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Latin America roundup: Softbank adds $1B, Stori raises $10M and Grow Mobility puts on the brakes

03:08 | 28 February

After investing nearly $2 billion of its Innovation Fund in Latin America in 2019, Softbank announced this month that it would add an additional $1 billion into the fund to continue supporting tech startups across the region. While the Japanese investor faces the challenge of raising a second global fund after its Vision Fund, Softbank is still investing heavily in Latin America. 

One of its early Latin American investments – and the first in Colombia – Ayenda Rooms, is performing particularly well, raising $8.7 million from Kaszek Ventures this month. Ayenda is the local version of Oyo Rooms, one of Softbank’s biggest bets in India, which has looked to expand into Mexico despite a financial crunch last month. In fact, the fund recently came under scrutiny by the Wall Street Journal for funding similar delivery competitors Uber, Rappi, and Didi, suggesting a conflict of interest. 

Most recently, Softbank invested $125 million in Mexico’s lender, Alphacredit, and they reportedly plan to continue investing in that niche. The firm currently oversees over 650 companies in Latin America, largely concentrated in Brazil, Argentina, Chile, Colombia, and Mexico, and plans to invest $100-150M in seventeen firms and two VCs by the end of the year. To date, over 50% of Softbank’s investments have been into Brazil, most of which exist in the fintech sector. 

Mexican neobank Stori raises $10 million Series A

In a self-fulfilling prophecy, Mexico’s neobank market became all the more competitive this month with the addition of a new player: Stori. Within the past few months, both TechCrunch and Business Insider pointed to Mexico’s neobank market as the one to watch in Latin America as startups like Albo, Klar, and Nubank battle for market share. In February, digital bank Stori joined the conversation with a $10 million Series A from Bertelsmann Investments (BI) and Source Code Capital, along with an existing investor, Vision Plus Capital.

This round of funding, led by Chinese investors, is part of a growing trend of foreign funds waking up to the Latin American startup ecosystem, Asian VCs in particular. Tencent has invested in Brazil’s Nubank, which has since expanded to Mexico, and in Argentina’s Uala, which is considering a similar move. Softbank has investments in the largest lending and credit startups in Brazil and Mexico, as well. 

Stori will use the investment to improve its AI technology as it tries to reach over 100,000 Mexicans through its inclusive digital banking services. The neobank has raised over $17 million from investors since it was founded in 2018.

Grow Mobility pulls out of 14 cities

In January, Rappi and Lime pulled back their operations in Latin America in order to focus on technology over rapid growth. Brazil’s top mobility startup, Grow Mobility (which rose out of a merger between e-scooter companies Grin from Mexico and Yellow from Brazil) also pulled back. The startup, which provides e-scooters and bikes shares across Brazil, took bicycles out of operation and removed its scooters from 14 cities. 

Grow also restructured its operations through layoffs that affected employees across Brazil, although they did not comment on how many people were affected. Grow Mobility’s scooters will now only operate in Rio de Janeiro, Sao Paulo, and Curitiba. 

This pattern of pull-back following explosive growth has become more common among Latin America’s biggest startups, pushing these early stage companies to focus on technological solutions that boost revenue, rather than blitzscaling measures that only buy market share.

Amazon Web Services doubles down on Brazil

Amazon Web Services (AWS) announced it would invest $236 million (R$1 billion) into Sao Paulo over the next two years to strengthen its Latin American infrastructure. This effort may be a part of Amazon’s work to consolidate market share in Latin America’s increasingly competitive e-commerce market, where legacy players like MercadoLibre still dominate. This investment will enable Amazon to expand its Brazilian data centers and improve local service offerings to both private and public partners. 

Amazon also announced that it would build a new distribution center in Pernambuco in the north of Brazil to support sales across the country. Brazil accounts for almost 40% of Latin America’s e-commerce market, making the country vital to Amazon’s positioning in the region.

News and Notes: Weel, Global 66, Yuca, and Memed 

Weel, a Brazilian accounts-receivable management platform, announced an $18.4 million investment from Banco Votorantim, Brazil’s seventh-largest bank, in February 2020. This investment was Banco Votorantim’s second in the startup after a $6 million contribution in 2019. Weel will use the investment to explore expansion across Brazil, as well as exploring Chilean and Mexican markets. 

Chilean international transfer startup Global 66 received $3.25 million in February from UK investor Venrex, to continue its expansion across the region. The startup currently offers rates up to eight times better than existing transfer services, especially for the Latin American region. Global 66 recently opened new offices in Peru and plans to expand to Colombia, Argentina, and Mexico within the next two years. Within just two years of operations, Global 66 has processed transactions for over 25,000 users across 60 cities worldwide.

Yuca, a Brazilian proptech, raised $4.7 million from Monashees, ONEVC, and Creditas to help fight housing crises in Brazil’s largest cities. As Brazil’s cities sprawl – Sao Paulo is one of the largest in the world – Yuca creates central co-living spaces for young people that want to shorten their commutes. Inspired by Chinese startup, Ziroom, Yuca currently manages 18 apartments for 80 students and plans to scale to 500 apartments by the end of the year.

Brazil’s digital prescription startup, Memed, recently raised $4.5 million from DNA Capital and Redpoint eVentures to improve the local prescription system for doctors and patients alike. Today, Memed has over 80,000 registered doctors who have created over 10 million prescriptions worth more than $237 million. Memed’s 100% digital prescriptions are said to improve security and efficiency in Brazil’s complex, bureaucratic healthcare system.

While Brazil is still at the forefront of Latin America’s tech ecosystem, Mexican fintechs are edging up, especially with additional support from international investors. 2020 is off to a strong start, hinting at another potential record-breaking year for Latin American tech investment.

 


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Investors in LatAm get bitten by the hotel investment bug as Ayenda raises $8.7 million

01:07 | 22 February

Some of Latin America’s leading venture capital investors are now backing hotel chains.

In fact, Ayenda, the largest hotel chain in Colombia, has raised $8.7 million in a new round of funding, according to the company.

Led by Kaszek Ventures, the round will support the continued expansion of Ayenda’s chain of hotels in Colombia and beyond. The hotel operator already has 150 hotels operating under its flag in Colombia and has recently expanded to Peru, according to a statement.

Financing came from Kaszek Ventures, and strategic investors like Irelandia Aviation, Kairos, Altabix, and BWG Ventures.

The company, which was founded in 2018, now has more than 4,500 rooms under its brand in Colombia and has become the biggest hotel chain in the country.

Investments in brick and mortar chains by venture firms are far more common in emerging markets than they are in North America. The investment in Ayenda mirrors big bets that SoftBank Group has made in the Indian hotel chain Oyo and an investment made by Tencent, Sequoia China, Baidu Capital and Goldman Sachs, in LvYue Group late last year amounting to “several hundred million dollars”, according to a company statement.

“We’re seeking to invest in companies that are redefining the big industries and we found Ayenda, a team that is changing the hotel’s industry in an unprecedented way for the region”, said Nicolas Berman, Kaszek Ventures Partner.

Ayenda works with independent hotels through a franchise system to help them increase their occupancy and services. The hotels have to apply to be part of the chain and go through an up to 30-day inspection process before they’re approved to open for business.

“With a broad supply of hotels  with the best cost-benefit relationship, guests can travel more frequently accelerating the economy”, says Declan Ryan, Managing Partner at Irelandia Aviation.

The company hopes to have over 1 million guests in 2020 in their hotels. With rooms listing at $20 per-night including amenities and an around the clock customer support team.

Oyo’s story may be a cautionary tale for companies looking at expanding via venture investment for hotel chains. The once high-flying company has been the subject of some scathing criticism. As we wrote:

The New York Times  published an in-depth report on Oyo, a tech-enabled budget hotel chain and rising star in the Indian tech community. The NYT wrote that Oyo offers unlicensed rooms and has bribed police officials to deter trouble, among other toxic practices.

Whether Oyo, backed by billions from the SoftBank  Vision Fund, will become India’s WeWork is the real cause for concern. India’s startup ecosystem is likely to face a number of barriers as it grows to compete with the likes of Silicon Valley.

 


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Tencent to grow gaming empire with $148M acquisition of Conan publisher Funcom in Norway

15:23 | 22 January

Tencent, one of the world’s biggest videogaming companies by revenue, today made another move to help cement that position. The Chinese firm has made an offer to fully acquire Funcom, the games developer behind Conan Exiles (and others in the Conan franchise), Dune and some 28 other titles. The deal, when approved, would value the Oslo-based company at $148 million (NOK 1.33 billion) and give the company a much-needed cash injection to follow through on longer-term strategy around its next generation of games.

Funcom is traded publicly on the Oslo Stock Exchange, and the board has already recommended the offer, which is being made at NOK 17 per share, or around 27% higher than its closing share price the day before (Tuesday).

The news is being made with some interesting timing. Today, Tencent competes against the likes of Sony, Microsoft and Nintendo in terms of mass-market, gaming revenues. But just earlier this week, it was reported that ByteDance — the publisher behind breakout social media app TikTok — was readying its own foray into the world of gaming.

That would set up another level of rivalry between the two companies, since Tencent also has a massive interest in the social media space, specifically by way of its messaging app WeChat . While many consumers will have multiple apps, when it comes down to it, spending money in one represents a constraint on spending money in another.

Today, Tencent is one of the world’s biggest video game companies: in its last reported quarter (Q3 in November), Tencent said that it make RMB28.6 billion ($4.1 billion) in online gaming revenue, with smartphone games accounting for RMB24.3 billion of that.

Acquisitions and controlling stakes form a key part of the company’s growth strategy in gaming. Among its very biggest deals, Tencent paid $8.6 billion for a majority stake in Finland’s Supercell back in 2016. It also has a range of controlling stakes in Riot Games, Epic, Ubisoft, Paradox, Frontier and Miniclip. These companies, in turn, also are making deals: just earlier this month it was reported (and sources have also told us) that Miniclip acquired Israel’s Ilyon Games (of Bubble Shooter fame) for $100 million.

Turning back to Funcom, Tencent was already an investor in the company: it took a 29% stake in it in September 2019 in a secondary deal, buying out KGJ Capital (which had previously been the biggest shareholder).

“Tencent has a reputation for being a responsible long-term investor, and for its renowned operational capabilities in online games,” said Funcom CEO Rui Casais at the time. “The insight, experience, and knowledge that Tencent will bring is of great value to us and we look forward to working closely with them as we continue to develop great games and build a successful future for Funcom.”

In retrospect, this was laying the groundwork and relationships for a bigger deal just months down the line. 

“We have a great relationship with Tencent as our largest shareholder and we are very excited to be part of the Tencent team,” Casais said in a statement today. “We will continue to develop great games that people all over the world will play, and believe that the support of Tencent will take Funcom to the next level. Tencent will provide Funcom with operational leverage and insights from its vast knowledge as the leading company in the game space.”

The rationale for Funcom is that the company had already determined that it needed further investment in order to follow through on its longer-term strategy.

According to a statement issued before it recommended the offer, the company is continuing to build out the “Open World Survival segment” using the Games-as-a-Service business model (where you pay to fuel up with more credits); and is building an ambitious Dune project set to launch in two years.

“Such increased focus would require a redirection of resources from other initiatives, the most significant being the co-op shooter game, initially scheduled for release during 2020 that has been impacted by scope changes due to external/market pressures with increasingly strong competition and internal delays,” the board writes, and if it goes ahead with its strategy, “It is likely that the Company will need additional financing to supplement the revenue generated from current operations.”

 


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China Roundup: Tencent’s new US gaming studio and WeChat’s new paywall

22:03 | 19 January

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world.

The spotlight this week is back on Tencent, which has made some interesting moves in gaming and content publishing. There will be no roundup next week as China observes the Lunar New Year, but the battle only intensifies for the country’s internet giants, particularly short-video rivals Douyin (TikTok’s Chinese version) and Kuaishou, which will be vying for user time over the big annual holiday. We will surely cover that when we return.

‘Honor of Kings’ creator hiring for U.S. studio

Tencent’s storied gaming studio TiMi is looking to accelerate international expansion by tripling its headcount in the U.S. in 2020, the studio told TechCrunch this week, though it refused to reveal the exact size of its North American office. Eleven-year-old TiMi currently has a team working out of Los Angeles on global business and plans to grow it into a full development studio that “helps us understand Western players and gives us a stronger global perspective,” said the studio’s international business director Vincent Gao.

Gao borrowed the Chinese expression “riding the wind and breaking the wave” to characterize TiMi’s global strategy. The wind, he said, “refers to the ever-growing desire for quality by mobile gamers.” Breaking the wave, on the other hand, entails TiMi applying new development tools to building high-budget, high-quality AAA mobile games.

The studio is credited for producing one of the world’s most-played mobile games, Honor of Kings, a mobile multiplayer online battle arena (MOBA) game, and taking it overseas under the title Arena of Valor. Although Arena of Valor didn’t quite take off in Western markets, it has done well in Southeast Asia in part thanks to Tencent’s publishing partnership with the region’s internet giant Garena.

Honor of Kings and a few other Tencent games have leveraged the massive WeChat and QQ messengers to acquire users. That raises the question of whether Tencent can replicate its success in overseas markets where its social apps are largely absent. But TiMi contended that these platforms are not essential to a game’s success. “TiMi didn’t succeed in China because of WeChat and QQ. It’s not hard to find examples of games that didn’t succeed even with [support from] WeChat and QQ.”

Call of Duty: Mobile is developed by Tencent and published by Activision Blizzard (Image: Call of Duty: Mobile via Twitter) 

When it comes to making money, TiMi has from the outset been a strong proponent of game-as-a-service whereby it continues to pump out fresh content after the initial download. Gao believes the model will gain further traction in 2020 as it attracts old-school game developers, which were accustomed to pay-to-play, to follow suit.

All eyes are now on TiMi’s next big move, the mobile version of Activision Blizzard’s Call of Duty. Tencent, given its experience in China’s mobile-first market, appears well-suited to make the mobile transition for the well-loved console shooter. Developed by Tencent and published by Blizzard, in which Tencent owns a minority stake, in September, Call of Duty: Mobile had a spectacular start, recording more worldwide downloads in a single quarter than any mobile game except Pokémon GO, which saw its peak in Q3 2016, according to app analytics company Sensor Tower.

The pedigreed studio has in recent times faced more internal competition from its siblings inside Tencent, particularly the Lightspeed Quantum studio, which is behind the successful mobile version of PlayerUnknown’s Battlegrounds (PUBG). While Tencent actively fosters internal rivalry between departments, Gao stressed that TiMi has received abundant support from Tencent on the likes of publishing, business development and legal matters.

WeChat erects a paywall – with Apple tax

Ever since WeChat rolled out its content publishing function — a Facebook Page equivalent named the Official Account — back in 2012, articles posted through the social networking platform have been free to read. That’s finally changing.

This week, WeChat announced that it began allowing a selected group of authors to put their articles behind a paywall in a trial period. The launch is significant not only because it can inspire creators by helping them eke out additional revenues, but it’s also a reminder of WeChat’s occasionally fraught relationship with Apple.

WeChat launched its long-awaited paywall for articles published on its platform 

Let’s rewind to 2017 when WeChat, in a much-anticipated move, added a “tipping” feature to articles published on Official Account. The function was meant to boost user engagement and incentivize writers off the back of the popularity of online tipping in China. On live streaming platforms, for instance, users consume content for free but many voluntarily send hosts tips and virtual gifts worth from a few yuan to the hundreds.

WeChat said at the time that all transfers from tipping would go toward the authors, but Apple thought otherwise, claiming that such tips amounted to “in-app purchases” and thus entitled it to a 30% cut from every transaction, or what is widely known as the “Apple tax.”

WeChat disabled tipping following the clash over the terms but reintroduced the feature in 2018 after reaching consensus with Apple. The function has been up and running since then and neither WeChat nor Apple charged from the transfers, a spokesperson from WeChat confirmed with TechCrunch.

If the behemoths’ settlement over tipping was a concession on Apple’s end, Tencent has budged on paywalls this time.

Unlike tipping, the new paywall feature entitles Apple to its standard 30% cut of in-app transactions. That means transfers for paid content will go through Apple’s in-app purchase (IAP) system rather than WeChat’s own payments tool, as is the case with tipping. It also appears that only users with a Chinese Apple account are able to pay for WeChat articles. TechCrunch’s attempt to purchase a post using a U.S. Apple account was rejected by WeChat on account of the transaction “incurring risks or not paying with RMB.”

The launch is certainly a boon to creators who enjoy a substantial following, although many of them have already explored third-party platforms for alternative commercial possibilities beyond the advertising and tipping options that WeChat enables. Zhishi Xingqiu, the “Knowledge Planet”, for instance, is widely used by WeChat creators to charge for value-added services such as providing readers with exclusive industry reports. Xiaoe-tong, or “Smart Little Goose”, is a popular tool for content stars to roll out paid lessons.

Not everyone is bullish on the new paywall. One potential drawback is it will drive down traffic and discourage advertisers. Others voice concerns that the paid feature is vulnerable to exploitation by clickbait creators. On that end, WeChat has restricted the application to the function only to accounts that are over three months old, have published at least three original articles and have seen no serious violations of WeChat rules.

 


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China Roundup: WeChat’s new focus on monetization

19:00 | 12 January

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. At the beginning of each year, a large crowd of developers, content creators and digitally-savvy business owners gather in the southern Chinese city of Guangzhou for the WeChat conference, the messaging giant’s premier annual gathering. The event is meant to give clues to WeChat’s future and the rare occasion where its secretive founder Allen Zhang emerges in public view. But this year, much to the audience’s disappointment, Zhang was absent.

WeChat’s new era of money-making

The boss’s absence was not outright unexpected, an industry analyst told me, as WeChat shifts to focus more on monetization. With 1.1 billion active users, the app has been incredibly conservative with selling ads and pursuing other money-making strategies, an admirable decision from the user’s perspective but arguably frustrating for Tencent’s stakeholders. Part of the restrain is due to Zhang’s user-first design philosophy and minimalistic product aesthetics. When reflecting on why WeChat doesn’t support splash ads — ads that are displayed full-page every time an app is launched — the boss had this to say (in Chinese) at last year’s WeChat conference:

“If WeChat is a person, it must have been your closest friend to deserve so much time you spent on it. So how could I have the heart to plaster an ad on your best friend’s face and ask you to watch the ad before speaking to him?”

The emphasis on user experience now seems overshadowed by Tencent’s need to carve out more revenue streams. The giant’s cash cow — its gaming business — has taken a hit in recent years following a wave of new government policies on the online entertainment industry. Tencent’s imminent rival ByteDance, the creator of TikTok, is getting a larger slice of the digital advertising pie in China.

One way to step up monetization within WeChat is to stimulate more business transactions. The app mapped out at the conference what it has done and what it plans to do on this front.

WeChat founder Allen Zhang addressing the audience of WeChat’s annual conference through a pre-recorded video in January 2020 

Mini programs

The lite apps that skip app store downloads and run inside WeChat have surpassed 300 million daily active users. Practically every internet service in China — with the exception of a few that are at odds with Tencent, such as Alibaba’s ecommerce platforms — have built a WeChat mini program version of their full-fledged app. Without ever leaving WeChat, users can complete tasks from playing casual games, booking movie tickets to getting food delivered.

Consumers and businesses are indeed increasingly embracing WeChat as a platform for transactions, of which the default payment method is WeChat Pay. Users spent more than 800 billion yuan ($115 billion) through mini apps in 2019, up 160% year-over-year driven by the likes of ecommerce and other retail activities.

To further drive that spending momentum, WeChat announced it will make it easier for businesses to monetize through mini programs. For one, these apps will be better integrated into WeChat’s search results, giving businesses more exposure. The messenger will also broaden the variety of ads embedded in mini programs and provide logistics management tools to retail-focused developers.

These efforts signify WeChat’s shift from focusing on mass consumers to businesses, a strategy that goes in tandem with Tencent’s enterprise-driven roadmap for the next few years. It remains to be seen whether these changes will square with Zhang’s user-first philosophy.

Credit scoring

WeChat’s one-year-old “Payments Score” has picked up some 100 million users by far. The program came about amid China’s push to encourage the development of credit scoring across society and industries to both regulate citizen behavior and drive financial inclusion, although Tencent’s private effort should not be conflated with Beijing’s national scheme. Like Alibaba’s Sesame Credit, WeChat Payments Score is better understood as a user loyalty program. Participation is optional and scores factors in the likes of user identities, payment behavior and default history.

Such a trust-building vehicle holds the potential to bring more transactions to WeChat, which previously lacked a full-fledged ecommerce infrastructure a la Alibaba’s Taobao. Users with a high score receive perks like deposit-free hotel booking, while application of the program is not limited to transactions but has also been adapted for rewarding “good” behavior. For instance, those with high points can redeem recyclable trash bags for free.

Tencent’s gaming empire

Tencent snatched up another gaming studio to add to its portfolio after earmarking an undisclosed investment in PlatinumGames, the Japanese developer of the well-received action title Bayonetta said in a blog post.

Over the decade the Chinese gaming behemoth has extended its footprint to a raft of influential gaming studios worldwide, taking stakes in the likes of League of Legends maker Riot Games (full control), Clash of Clans’ Supercell (84%), Fornite developer Epic Games (40%), PlayerUnkonwn’s Battlegrounds’ Bluehold (rumored 10%), and World of Warcraft’s Activation Blizzard. It’s also Nintendo Switch’s publishing partner in China.

PlatinumGames noted that it will continue to operate independently under its existing corporate structure, a setup that’s in line with Tencent’s non-interference investment principle and a major appeal for companies desiring both the giant’s resources and a degree of autonomy. The corpus of cash will help strengthen PlatinumGames’ current business, expand from game developing into self-publishing and add a “wider global perspective.”

Tencent’s hands-off approach has led industry experts to call it an “investment vehicle” relying on external intellectual property but in recent times the company’s in-house development teams have been striving for more visibility. Its Shenzhen-based TiMi studio, for example, is notable for producing the mobile blockbuster Honor of Kings; its Lightspeed and Quantum studio, similarly, rose to fame for developing the popular mobile version of PUBG.

 


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China Roundup: TikTok receives most government requests from India and US

19:00 | 5 January

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. This week, TikTok, currently the world’s hottest social media app, welcomed the new decade by publishing its first transparency report as it encounters rising scrutiny from regulators around the world.

TikTok tries to demystify 

The report, which arrived weeks after it tapped a group of corporate lawyers to review its content moderation policy, is widely seen as the short video app’s effort to placate the U.S. government. The Committee on Foreign Investment in the United States, or CFIUS, is currently probing the app for possible national security risks.

TikTok is owned by Beijing-based tech upstart ByteDance and has been rapidly gaining popularity away from its home turf, especially in the U.S. and India. As of November, it had accumulated a total of 1.5 billion downloads on iOS and Android devices, according to data analytics firm Sensor Tower, although how many materialized into active users is unknown.

The transparency report reveals the number of requests TikTok received from local regulators during the first half of 2019. Such orders include government requests to access user information and remove content from the platform. India topped the list with 107 total requests filed, followed by the U.S. with 79 requests and Japan at 35.

The numbers immediately sparked debates over the noticeable absence of China among the list of countries that had submitted requests. This could be because TikTok operates as a separate app called Douyin in China, where it claimed to have more than 320 million daily active users (in Chinese) as of last July.

TikTok has taken multiple measures to ease suspicions of international markets where it operates, claiming that it stores data of U.S. users in the U.S. and that the app would not remove videos even at the behest of Beijing’s authority.

Whether skeptics are sold on these promises remains to be seen. Meanwhile, one should not overlook the pervasive practice of self-censorship among China’s big tech.

“Chinese internet companies know so well where the government’s red line is that their self-regulation might even be stricter than what the government actually imposes, so it’s not impossible that [the TikTok report] showed zero requests from China,” a person who works at a Chinese video streaming platform suggested to me.

It’s worth revisiting why TikTok has caused a big stir on various fronts. Besides its nationality as a Chinese-owned app and breathtaking rise, the app presents a whole new way of creating and consuming information that better suits smartphone natives. It’s been regarded as a threat to Facebook and compared to Youtube, which is also built upon user-generated content. However, TikTok’s consumers are much more likely to be creators as well, thanks to lower barriers to producing and sharing videos on the platform, venture capitalist David Rosenthal of Wave Capital observed. That’s a big engagement driver for the app.

Another strength of TikTok, seemingly trivial at first sight, is the way it displays content. Videos are shown vertically, doing away the need to flip a phone. In a company blog post (in Chinese) on Douyin’s development, ByteDance recounted that most short-video apps budding in 2016 were built for horizontal videos and required users to pick from a list of clips in the fashion of traditional video streaming sites. Douyin, instead, surfaces only one video at a time, full-screen, auto-played and recommended by its well-trained algorithms. What “baffled” many early employees and interviewees turned out to be a game-changing user experience in the mobile internet age.

Douyin’s ally and enemy 

A recent change in Douyin’s domestic rival Kuaishou has brought attention to the intricate links between China’s tech giants. In late December, video app Kuaishou removed the option for users to link e-commerce listings from Taobao, an Alibaba marketplace. Both Douyin and Kuaishou have been exploring e-commerce as a revenue stream, and each has picked its retail partners. While Kuaishou told media that the suspension is due to a “system upgrade,” its other e-commerce partners curiously remain up and running.

Left: Douyin lets creators add a “shop” button to posts. Right: The clickable button is linked to a Taobao product page.

Some speculate that the Beijing-based company could be distancing itself from Alibaba and moving closer to Tencent, Alibaba’s nemesis and a majority shareholder in Kuaishou. Yunfeng Capital, a venture firm backed by Alibaba founder Jack Ma, has also funded Kuaishou but holds a less significant equity stake. That Douyin has long been working with Alibaba on e-commerce might have also been a source of discordance between Kuaishou and Alibaba.

 


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China Roundup: Ant Financial’s new boss and Tencent’s army of new apps

19:00 | 22 December

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. This week, we are looking at what Ant Financial’s executive shakeup could give to Alibaba’s financial affiliate and why Tencent has gone on an app-launching spree.

Return of the old boss

This week, Ant Financial, the online financial services company, 33% of which is owned by Alibaba and controlled by Jack Ma, announced Hu Xiaoming as its new chief executive. Management reshuffles aren’t rare at Alibaba, which prides itself on rotating executives every few months to stay fresh and agile in a competitive environment. The latest reshuffle is providing some clues to where Ant, the world’s most valuable private fintech company, is headed in the coming years.

Hu will take the lead in growing Ant’s domestic payments and financial services units while his predecessor and current chairman Eric Jing will manage overseas expansion and development of new technologies. Having worked at several major Chinese banks, Hu joined Alibaba in 2005 to expand the firm’s budding financial services and has since been credited with helping Ant identify paths to monetization.

Around 2009, Hu made a bold move to initiate a microloan service targeted at small and medium sellers on Alibaba’s e-commerce platform. It was a boon to millions of merchants who otherwise would not be able to borrow from traditional financial institutions because they lacked banking history. Instead, Alibaba assessed their creditworthiness based on digital records, such as online sales and customer ratings. Today, small loans are just one of the many offerings from Ant’s ever-expanding financial empire, which also operates the billion-user Alipay payments app, the world’s largest money market fund and credit-rating system Sesame Credit.

In 2014, the storied executive was assigned to lead Alibaba’s cloud business and later grew it into one of the firm’s fastest-growing segments and a serious contender to Amazon Web Services. Hu was no stranger to Alibaba Cloud, which had already been working to introduce cloud computing to the fintech unit’s existing IT environments (in Chinese). In fact, most of Alibaba Cloud’s early applications happened internally at Alibaba as the company felt the urgency to develop an IT system that was more scalable and customizable than most large international vendors could provide.

Under Hu’s helm, the cloud arm struck a major deal with the government of Hangzhou, Alibaba’s hometown in Eastern China, to ease traffic congestion using data analytics and cloud computing solutions. Government contracts are an important lever for businesses developing costly state-of-the-art technologies, for as soon as an innovation is proven in practice, private demand will pick up over time.

Hu Xiaoming, new CEO of Alibaba’s financial affiliate Ant Financial (Ant Financial via Weibo)

Hu’s experience with commercializing new technologies and cooperating with state agencies makes him the ideal leader of Ant at a critical time. Last year, Ant’s highly anticipated IPO plans were pushed back reportedly because Beijing worried the private firm had amassed too much influence. To allay concerns among regulators and big banks, Ant has in recent times pivoted to focus more on selling technology solutions rather than financial services, per se.

Social networking anxiety

Tencent has launched at least seven new social networking apps since the beginning of 2019. Each comes with a slightly different focus, whether it’s targeting college students or specializing in video-based chatting. Industry observers said Tencent made these moves to defend challengers, particularly ByteDance of which TikTok (or Douyin in China) has taken the world by storm. Although short videos don’t directly compete with Tencent’s messengers WeChat, they certainly are consuming more of people’s screen time. And there are signs that ByteDance is encroaching on Tencent’s core markets after the upstart pushed into video games and messaging.

Tencent might also worry about WeChat’s slowing growth. The slowdown is in part attributed to the app’s already enormous base — more than 1 billion monthly users — so growth has inevitably cooled. WeChat gave Tencent a timely boost at the start of the mobile internet revolution when QQ, Tencent’s messenger that dominated China’s PC era, had seen its day. Now Tencent appears to be in need of a new growth engine, be it a groundbreaking feature of WeChat to rejuvenate the app or a brand new social network to replicate the success of WeChat and QQ.

It’s worth keeping in mind that Tencent, like all other large internet companies in China, is always testing new products to meet shifting landscapes in the tech industry. Tencent is famous for pitting different departments against each other in what it calls an internal “horse race,” which spawned WeChat almost 10 years ago. In most cases, these projects failed to catch on, but the cost of making new apps is negligible for a behemoth like Tencent because much of the development process has been standardized. All it needs is a skunkworks team of a dozen employees, ideally headed by a visionary such as WeChat’s Allen Zhang.

Also worth your attention

Nvidia, the chipmaker known for its GPUs, is already working with some 370 automakers, tier-1 suppliers, developers and researchers in the field of autonomous driving. This week to its family of partners it added China’s largest ride-hailing company, Didi Chuxing . Together the pair will work on developing GPUs for Didi’s Level 4 autonomous cars (which can operate under basic situations without human intervention), the companies said in a statement. Didi, which peeled its autonomous driving unit into a separate company in August, said last month (in Chinese) at an industry conference that it had plans to soon begin testing autonomous vehicles on Shanghai streets.

 


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China Roundup: GitHub’s China ambitions and WeWork rival’s big hopes

05:58 | 16 December

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. This week, we are looking at how WeWork’s largest rival in China — UCommune — is pulling ahead with its initial public offering and GitHub’s potential big move in China.

GitHub turns to China

The world’s largest source code repository host GitHub is mulling to open a Chinese subsidiary, the company’s CEO told the Financial Times recently. The plan comes at a time when the technological rift between China and the U.S. is deepening. The U.S.’s trade sanctions on Huawei, which includes limiting the company’s access to certain Android services, has stirred concerns of further “decoupling” between the two countries. Since then Huawei has stepped up efforts to cut its reliance on American suppliers and develop its own core chips and software operating system.

American tech companies are feeling a similar chill from the trade war. Opening a China office could potentially help GitHub hedge against trade war bans and alleviate the company’s risks in its second-largest market. The demand for a China backup plan appears to have grown after GitHub restricted accounts of users in Cuba, Iran and a few other countries to comply with U.S. sanctions, a decision that sparked an outcry from open-source developer communities around the world and worried Chinese users that the same could befall them.

On the other hand, developers in China and overseas worry that maintaining a China-based operation might subject GitHub’s local projects to Beijing censorship as the country requires foreign companies operating in China to store users’ data locally. Though GitHub has previously been blocked in China seemingly for sharing anti-censorship tools, the restriction was usually temporary. As of now, the site remains largely accessible in China, according to Greatfire.org, a website that monitors China’s online censorship. But the concerns are justified. LinkedIn and Bing, sharing the same parent company — Microsoft — with GitHub, have been roundly criticized for practicing censorship in China.

Big hopes and losses

China’s shared space provider UCommune is moving ahead of its rival WeWork as it filed with the U.S. securities exchange for an IPO this week. Like its American counterpart, UCommune — which rebranded from UrWork after a name dispute with WeWork — hasn’t yet found its way to profitability. The Beijing-based company posted a net loss of 573 million yuan ($80.13 million) for the first three quarters ended September 30, 2019, up from 271 million yuan a year earlier, shows its F1 filing.

UCommune founder Mao Daqing, a real estate veteran, has previously forecasted that China’s co-working industry would be valued close to 100 billion yuan ($14 billion) by 2030. The reality is a bit more dismal. WeWork is reportedly coping with high vacancy rates across major Chinese cities, although sources told TechCrunch that spaces could be easily filled up with one or two large corporate contracts per location.

Perhaps more notably, half of UCommune’s revenue is derived from so-called “marketing and branding services,” which include content design as well as online and offline advertising services it sells to customers. The marketing segment, curiously, is attributed to one single subsidiary, a digital marketing services provider it acquired in late 2018. UCommune warns in its prospectus that “the historical financial results of our marketing and branding services may not serve as an adequate basis for evaluating the future financial results of this segment” because revenue from the unit relies overwhelmingly on a small number of major enterprise clients.

Also worth your attention…

Despite Huawei’s push to build its own alternative operating system — HarmonyOS — the Chinese giant is sticking with Android for the foreseeable future. At a company event this week in Shenzhen, its home city, consumer software executive Wang Chenglu announced (in Chinese) that all of Huawei’s handsets, tablets and laptops will continue to carry Android-based OS in 2020. Meanwhile, Huawei’s other products, including a broad range of Internet of Things that make up a smaller chunk of its consumer revenue, will ship with HarmonyOS.

Kuaishou, the largest rival to TikTok in China has reached 100 million daily active users, the company announced (in Chinese) this week. Tencent-backed Kuaishou was one of China’s first short-video apps to have attracted a meaningful following, but it was quickly leapfrogged by a latecomer, ByteDance’s Douyin, which is TikTok’s brand in China.

Though similarly focused on bite-sized videos, the two apps differ fundamentally in the way they distribute content. Trending videos on Douyin tend to come from pedigreed influencers and professional creators; users are fed what Douyin’s complex algorithms determine as “quality” content. Kuaishou, in comparison, works to cultivate a sense of community as its users get exposed to a broader range of long-tail content — often from creators with insignificant followings.

That places Douyin closer to a form of “media” and Kuaishou closer to a “social network,” suggested (in Chinese) Liu Jianing, managing director of China’s top boutique investment bank China Renaissance, at a recent industry conference. For that reason, the two apps also monetize differently — while Douyin generates revenue mainly from ads, Kuaishou harnesses its social graphs to enable social commerce wherein shoppers leverage other users’ recommendations to make purchases.

 


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China Roundup: Y Combinator’s short-lived China dream

19:00 | 23 November

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. Last week, we looked at how Alibaba and Tencent fared in the last quarter; the talk in Silicon Valley and Beijing this week is on Y Combinator’s sudden retreat from China. We will also discuss the enduring food delivery war in the country later.

Brief adventure in the East

The storied Silicon Valley accelerator Y Combinator announced the closure of its China unit just a little over a year after it entered the country. In a vague statement posted on its official blog, the organization said the decision came amid a change in leadership. Sam Altman, its former president who hired legendary artificial intelligence scientist Lu Qi to initiate the China operation, recently left his high-profile role to join research outfit OpenAI. With that, YC has since refocused its energy to support “local and international startups from our headquarters in Silicon Valley.”

What was untold is the insurmountable challenge that multinationals face in their attempt to win in a wildly different market. Lu Qi, who wore management hats at Baidu and Microsoft before joining YC, was clearly aware of the obstacles when he said in an interview (in Chinese) in May that “multinational corporations in China have almost been wiped out. They almost never successfully land in China.” The prescription, he believes, is to build a local team that’s given full autonomy to make decisions around products, operations, and the business.

A former executive at an American company’s China branch, who asked to remain anonymous, argued that Lu Qi’s one-man effort can’t be enough to beat the curse of multinationals’ path in China. “All I can say is: Lu has taken a detour. Going independent is the best decision. When it comes to whether Chinese startups are suited for mentorship, or whether incubators bring value to China, these are separate questions.”

What’s curious is that YC China seemed to have been given a meaningful level of freedom before the split. “Thanks to Sam Altman and the U.S. team, who agreed with my view and supported with much preparation, YC China is not only able to enjoy key resources from YC U.S. but can also operate at a completely independent capacity,” Lu said in the May interview.

Moving on, the old YC China team will join Lu Qi to fund new companies under a newly minted program, MiraclePlus, announced YC China via a Wechat post (in Chinese). The initiative has set up its own fund, team, entity and operational team. The deep ties that Lu has fostered with YC will continue to benefit his new portfolio, which will receive “support” from the YC headquarters, though neither party elaborated on what that means.

Alibaba’s food delivery nemesis

The food delivery war in China is still dragging on two years after the major consolidation that left the market with two major players. Meituan, the local services company backed by Tencent, has managed to attain an expanding share against Alibaba-owned Ele.me. According to third-party data (in Chinese) provided by Trustdata, Meituan accounted for 65.1% of China’s overall food delivery orders during the second quarter, steadily rising from just under 60% a year ago. Ele.me, on the other hand, has lost nearly 10% of the market, slumping to 27.4% from 36% a year ago.

In terms of monetization, Meituan generated 15.6 billion yuan ($2.2 billion) in revenue from its food delivery segment in the quarter ended September 30. That dwarfs Ele.me, which racked up 6.8 billion yuan ($970 million) during the same period. Both are growing north of 30% year-over-year.

meituan dianping

Source: Meituan

This may not be all that surprising given Alibaba has arguably more imminent battles to fight. The e-commerce leader has been consumed by the rise of Pinduoduo, which has launched an assault on China’s low-tier cities with its ultra-cheap products and social-driven online shopping experience. Meituan, on the other hand, is fixated on beefing up its main turf of on-demand neighborhood services after divesting its costly bike-sharing endeavor. 

When both contestants have the capital to burn through — as they have demonstrated through heavily subsidizing customers and restaurants — the race comes down to which has greater control of user traffic. Meituan holds a competitive edge thanks to its merger with Dianping, a leading restaurant review app akin to Yelp, back in 2015. Dianping today operates as a standalone brand but its food app is deeply integrated with Meituan’s delivery services. For example, hundreds of millions of users are able to place Meituan-powered food delivery orders straight from Dianping.

Alibaba and Meituan used to be on more friendly terms just a few years ago. In 2011, the e-commerce giant participated in Meituan’s $50 million Series B financing. Before long, the two clashed over control of the company. Alibaba is known to impose a heavy hand on its portfolio companies by taking up majority stakes and reshuffling the company with new executives. That’s because Alibaba believes that “only when you operate can you generate synergies and really create exponential value,” said vice chairman Joe Tsai in an interview. Whereas if you just make a financial investment, you’re counting an internal rate of return. You’re not creating real value.”

Ele.me lived through that transformation. As of September, Alibaba has reportedly (in Chinese) completed replacing Ele.me’s management with its pool of appointed personnel. Ele.me’s founder Zhang Xuhao left the company with billions of yuan in cash and joined a venture capital firm (in Chinese).

Meituan’s founder Wang Xing had more unfettered pursuits. In a later financing round, he refused to accept Alibaba’s condition for portfolio companies to eschew Tencent investments, a strategy of the giant to hobble its archrival. That botched the partnership and Alibaba has since been gradually offloading its Meituan shares but still held onto small amounts, according to Wang in 2017, “to create trouble” for Meituan going forward.

 


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China Roundup: Alibaba’s Hong Kong listing and Tencent’s new fuel

20:00 | 17 November

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. The earnings season is here. This week, long-time archrivals in the Chinese internet battlefield — Alibaba and Tencent — made some big revelations about their future. First off, let’s look at Alibaba’s long-awaited secondary listing and annual shopping bonanza.

Forget about the number

It’s that time of year. On November 11, Alibaba announced it generated $38.4 billion worth of gross merchandise value during the annual Single’s Day shopping festival, otherwise known as Double 11. It smashed the record and grabbed local headlines again, but the event means little other than a big publicity win for the company and showcasing the art of drumming up sales.

GMV is often used interchangeably with sales in e-commerce. That’s problematic because the number takes into account all transactions, including refunded items, and it’s by no means reflective of a company’s actual revenue. There are numerous ways to juice the figure, too, as I wrote last year. Presales began days in advance, incentives were doled out to spur last-minute orders and no refunds could be processed until November 12.

Even Jiang Fan, the boss of Alibaba’s e-commerce business and the youngest among Alibaba’s 38 most important decision-makers, downplayed the number: “I never worry about transaction volumes. Numbers don’t matter. What’s most important is making Single’s Day fun and turning it into a real festival.”

Indeed, Alibaba put together another year of what’s equivalent to the Super Bowl halftime show. Taylor Swift and other international big names graced the stage as the evening gala was live-streamed and watched by millions across the globe.

Returning home

Alibaba is going ahead with its secondary listing in Hong Kong on the heels of reports that it could delay the sale due to ongoing political unrest in the city-state. The company is cash-rich, but listing closer to its customers can potentially ease some of the pressure arising from a new era of volatile U.S.-China relationships.

Alibaba is issuing 500 million new shares with an additional over-allotment option of 75 million shares for international underwriters, it said in a company blog. Reports have put the size of its offering between $10 billion and $15 billion, down from the earlier rumored $20 billion.

The giant has long expressed it intends to come home. In 2014, the e-commerce behemoth missed out on Hong Kong because the local exchange didn’t allow dual-class structures, a type of organization common in technology companies that grants different voting rights for different stocks. The giant instead went public in New York and raised the largest initial public offering in history at $25 billion.

“When Alibaba Group went public in 2014, we missed out on Hong Kong with regret. Hong Kong is one of the world’s most important financial centers. Over the last few years, there have been many encouraging reforms in Hong Kong’s capital market. During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright. We hope we can contribute, in our small way, and participate in the future of Hong Kong,” said chairman and chief executive Daniel Zhang in a statement.

Missing out on Alibaba had also been a source of remorse for the Stock Exchange of Hong Kong. Charles Li, chief executive of the HKEX, admitted that losing Alibaba to New York had compelled the bourse to reform. The HKEX has since added dual-class shares and attracted Chinese tech upstarts such as smartphone maker Xiaomi and local services platform Meituan Dianping.

Tencent’s new fuel

Content and social networks have been the major revenue drivers for Tencent since its early years, but new initiatives are starting to gain ground. In the third quarter ended September 30, Tencent’s “fintech and business services” unit, which includes its payments and cloud services, became the firm’s second-largest sales avenue trailing the long-time cash cow of value-added services, essentially virtual items sold in games and social networks.

Payments, in particular, accounted for much of the quarterly growth thanks to increased daily active consumers and number of transactions per user. That’s good news for the company, which said back in 2016 that financial services would be its new focus (in Chinese) alongside content and social. The need to diversify became more salient in recent times as Tencent faces stricter government controls over the gaming sector and intense rivalry from ByteDance, the new darling of advertisers and owner of TikTok and Douyin.

Tencent also broke out revenue for cloud services for the first time. The unit grew 80% year-on-year to rake in 4.7 billion yuan ($670 million) and received a great push as the company pivoted to serve more industrial players and enterprises. Alibaba’s cloud business still leads the Chinese market by a huge margin, with revenue topping $1.3 billion during the September quarter.

Also worth your attention…

Luckin Coffee, the Chinese startup that began as a Starbucks challenger, is starting to look more like a convenient store chain with delivery capacities as it continues to increase store density (a combination of seated cafes, pickup stands and delivery kitchens) and widen product offerings to include a growing snack selection. Though bottom-line loss continued in the quarter, store-level operating profit swung to $26.1 million from a loss in the prior-year quarter. 30 million customers have purchased from Luckin, marking an increase of 413.4% from 6 million a year ago.

Minecraft is on the brink of 300 million registered users in China, its local publisher Netease announced at an event this week. That’s a lot of players, but not totally unreasonable given the game is free-to-play in the country with in-game purchases, so users can easily own multiple accounts. Outside China, the game has

, according to gaming analyst Daniel Ahmed from Niko Partners.

Xiaomi founder Lei Jun is returning a huge favor by backing a long-time friend. Xpeng Motors, the Chinese electric vehicle startup financed by Alibaba and Foxconn, has received $400 million in capital from a group of backers who weren’t identified except Xiaomi, which became its strategic investor. The marriage would allow Xpeng cars to tap Xiaomi’s growing ecosystem of smart devices, but the relationship dates further back. Lei was an early investor in UCWeb, a browser company founded by He and acquired by Alibaba in 2014. A day after Xiaomi’s began trading in Hong Kong in mid-2018, He wrote on his WeChat feed that he had bought $100 million worth of Xiaomi shares (in Chinese) in support of his old friend.

 


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