Wang Hua, managing partner of Sinovation Ventures, analyzed the opportunity for future investment in China based on population structure and consumer behavior data released at the Foresee 2018 Investment Trend Conference, held by Sinovation Ventures.
Wang said the domestic market has yet to enter a developed phase of the Internet usage, but that the industry will bring greater opportunity as mobile payments increase and life with the Internet continues in the mode of Online Merge Offline (OMO).
“Only half of the population of China has access to the Internet. Even if we think China’s e-commerce and business are doing well, there are still a lot of cities where people do not have e-commerce experience such as that of Beijing, Shanghai, Shenzhen and Guangzhou,” Wang said.
I. Third Wave of Emerging Mobile Internet Users
Who is the third wave of the emerging mobile Internet users? Wang said mobile Internet has given rise to giant companies as well as some new little giants during the past couple years. Most of these giants rose sharply from the first two groups of mobile Internet users who drove their expansion and profits.
The first wave of mobile Internet users were people who bought the early iPhone and Xiaomi phones. Living in first-tier cities and familiar with the Internet, the first generation of mobile Internet users were mostly males. When mobile Internet became available, they transferred their usage habits from the PC to their mobile handsets. Their demand drove companies such as Xiaomi, Toutiao and Meituan to establish themselves on the mobile market. The peak of the first wave of mobile Internet was the years 2011 and 2012.
The second wave of mobile Internet was in 2013 and 2014, and arrived with OPPO, Kuaishou and Inke phones. “During the second wave people bought OPPO and Vivo mobile phones. They were young people in the second- and third-tier cities. This is a natural evolution from first-tier cities to second-tier cities with mobile Internet,” Wang said.
The third wave consists of mainstream consumers in small cities and towns. While the first and second waves of mobile Internet growth reached 300 million to 400 million users, the third wave is reaching people in their 40s and older in third- and fourth-tier cities, as well as much older consumers in first-tier cities. This wave of users came to attention in 2015 and early 2016. The wave may bring the Internet to 500 million new users, mostly due to the popularity of WeChat. The app has helped to pull new users into the mobile Internet by replacing their prior communication channels. The second reason is the red envelope feature in the application makes mobile payments easy. The popularity of red envelopes has inspired many users to open their first own online payment accounts, which allowed them to experience online shopping. Users transform from shallow mobile Internet users to in-depth mobile Internet users. The number of the third wave users is equal to the sum of the first two.
“China has the opportunity to cultivate new companies that can measure up to Xiaomi, OPPO, Vivo, Kuaishou, Inke and Meitu,” Wang said.
Wang said he thinks the mobile Internet emergence is far from over: half of China’s population just had access to the Internet. Even if we think China’s e-commerce and online-to-offline services do a good job, there are a lot of offline Chinese cities and many people who haven’t used e-commerce as much as those in Beijing, Shanghai, Shenzhen and Guangzhou. That’s why Xiaomi set up offline stores, Wang said. The third wave of the emerging mobile Internet users will include a large proportion of China’s population.
II. The Advantage of Mobile Payment
Over the last two or three years, the number of transactions in mobile payments has grown by more than tenfold. According to the latest statistics, WeChat and Alipay have more than 300 million mobile transactions per day. The boom in mobile payments is bringing huge changes to China’s overall consumption.
Wang said the key features of electronic payment are “painlessness” and “convenience”. That is, when people buy things online, they don’t feel they are paying with real banknotes.
The second feature of mobile payment is the expansion of consumer credit. Mobile payment is not only a payment method, but also a financial lever for consumption. WeChat and Alipay have Weilidai and Ant Credit Pay embedded in them. “This made a huge difference,” Wang said, “China only had a 10 percent credit payment penetration in the past. With mobile payment, 60 to 70 percent of Chinese have credit cards, which means every consumer has a huge consumption lever. This is not unique to China, but was seen in many developed countries. When a country’s consumption leverage is widespread, what happens to that country after rapid expansion in consumption?”
The third characteristic is that can occur at any time in any place and on any occasion. And the payment has various and complex functions. It has budget, and can handle very complex scenes. Wang said, “For example, if there was no mobile payment but credit cards, it would have been difficult to generate the bike sharing model. Also, if there was no mobile payment but credit cards, it would have been difficult to generate new retail business. Credit cards couldn’t drive the App. If there was no mobile payment but credit card, it would have been difficult to generate social features, such as friends’ payment, and online and offline integration. Mobile payments can work in any scenario, allowing anyone to pay anyone. It not only expands and upgrades existing consumption, but also creates new consumption scenarios and consumption patterns.”
III. Online Merges With Offline
Wang said Sinovation Ventures believes online-mobile-office is the next stage of the Internet development.
In the past, although the Internet has accounted for more than 20 percent of the impact on the real economy, it actually took the service industry into consideration. But even so, there are more than 70 percent of scenes, needs and user behaviors, including consumption, which have not yet been popularized and integrated online. This is essentially the next phase.
Wang said, “The key point here is consumption. Whether online-mobile-offline is engaging emerging groups of mobile Internet users, it actually upgrades consumption to a large extent.”
The second point is empowerment of AI technology. Wang said, “For example, what made banks start to automate their services? People don’t make bank deals online anymore. There’s another natural thing that happens when everyone is online – the volume will increase by 10, 20 or even 30 times. With online payment, everyone spends up to 10 times more than they previously did. The number of goods delivered to homes has risen 100 times. It has become more than traditional logistics technology can support, which is driving automation. And in some sense, that has something to do with AI. It isn’t science fiction, but sensors, mechanical automation, process automation and trade automation. After automation, the next step is optimization, and then efficiency. This is what needs to be done after automation, which will occur naturally as it is adopted. As long as one company does it, other companies will have to follow.”
Finally, Wang said we have many misunderstandings about Sinovation Ventures. People thought Sinovation Ventures was an incubator, but its focus is early investment, including A, B and C Rounds. At present, the five main areas of Sinovation Ventures are artificial intelligence and big data, consumption upgrades, enterprise services and upgrades, education and cultural entertainment.
Wang said, “Our investment philosophy is to seize the future trends as early as possible, in the general direction. For instance, China is first country operating a large-scale mobile Internet and believing in its potential. We began to develop the mobile Internet as early as 2009: most other countries entered the mobile Internet in 2012. When others were talking about artificial intelligence, we were already two years into investing in it. Our philosophy is to pursue the future that can shape social and economic trends and to get in before anyone else. We are chasing the next big tend, and will invest in line with the scale of whatever it is.”