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The Next Google Will Be in Mobile…and the Company Will Be Chinese

Feb 21,2013 by Fernando Pizarro

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Markets measured in the billions.  Instant scale.  A gold rush.  These terms have been applied in equal measure to the mobile space and to China as a market for years.  And for good reason.  But it is the intersection of these two investment themes that will create the next digital behemoth – a mobile company headquartered in China, deployed globally, and benefitting from innovation and ubiquity at a scale never before seen.

As a Chinese company that has viewed itself as global from its creation, we at Papaya Mobile believe that there is something fundamental about the digital space – in particular when it comes to mobile, that has freed Chinese companies from the constraints of the recent past:  price-based competition, lack of branding, and the need to culturally adapt to local markets.  China’s new mobile companies are global and nimble…and growing fast.

Chinese Digital Companies Growing Fast

While we are still in the early days of this process, we have seen significant moves to acquire a footprint outside of China by companies such as Baidu, Tencent’s Weixin (known in the West as WeChat), and UC Web’s UC Browser, which had over 100MM users at the end of 2012. If the 2000s were about Google, Yahoo, and Facebook growing overseas, the teens are about “foreign” tech firms’ global growth.  Several elements are becoming clear:

  1. Brand strategy is key – until now most successful Chinese brands have either:
    • Acquired existing global brands – good examples would be Volvo, and Thompson
    • Created new brands with global characteristics – pronounceability, simplicity, iconism – Tencent’s WeChat, , AppAnnie, Papaya Mobile.
  2. Target emerging markets first.  In our experience successful Chinese mobile firms have sought to grow in emerging markets where the field is less competitive.  Many target Southeast Asia due to proximity and cultural affinity with the Chinese diasporas there.  We have seen a great deal of demand for footprint expansion in Indonesia and Malaysia, in particular.  For instance,  Baidu have opened a natural language search R&D for Vietnam and Thailand in a Singapore based research center.  This is the opposite of how tech companies have grown in the past, with a “US First” strategy.
  3. Global leaders.  Chinese tech firms whose leadership has been either exposed to or raised in the US seem to be more likely to expand internationally.  In a certain way, Larry and Sergey were an early version of this – immigrant founders of a US-based global company.  The difference today is that now you don’t need to immigrate.
  4. Not too big, not too small.  The sweet spot in terms of size actually seems to be in the mid to mid-large tier of Chinese firms.  What sets these firms aside is that they tend not to be fully state owned and have built their positions in the market via competition.  They have also established dominant positions in a very large domestic market, which gives them the financial wherewithal to expand – a benefit that has traditionally accrued only to US and European companies.
  5. Naturally global products.  Certain product categories tend to lend themselves well to global platforms, and our view is that these “naturally global” tech products often lead the way.  There are many digital products that fit this bill.  For instance, platforms that succeed based on network effects such as messengers, or content businesses which create product that can easily be versioned, such as mobile games.  Search is not the only winner take all business out there…

 App Annie and the New Chinese Vanguard

Our close partner and industry leading mobile analytics company, App Annie, is a Beijing-based firm led by two Westerners.  Yet few of their customers probably know this fact.  App Annie provides unparalleled insight into both the iOS and Android App stores, and has been growing in all major markets in the past year.  Their example is illustrative because it points to what a Chinese Mobile Google might look like.

First and foremost, App Annie is a product whose technical quality is on par with global standards.  They have fully taken advantage of their China HQ and hired the best Chinese engineers – and lets face it – they can still get more for their investment than they might in the US.  Engineering talent is now global, and China has a very deep pool from which to draw resources.

There is another, more remarkable feat that App Annie has achieved, and that is that they have produced a product whose aesthetic and UX is on par with global standards.  This is no small thing, and frankly the area in which many Chinese firms come up short as they target other markets, especially in the West.  Particularly in a business to business context, building a user experience that matches or beats Silicon Valley tends to be a trip up for Chinese firms simply because the market has had less time exposed to the web.

In order to achieve these results, App Annie organized themselves globally from the start.  They hired westerners in key executive positions and supported them as the firm has grown its presence in Beijing, Hong Kong, Tokyo, San Francisco and Paris.

As a side note, Papaya Mobile itself is structured in a very similar way to App Annie, with HQ, technical and product teams based in China, and marketing and business development offices in the US and Europe.  Our own experience indicates that there is extensive demand for the platform we are providing, but that it is the soft skills around marketing and customer support that are proving a real differentiator in the US and European markets.

More to Come

This process is going to pick up steam.  An HSBC survey found that 4 out of 5 international Chinese companies plan to expand further overseas in 2013.  The same survey showed that 49% of companies surveyed felt they needed to improve their brand.  We believe that firms in the mobile space, particularly on the digital side, are far better able to achieve this goal because the pace of innovation is so fast and products can gain global prominence extremely quickly.  WeChat is a great example of this natural advantage.

Of course, there a zillion reasons why the next Google is likely to come from where the last Google came from.  There is a reason that the tech titans of today came from the US and not from Europe, for instance.  But with technology enabling global reach from the start, with China providing a domestic market to rival America’s and launch global players, and with Chinese firms stepping up their global game – we think there’s are lots of reasons to believe things will change.

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Fernando Pizarro