Less well-known than their Silicon Valley counterparts, China’s digital disruptors are no less ambitious. To help businesses better understand the size of the opportunity, Which-50 is publishing the China Digital Playbook, an ongoing series authored by digital transformation experts Marcelo Silva and Paul Shetler. Read part one here.
Over the last decade, China’s tech community has expanded exponentially.
But it would be wrong to assume that those gains have been shared equally among companies or sectors.
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Just as the ‘FANGs’ — Facebook, Apple, Netflix and Google — have occupied a huge share of the US’ innovation industry, so too have the ‘BATXs’ — Baidu, Alibaba, Tencent and Xioami — dominated their respective sectors.
These eight leaders have set the digital benchmark. Many are on track to becoming trillion-dollar companies.
At this point, the FANGs possess higher market capitalization. Over the next decade, we expect the competitive landscape to level, bringing some parity to the valuations.
However, there are already a few areas in which the Chinese BATXs look to be ahead of their western counterparts.
Ubiquity And Product Diversification Are Key To Growth
If ubiquity and scale are kings in digital enterprise, then product diversification is the queen. Though America’s largest tech companies continue to successfully grow their core competencies, but they lag in profitable product diversification compared to their Chinese counterparts.
The average Western customer has 35-40 apps on their smartphone, of which seven are used regularly and provided by Facebook, Apple, Uber & Google. This fragmentation leads to a high fail-rate for aspiring app developers.
Tencent, with WeChat, has cleverly crafted the optimal social platform experience: a one-stop shop including social media, mobile payments, videos, booking capabilities, QR codes, and many more.
Though Amazon and Apple have made strong moves towards diversifying their products, by expanding into new areas like entertainment and payments, they pale in comparison with the ambitious moves Alibaba and Tencent have played over the last decade.
Those companies are the antithesis of one-trick ponies. They’ve created a malleable ecosystem, consisted of a number of multiple products and service layers, including e-commerce, omni-channel payments, banking, loans & credit, logistics, cloud computing, dating, social platforms, AI, advertising, bike sharing services and movies. The images below illustrate the app layers implemented by the Chinese powerhouses.
WeChat App ecosystem — Source: McKinseysey
Alibaba App ecosystem — Source: McKinsey
Warren Buffett, leader of the global investment firm Berkshire Hathaway, has analogised a company’s competitive edge to a moat, that separates themselves from their neighbours. The analogy rings true in the digital arena.
Firms must find creative ways to maintain their competitive advantage, to enable them to experiment in new categories, innovate, navigate new regulatory requirements and continue to invest in R&D. The BATXs have built fortresses around their products to do exactly that, ensuring they meet consumer needs on a number of levels while maximising revenues across the entire value chain, and lowering their risk of failure.
That’s going to be essential for these companies’ long-run viability. As the growth runway shortens for US firms, especially with declining revenues in the advertising sector, companies like Facebook and Twitter may need to find new sources of revenue to continue to be profitable. The BATXs are leading the way.
Diversification has also helped the BATXs from a talent perspective. A diversity of product layers and problems has created a breadth and depth of roles for engineers, ensuring that Alibaba and Tencent attract the best talent.
Meanwhile, disruptive technologies such as blockchain are looking to upend the existing business models of incumbents, reducing barriers to entry and causing further disintermediation. This will only allow China’s global footprint to increase, especially within financial services markets.
By: Paul Shetler and Marcelo Silva