consumers were not used to paying by credit card due to weak payment infrastructure and low credit card penetration Underdeveloped payment infrastructure with low POS penetration China vs US: No. of POS terminals per 10,000 people 2011 36 287US China Low penetration of credit cards Rationales • Large number of micro businesses: many micro businesses are not qualified to apply for POS terminals due to complicated application criteria and procedure • Stringent review by acquirers on issuance of POS: : acquirers in China are strict with issuance of POS terminals given precedent of POS fraud Sources: Payment & Clearing Association of China, BCG analysis. 0.2 1.7US China China versus US: No. of credit cards per person 2011 • Underdeveloped individual credit scoring system: a complicated review process is required for card applicants given inadequate credit scoring records • Late adoption of credit card and consumer education in early stage: China is a late adopter of credit cards and consumers are less aware of credit card usage Mobile paymentsB
  • 34. China Internet report-EN-FINAL.pptx 35 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Mobile payments directly replaced cash payments and achieved explosive growth in China Sources: BCG Global Payments Model, Forrester Research, eMarketer, Euromonitor Passport, BCG analysis. Payment method 2015 vs. 2011 (%) ... with the transaction volume surging to 70x that of the US by 2016 Mobile payments rose as the substitute for cash payment in China... 3rd-party mobile payment value ($bn) 8,521 ~70x U.S. 112 China Mobile paymentsB 47 65 24 26 25 17 49 41 17 18 14 1410 19 12 Cash Credit card Mobile Online Other (e.g. checks) 2011 U.S. 2015 U.S. 1 2011 China 2015 China 1 Online Mobile Credit card Cash Other
  • 35. China Internet report-EN-FINAL.pptx 36 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 36. China Internet report-EN-FINAL.pptx 37 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Chinese Internet companies focus more on application-driven than tech- driven innovation, according to a survey of around 40 industry experts1 1. Including 15 experts from Baidu, 15 experts from Alibaba, 5 experts from DiDi, and 5 experts from BCG. Survey was based on CrunchBase unicorn list as of May 31, 2017, which contained 63 Chinese unicorns and 112 U.S. unicorns valued at $1Bn or more. Sources: CrunchBase, BCG analysis. Application- driven innovation 90% 61% 39% 10% Tech-driven innovation Key sources of value creation Companies that create value from content, apps, and business model innovations, and applying or optimizing mature technologies Companies that invent technologies or create value principally from technologies 57 6 68 44
  • 37. China Internet report-EN-FINAL.pptx 38 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Though they are application-driven, Chinese Internet companies have made many unique innovations by combining of tech with app and business model Security solution Payment method Wealth mgmt User experience Alipay’s innovations as an example (compared with Paypal) Media of payment Unique innovations by Alipay Useracquisition "Express Payment" "Escrow transactions" (E.g. QR payment, fingerprint payment, facial refonition payment... ) C2B commercial transactions Medical Shared bikes Chain stores & supermarkets Education Insurance Catering consumption / / / / / / / / / C2G public transactions eGovernment Utility bill Transportation “Ant Forest” … Caring donation / / / C2C personal transactions … AA payment Transfer Red envelope Paypal.me / / Sources: Ant Financial, Literature research, BCG analysis. Credit scoring Yu'ebaoPaypal MMF Credit-based everyday item lending Credit-based lodging Credit-based cell phone leasing Consumer loan & instalment “Sesame Credit” PayPal Credit / / / / Credit-based cell phone plans Tourism / …
  • 38. China Internet report-EN-FINAL.pptx 39 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Alipay's many unique innovations were driven by market requirements with Chinese characteristics Market requirement with Chinese characteristics E-commerce had just been introduced into China; lack of trust between online consumers and merchants Certain domains in China are immature, therefore require innovative solutions which can make up for the missing pieces and achieve immediate results Online/offline integrated application scenarios can be leveraged to realize fastest customer acquisition Starting point Complicated online banking procedures and poor user experience To acquire customers within a short time by developing a variety of application scenarios Lack of well-established individual credit scoring infrastructure Unique Alipay innovations 1 2 C2Bcommercialtrade& C2Gpublictrade Insurance … Transportation Education Healthcare eGovernment Utility bill Shared bike Credit-based cell phone leasing Credit-based everyday item lending Credit-based lodging “Express Payment” Escrow transaction Creditreference (“SesameCredit”) Security solution Payment method Credit-based cell phone plans Source: BCG analysis.
  • 39. China Internet report-EN-FINAL.pptx 40 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only 13 26 43 4 23 11 11 0 Alipay's healthcare application case: integration of online and offline outpatient process to optimize traditional healthcare services Registration Waiting for inquiry Inspection & payment Inspection report claim Inquiry Inspection Medical consultation Medicine dispensing/ treatment Payment for medication Doctor-patient interactionOnline Offline Move certain steps of the outpatient process online Total outpatient process shortened by 60% on average Sources: Alibaba, Literature research, BCG analysis. Registration to consultationWaiting for registration Consultation to payment Payment to dispensing Alipay channel 42 Traditional channel 90 1 2 3 Case study: Guangzhou Women and Children's Medical Center Average time spent by a patient in hospital (minutes) No more waiting for registration • Selection of department (doctor) and time slot • Payment and registration on Alipay • Reminder of registered time and attention items • Queuing status of current department viewable on mobile Reduced the time from registration to consultation by ~40% • Notification on when to see doctors and get drugs • Inquiry of the queuing status on mobile phone • Real-time inspection bill alert and one-click payment • Redirection to diagnosis room for inspection after completion of payment • Real-time e-diagnosis report available on mobile Reduced the time from consultation to payment by ~80% • Real-time medicine billing alerts and one-click payment • Redirection to pharmacy for drug claim after completion of payment • Detailed bill breakdown available on mobile and one-click payment of the out- of-pocket portion
  • 40. China Internet report-EN-FINAL.pptx 41 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Company innovation behaviors driven by Chinese market requirements lead to higher market dynamics and volatility Market requirement with Chinese characteristics Certain domains in China are immature, therefore require innovative solutions which can make up for the missing pieces and achieve immediate results Online/offline integrated application scenarios can be leveraged to realize fastest customer acquisition 1 2 Innovation behaviors of companies Impact on the Chinese Internet market Source: BCG analysis. Lower innovation threshold, larger quantity of players, fads being more easily formed More frequent innovation, more product and application variations, higher market volatility Focus on micro innovation and modification-based innovation Emphasis on immediate results and implementation Focus on online and offline integration
  • 41. China Internet report-EN-FINAL.pptx 42 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 42. China Internet report-EN-FINAL.pptx 43 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Unique KSFs are required for Internet players to succeed in the unique Chinese market Localization (“China-for- China”) capabilities Quick market response Online/offline integration capabilities Ecosystem building capabilities 1 2 3 4 KSFs • Different economic, social and cultural environments lead to huge deviation in user needs between China and the US. • Multi-level economic and social structures lead to highly diverse user needs within China • The Chinese Internet's focus on application-driven innovation poses requirement for companies to have in-depth understanding of Chinese consumer needs and customize product offerings • Application-driven market leads to more micro and modification-based innovations • Such micro and modification-based innovations require staying close to changes in consumer demand, agility to market, and immediate results • In some domains, the Chinese Internet companies played the role of driving "leapfrogging" of traditional industries and had to engage in offline operations • To quickly expand scale, Chinese Internet companies need an offline team to develop business and educate the market • To achieve "leapfrog growth", Chinese Internet players need to build integrated online/offline ecosystems in vertical sectors • The Chinese Internet market features “ecosystem-based competition,” which requires companies to have strong ecosystem capabilities An Internet market with Chinese characteristics Source: BCG analysis.
  • 43. China Internet report-EN-FINAL.pptx 44 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Quick market response case study: QQ vs MSN QQ vs. MSN: MSN launched 4 key offerings later than QQ and was slow in handling Chinese customer complaints 1. QQ giant attachment supports online transmission of files no larger than 1 Gigabyte. Sources: zol.com, Literature research. Launched QQ group chat offering OICQ was launched with offline messaging functionality Launched online drive offering Launched "QQ giant attachment1" functionality 2008 2010 20141995 20001999 2004 2005 9 years late in launching offline messaging 4 years late in launching online drive 6 years late in launching group chat 5 years late in launching large file transfer Launched large file transmission functionality • Launched offline messaging functionality • Launched Windows Live SkyDrive • Launched group chat offering MSN officially left the Chinese market MSN was launched 2
  • 44. China Internet report-EN-FINAL.pptx 45 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Online/offline integration capability case study: The Chinese Internet is more demanding for offline operations than the U.S. O2O take-out service P2P Short- term lodging ~1000 Tens of thousands ~30k ~1500 ~5000 ~60 • Own and outsourcing take-out delivery team • Limited involvement in delivery • Offline branches to enhance customer acquisition and risk control • Online customer acquisition and risk control • Offering online search and booking services, an offline apartments and related services • Mostly an online platform to bridge tenants and house owners China vs. the U.S. by team size of Internet companies 3 Sources: Literature research, BCG analysis.
  • 45. China Internet report-EN-FINAL.pptx 46 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Ecosystem building case study: Didi's powerful ecosystem is an indispensable contributor to its success Didi's ecosystem GPS Navigation Payment • Partners with the top 3 mobile map apps in China • Over 500 million mobile users • Over 40 million daily active users Marketing channels • WeChat wallet drives traffic to Didi; WeChat users can use Didi car-hailing service without installing the Didi app • Red packet sharing feature, enabling one-click sharing with friends on WeChat, Moments, Weibo, and Alipay • After payment using WeChat, the user will be automatically subscribed to the Didi public WeChat account • Didi’s official Weibo account has 1.91 million followers, creating strong word of mouth • Hundreds of millions of monthly active payment users 4 Sources: Literature research, BCG analysis.
  • 46. China Internet report-EN-FINAL.pptx 47 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 47. China Internet report-EN-FINAL.pptx 48 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Chinese Internet market characteristics: future trends Overall rapid development will continue, with certain driving forces weakening Overall economic dividend will decline, but the other driving forces shall remain • Demographic dividend( ↓): the aging of population will continue and reduce advantages in younger demographics • Talent dividend( - ): the reflux of overseas talents will accelerate, but advantage in labor cost will shrink • Capital dividend( ↓): monetary policy is expected to tighten a bit, and capital market will mature and rationalize • Infrastructure dividend( - ): government-led and policy-promoted investment in infrastructure will continue Leading Internet players, e.g. BAT have laid strong foundations for future development of the industry and accelerated emergence of new players New development models will create new rapid development opportunities Advantages derived from "leapfrogging" will help Chinese Internet players lead the way in new development models • For example, the core of New Retail model lies in deep integration of online and offline • Advantages derived from “leapfrogging”: The role of the Internet offers new solutions to address needs that are underserved by traditional industries, therefore Chinese Internet companies have naturally focused on online and offline integration and ecosystem building Alibaba is a showcase of a Chinese Internet player as a fast mover with a new development model Market will remain dynamic but be less volatile Chinese Internet players are likely to shift from application-driven to tech-driven innovation. Take AI for example: • China is almost able to compete with US and Japan in AI technology • The massive user base and wide variety of application scenarios in China will reinforce the AI technology optimization cycle The gradual shift to tech-driven innovation will to some extent change market behaviors and stabilize the market 1 2 3 Source: BCG analysis.
  • 48. China Internet report-EN-FINAL.pptx 49 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only BAT have laid the foundation for the future development of the industry and accelerated the emergence of new Internet players Sources: Baidu, BCG analysis. Shared bikes: reliance on strong foundations to achieve rapid go-to-market and explosive growth E.g. Leading shared bike player OFO received total orders of over 5 million one year after its launch, and over 10 million another 3 months later User habits Transaction behaviors formed via development of new communication technologies (e.g. QR code payments) Mobile payment Pervasive third-party mobile payment tools (WeChat Payment, Alipay) covering online and offline scenarios Traffic entrance Hundreds of millions of customers on WeChat and Alipay’s platforms offer a massive user base for emerging apps (users don’t have to download these apps) Location based service Electronic fence solution for better management of shared bikes 1 Overall rapid development will continue
  • 49. China Internet report-EN-FINAL.pptx 50 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Advantages from “leapfrogging” will help Chinese Internet players pioneer new development models in certain sectors “Pure e-commerce will vanish soon. When the moment comes, ‘e-commerce’ will be replaced by ‘new retail’...” Jack Ma at Alibaba’s 2016 Computing Conference “Ubiquitous consumption scenarios” – Integrating online/offline channels “Digitalized consumers” – Creating consistent customer experience “Production starts upon receiving the order” – Operating efficiently end to end ...can help Chinese Internet players pioneer new development models (for example "new retail") Advantages derived from “leapfrogging” (E-commerce for example)... Chinese e-commerce players have put more effort into offline services given weak infrastructure • Natural focus on online/offline integration, leading to a more complete ecosystem • A holistic data chain covering sales, payment and finance, which offers insights into consumer demand trends and can help optimize product planning and supply chain, and enable efficient end-to-end operations • Logistics networks of fast response and broad coverage, which benefits inter-channel integration and customer experience optimization • Highly open retail ecosystem, which can adapt to different market conditions a b c 2 New development models will bring new opportunities Sources: Ali Research, BCG analysis.
  • 50. China Internet report-EN-FINAL.pptx 51 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Chinese players made good progress in new dvpmt models e.g. Alibaba proposed the new concept of "5 new forces1 and a fair competition environment" New Retail • Worked with Nestle to create “FLIPSIDE Cafe” and leveraged big data mining and estimation to boost sales conversions. Tmall flagship store achieved 20x of usual sales volume on day 1. • Launched TAO CAFE, a self-service cafe that tracks consumer in-store behaviors and continuously improves the customer experience based on big data analytics • Launched Hema Supermarket to integrate online and offline channels, by first setting up offline stores to establish brand awareness and then directing consumers online New manu- facturing • Tmall has established partnerships with 40 brands in 7 industries on custom manufacturing, e.g. with: – Mondelez on snack packaging, Malianghang on sound wave rings, Budweiser on recording bottles etc. • Helped SOGAL leverage big data for custom manufacturing to improve user experience, delivery speed, and inventory efficiency New Financial services • Ant Financial is committed to offering inclusive financial services • Over the past six years, Ant Microfinance has lent over 1tn RMB to small and micro businesses, with an average loan balance below RMB 30,000; over 1.75 million of the borrowers were in the agriculture business "5 new forces1 and a fair competition environment" Progress and interim results 2 1. Composed of New Retail, New Manufacturing, New Financial Services, New Energy, and New Technology Sources: Ali Research, Literature research. New development models will bring new opportunities
  • 51. China Internet report-EN-FINAL.pptx 52 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only We have noticed the rising trend of Chinese companies shifting from application-driven to tech-driven innovation China ranks 2nd for the number of AI companies Number of AI companies (2016) Number of AI patent applications has surpassed Japan Number of AI patent applications (2016) Source: Wuzhen Institute. 83132136160173228233 366 709 2,905 SwitzerlandSpainFranceGermanyIsraelCanadaIndiaUKChinaUS 578597 1,8032,3102,459 4,0534,386 14,604 15,745 26,891 AustriaAustralia RussiaUKSouth Korea CanadaGermanyJapanChinaUS 65% of AI companies in the world are in the U.S, China and UK The U.S, China, and Japan applied for 74% of AI patents globally 3 Market will remain dynamic but will be less volatile
  • 52. China Internet report-EN-FINAL.pptx 53 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only 0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 2011 2012 2013 2014 2015 China leads in the number of published papers and cited papers in deep learning No. of cited papers on deep learning1No. of published papers on deep learning However, China still lags behind the US in the quantity and quality of breakthrough research, and the influence of research 0 10 20 30 40 50 60 70 80 90 2011 2012 2013 2014 2015 China US UK Australia Canada Japan Australia UK JapanUSA China Canada 3 1. The statistics do not exclude number of self-citations. If excluded, China would rank the 2nd place by number of citied deep learning related papers in 2015 (second only to the US). Sources: Web of Science - White House, Wuzhen Institute, Sinovation Ventures, Scimago Journal. Market will remain dynamic but will be less volatile
  • 53. China Internet report-EN-FINAL.pptx 54 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Leading Chinese players have also made achievements in algorithms and open source platforms Open source platform: Baidu’s PaddlePaddle, Apollo In 2016, Baidu open-sourced PaddlePaddle, a deep learning algorithm platform developed in 2013, and achieved fast iteration and upgrades by applying the platform to ~30 Baidu products and services • E.g. estimated delivery time of take-outs, prediction of occurrence of online drive failures, accurate recommendation of information, identification and classification of massive images, virus and spam detection, machine translation and autonomous driving etc. Demonstrated fast growth and dynamic activities despite short time since open-source • PaddlePaddle generated 1326 topics within nine months after going open-source Machine translation: Baidu's Neural Machine Translation (NMT) system Baidu launched its Neural Machine Translation (NMT) system in May 2015 • It only took Baidu 8 months from ideation (in Sep. 2014) to the launch of Internet-based NMT system (May 2015) NMT has significant technological highlights "Unlike traditional approaches which separate sentences into small pieces, NMT makes full use of contextual information to code and decode the sentence as a whole so as to generate more a fluent translation" —Hua WU, Chairman of Technical Committee (TC), Baidu “Baidu launched the world’s first Internet NMT. Google and Microsoft didn't launch similar systems until September 2016” —Hua WU, Chairman of Technical Committee (TC), Baidu Paddle Paddle Apollo Launched Project Apollo to provide an open, complete & reliable platform for its partners in automotive/autonomous driving sectors Will build an ecosystem consisting of OEMs, ADAS manufacturers, and suppliers of sensors and other auto components 3 Sources: Baidu, Literature research. Market will remain dynamic but will be less volatile
  • 54. China Internet report-EN-FINAL.pptx 55 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only In April 2017, Baidu announced Project Apollo to create an open platform for autonomous driving technologies Open source model may help Baidu realize leapfrog growth in autonomous driving solutions As an Internet company lacking in manufacturing expertise, Baidu will complete its ecosystem using an open source model. Baidu can exchange technology for data, which will promote its technological advancement. Compared with their US counterparts, Chinese Internet companies have advantages in their open source model as they have closer relationship with OEMs. • Traditional manufacturing in China is still underdeveloped, thus OEMs are more willing to embrace and partner with Internet companies. An example is the strategic partnership between Baidu and Chery Automobile. – “Chery and Baidu have jointly developed 20 L4-level autonomous cars. We will further cooperation with Baidu on technology sharing and R&D collaboration."— Lu Weiyi, President of the Research Institute, Chery Automobile Case study: Baidu’s Project Apollo provides an open, complete and reliable platform for automotive/autonomous driving partners Project plan “Baidu will provide its OEM and autonomous driving partners with an open, complete and secure software platform; offer a complete SW/HW and service system suite composed of a vehicle platform, a HW platform, a SW platform, and cloud data services; open code or capabilities in environment perception, route planning, vehicle control and in- vehicle OS, as well as the full set of development and testing tools; select and ally with vehicle and sensor partners with the highest synergy and compatibility so as to lower the entry barrier and help traditional OEMs set up their own autonomous driving systems more quickly.” Baidu is the first company of its kind in the world to open up its own technologies and platforms and share capabilities to such an extent. Progress Over 60 auto companies and over 200 models have joined Baidu’s platform. Baidu is building an ecosystem consisting of OEMs, ADAS manufacturers, and suppliers of sensors and other components. 3 Sources: Baidu, Literature research. Market will remain dynamic but will be less volatile
  • 55. China Internet report-EN-FINAL.pptx 56 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Application The massive user base and rich variety of applications will reinforce each other and accelerate algorithm optimization • Over 10m user profile tags; over 100m multi-round dialog requests/global total POIs • Over 1bn knowledge graph entities/speech/audio • Over 10bn knowledge/search requests/videos • Over 100bn images; over 1tn web pages Com- puting power Reinforcement cycle B. Massive amount of data generated by huge user base Numerous use cases thanks to complexity and unique characteris tics of the Chinese market a b a Data b Algo- rithm More accurate algorithms promote wider application Massive amounts of data accelerate algorithm optimization Quality applications generate massive amounts of data Baidu’s DuerOS Customized voice solutions for smart TV sets, set-top-box, projector, etc. Smart TV DuerOS- powered smart speaker helps users access entertainment resources efficiently Smart speaker Low-cost and energy- conservative smart toys allow device and module manufacturers to accelerate product updates Smart toys Allow wearables to have real intelligence and be able to deliver hands-free services Smart wearables Phone understands what the user says and acts as a personal assistant to help the user handle their busy lifestyle Smartphones Dialog-based AI system DuerOS Info search Useful tools Chat & leisure Mobile phone instructions Lifestyle services Personal assistant Smart home Knowledge & education ~100 capabilities in 10 categories 3 Sources: Baidu, Literature research. Market will remain dynamic but will be less volatile
  • 56. China Internet report-EN-FINAL.pptx 57 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Agenda Foreword Characteristics of the Chinese Internet market • Market characteristics • User characteristics • Competition characteristics • Summary of Chinese characteristics Decoding the characteristics of the Chinese Internet market • Question 1: How has the Chinese Internet market maintained such strong growth? • Question 2: Why is the Chinese Internet market particularly dynamic and volatile? • Question 3: What are the key factors for success in the Chinese Internet market? Why have global giants failed in this market? • Question 4: How will the characteristics of the Chinese Internet market evolve in the future? • Question 5: What will be the impact of more Chinese Internet companies going global?
  • 57. China Internet report-EN-FINAL.pptx 58 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only 53% 54% 36% 11% 47% 46% 64% 89% 95% 99% FacebookAmazon1 Alibaba Tencent 5% 1% Baidu Domestic Overseas Google Though they are late to expand globally, Chinese Internet players have started to explore overseas markets with established domestic leadership Alibaba Baidu Didi • Globalization strategy for five businesses: e-commerce, Ant Financial, Cainiao, cloud computing, and the UC web browser • Main strategy is to promote its technology and services as well as to invest in local players in overseas markets • Aims to generate 50% of total GMV overseas by 2025 2016 revenue breakdown (domestic vs overseas) • Globalization of car hailing app: mainly through investment and strategic alliances • Exploration around international tourism (e.g. overseas car rental) • International collaboration on emerging technology R&D (e.g. AI, big data) • Set up Globalization Business Unit to roll out Didi’s products, technologies and services globally 1. The domestic market of Amazon includes North America; and revenue from software is not included in operating revenue (<10%) Sources: Company reports, Literature research, BCG analysis. Tencent • Social networks: mainly promote WeChat and invest in local instant messaging software companies; prioritize emerging markets such as SE Asia, including Indonesia, Thailand, and Malaysia • Games: make acquisitions globally and form strategic alliances • Tencent cloud: establish overseas service nodes & data centers to provide cloud services abroad • Baidu leveraged its edges in software development, strategic acquisition & machine learning to offer AI-powered global products, and became the first Chinese Internet player in AI sector to go global • Prioritize markets with large population or emerging economies with huge growth potential (e.g. US, Japan, India, Brazil, Indonesia, Thailand, Egypt) • Build localized content platform, and use AI to empower products (e.g. Input method, DAP ad. Platforms...); 2 billion users across ~200 countries and regions, and 360 million monthly active users across the globe Chinese Internet giants currently only generate a small proportion of revenue overseas But they have gradually shifted their strategic focus to overseas expansion
  • 58. China Internet report-EN-FINAL.pptx 59 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only The unique characteristics of the Chinese Internet market will indirectly influence how Chinese companies expand overseas Unique characteristics of Chinese Internet market As reflected in behaviors of overseas expansion Impact on Chinese Internet company characteristics Chinese Internet players have tended to approach overseas expansion with a more flexible model in recent years, e.g. strategic investment, shareholding, alliances to quickly adapt to local markets "Leapfrogging", developing rapidly in an immature market, filling market voids Application-driven, highly dynamic and volatile market environment Role and value prop: Proficient at addressing pain points of traditional industries in an immature market Business logic: Emphasis on staying close to the market, quick response, and immediate results • More active in helping shape market environment, e.g. investing in infrastructure (logistics, warehousing, etc.), working with governments to solve social problems • Attach equal importance to online and offline business development • Prefer to enter markets similar to China (featured by large scale, strong local demand, immaturity in traditional industries), replicate China success, and build up ecosystems • More willing to work with partners to strike a balance between control and responsiveness, and create win- win results • Tend to keep local partner brands and teams, to ensure market recognition and responsiveness to local market demand • Open up various resources (customers, businesses, etc.) on its own platform to the local partner Source: BCG analysis.
  • 59. China Internet report-EN-FINAL.pptx 60 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Alibaba case study: actively investing in local mobile payment providers in India and SE Asia and coaching them into local market leaders In November 2016, Ant Financial signed a strategic partnership agreement with Ascend Money, a Thai payment player, to replicate the inclusive financial services model to Thailand In February 2017, Ant Financial invested in Mynt, the largest fintech company in Philippines, which owns GCash, the nation’s largest e-wallet with over 3 million users On April 12, 2017, Ant Financial announced a JV with Indonesia’s Emtek Group to co-develop mobile payment products 1. Data as of H1 2017 Sources: TechCrunch, People’s Daily, BCG analysis. • Alibaba has been pushing forward “Mashangtao” strategy (a QR code based shopping experience) since 2014 • Ant Financial was the first to launch the concept of “QR code Payment”, which has now become a mainstream payment method in China Ant Financial: a pioneer in QR code payment Helped Paytm to become the world’s 3rd largest mobile payment platform Shareholding & investment • Invested in Paytm, a payment platform under Indian company One97 in 2015, and became the biggest shareholder Technology transfer • Paytm became the first Indian company to adopt QR code payment • Ant Financial helped Paytm to build up risk management system People training • Established Ant Technical University to provide training courses tailored to local partners • Set up personnel certification standards to facilitate the formation of industry standards and practices for mobile payment Acquired 74% market share, 220m mobile payment users1, and more than 2m merchants in India
  • 60. China Internet report-EN-FINAL.pptx 61 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Impact of the overseas expansion of Chinese Internet companies on the global Internet market Impact on local Internet companies Adopt an open attitude to consider win-win opportunities, faced with Chinese entrants • Capital: can we obtain strategic capital (for marketing, customer acquisition, subsidy) or make jointly investment in infrastructure (e.g. logistics, warehouses, etc.)? • Key technology/growth experience: can we acquire key technologies, talents with well-rounded online/offline expertise, and company growth experience? • Platform resources: can we persuade the Chinese partner to open up resources including customers and merchants on their own platforms? Must be prepared for the potential impact of new Chinese entrants, such as massive subsidies, ecosystem restructuring, and develop solutions in advance. Impact on global Internet giants Consider how to partner with Chinese Internet companies in emerging markets • Tencent, Microsoft and eBay jointly invested in the Indian e-commerce player Flipkart in 2017. Besides financial investment, Tencent will also be involved in strategies to create synergies between social media and e-commerce • Didi became an investor and partner of global top 7 leading ride-sharing players including Uber, Lyft, Grab, Ola, 99, Taxify, and Careem Learn from the different business logic of Chinese players, especially in emerging markets—how to adapt flexibly to local conditions, and better overcome challenges of immature markets • Cooperate with local brands and ecosystems • Operate offline teams and invest in improving infrastructure Source: BCG analysis.
  • 61. China Internet report-EN-FINAL.pptx 62 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Authors and steering committee Authors Shu Li Boston Consulting Group Partner and Managing Director li.shu@bcg.com Francois Candelon Boston Consulting Group Senior Partner and Managing Director candelon.francois@bcg.com Daniel Wu Boston Consulting Group Principal Jeffrey Wu Boston Consulting Group Project Leader Cynthia Hu Boston Consulting Group Consultant Alex Ho Boston Consulting Group Consultant Xin Cheng AliResearch Senior Expert longhai.cx@alibaba-inc.com Fei Song AliResearch Senior Expert fei.song@alibaba-inc.com Zhoupei Xie AliResearch Senior Expert zhoupei.xiezp@alibaba-inc.com Linli Huang Baidu Development Research Center Director huanglinli@baidu.com Qiang Wang Baidu Development Research Center Senior Researcher wangqiang23@baidu.com Steering Committee Francois Candelon Boston Consulting Group Senior Partner and Managing Director Shu Li Boston Consulting Group Partner and Managing Director Derek Kennedy Boston Consulting Group Senior Partner and Managing Director Jean-Francois Van Kerckhove Boston Consulting Group Partner and Managing Director Hongbing Gao Alibaba Group VP, Director of AliResearch Cheng Zhao Baidu Chief Editor, GM of Public Affairs
  • 62. China Internet report-EN-FINAL.pptx 63 Copyright©2017byTheBostonConsultingGroup,Inc.Allrightsreserved. Draft—for discussion only Disclaimer The services and materials provided by The Boston Consulting Group (BCG) are subject to BCG's Standard Terms (a copy of which is available upon request) or such other agreement as may have been previously executed by BCG. BCG does not provide legal, accounting, or tax advice. The Client is responsible for obtaining independent advice concerning these matters. This advice may affect the guidance given by BCG. Further, BCG has made no undertaking to update these materials after the date hereof, notwithstanding that such information may become outdated or inaccurate. The materials contained in this presentation are designed for the sole use by the board of directors or senior management of the Client and solely for the limited purposes described in the presentation. The materials shall not be copied or given to any person or entity other than the Client ("Third Party") without the prior written consent of BCG. These materials serve only as the focus for discussion; they are incomplete without the accompanying oral commentary and may not be relied on as a stand-alone document. Further, Third Parties may not, and it is unreasonable for any Third Party to, rely on these materials for any purpose whatsoever. To the fullest extent permitted by law (and except to the extent otherwise agreed in a signed writing by BCG), BCG shall have no liability whatsoever to any Third Party, and any Third Party hereby waives any rights and claims it may have at any time against BCG with regard to the services, this presentation, or other materials, including the accuracy or completeness thereof. Receipt and review of this document shall be deemed agreement with and consideration for the foregoing. BCG does not provide fairness opinions or valuations of market transactions, and these materials should not be relied on or construed as such. Further, the financial evaluations, projected market and financial information, and conclusions contained in these materials are based upon standard valuation methodologies, are not definitive forecasts, and are not guaranteed by BCG. BCG has used public and/or confidential data and assumptions provided to BCG by the Client. BCG has not independently verified the data and assumptions used in these analyses. Changes in the underlying data or operating assumptions will clearly impact the analyses and conclusions.
  • 63. Thank you bcg.com | bcgperspectives.com

Editor's Notes

  1. 网民数量http://www.china.com.cn/international/txt/2008-07/29/content_16089389.htm 移动支付http://news.163.com/17/0214/21/CD913GTV000187VE.html 游戏http://news.pconline.com.cn/931/9319124.html 金融http://cn.technode.com/post/2016-04-10/citibank/ 风险投资http://www.sohu.com/a/126263368_556892英国金融科技公司协会Innovate Finance发布了一份名为“The 2016 VC FinTech Investment Landscape ”的报告
  2. MSN Reference: https://worldhistoryproject.org/1995/8/24/msn-is-founded QQ reference: http://www.woshipm.com/it/280871.html https://www.cqsq.com/read/6968398/e
  3. 新零售定义:http://www.jianshu.com/p/b5bec7a18ce1 https://baijiahao.baidu.com/s?id=1557762599035315&wfr=spider&for=pc
  4. 新零售定义:http://www.jianshu.com/p/b5bec7a18ce1