<Editor's Pick> Review of China's Internet industry trends in 2020

In 2007, Kingsoft was finally listed on the Hong Kong Stock Exchange after 20 years, and Lei Jun, the helmsman, had mixed feelings. After 16 years of hard work in Kingsoft, and a series of vicious battles with Microsoft and domestic competitors, Kingsoft finally "came ashore". As the first generation of entrepreneurs in Zhongguancun, Lei Jun, the "code poet", missed the subsequent wave of Internet entrepreneurship. The success of the four major portal websites and the BAT triumvirate in a shorter period of time made Lei Jun realize that he should "follow the trend" and turn around to set up "Xiaomi" to enter the mobile Internet field.

In 2014, Zhang Yiming, Wang Xing, and Suhua, who had no name in the PC Internet era, were working on their own in Zhichun Road, catching up with the mobile Internet era brought about by the explosion of smartphones and making a name for themselves in a much shorter time.

In 2020, the epidemic affected people's normal life, and this crisis also made Internet companies see the accelerated process of online and offline integration, realizing that the opportunities contained therein were no less than when the Internet was in its infancy.

Online education, telecommuting, community group buying, e-commerce livestreaming, and new consumer brands have formed the windfall, and these new trends formed by the flow of capital, talent, and companies may create new industries and platforms in the near future.

 

#1 New trend: Digital acceleration

At the end of the year, a game called "Cyberpunk 2077" became popular, and people who played it exclaimed that we had actually entered the future 50 years earlier.

People of the future, remembering the beginnings of the Cyber Age, will most likely not miss the pandemic of early 2020. If the Internet was just a gadget for people to spend time before, this epidemic has made the concept of "Internet = life" take root.

The health code provides data guarantee for epidemic prevention and control. Wuhan closed the city so that the community group purchase, which was originally a "disproven" windfall, regained its popularity. Tencent meeting, enterprise WeChat and other office software temporarily added tens of thousands of servers in order to maintain the stability of people's remote office. The office software Dingding was stormed by angry elementary school students in the app store with "one-star" comments because of the opening of the online classroom function.

From daily going out and grocery shopping to office and school, the digital process of people's lives has been accelerated by the epidemic. Whereas previously, adding an online service was the icing on the cake for the offline service industry. However, in the midst of this epidemic, it has become clear that an online service could be a lifesaver. Internet companies that previously were obsessed with an online business have stepped up their competition for offline traffic entrances because of the epidemic.

Twenty years ago, the cyberspace of the Internet was new and cool, and going online was a way to escape reality. Twenty years later, online and offline have begun to accelerate integration. Cyberpunk may no longer take 50 years.

 

#2 New trend: Electric Vehicle Consensus

NIO and Tesla, two of the first Chinese and American companies to enter the smart electric car industry, are now the highest market capitalization companies in China and the world, respectively. Now, new energy vehicles are favored in the capital market, which to a certain extent means that people gradually have a consensus on the future trends of intelligence and new energy.

Why is the share price of new energy vehicles soaring like a rocket?

A fundamental reason is that the internal structure of the car has changed drastically. The electronic and electrical architecture of traditional cars predestines the whole car to not have much computing power and to not be able to interact with the cloud, and the whole car basically relies on mechanical and the most rudimentary form of electronic computing. The smart car is designed to be centrally intelligent from the beginning, using a small number of chips to control more functions, and on this basis, it can be broadened to various fields involved in smart cars, such as autonomous driving and V2X, etc.

A simple summary is that the car has been transformed from a mechanical product to a technological product. The latter is precisely what traditional car companies can hardly hope for because the underlying logic needs to be reconstructed. This is also the reason why traditional car companies cannot come up with a comparable product to compete with the new car makers in a short period of time.

 

#3 New trend: The end of the "money-burning" era

Some people say that Liu Erhai of Joy Capital is the most "unlucky" person this year, because the two companies he deeply participated in investing in, Luckin Coffee and Danke apartment, encountered crises one after another at the beginning and end of the year.

Through massive subsidies, Luckin Coffee has taken only 18 months from its creation to its U.S. IPO in the form of free coffee for the whole country. A detailed shorting report by US shorting agency Muddy Waters Research forced Luckin to expose itself to "financial fraud" and eventually received a delisting notice from the US SEC. In the face of the SEC's allegations, Luckin chose to pay a $180 million fine in a settlement.

In the track of long term rental apartments, Danke Apartment is using the form of "rental loan" to run around the country. And once the capital chain is strained, this dangerous model is declared a failure, ultimately resulting in a large number of tenants at the end of the year because of conflicts with the landlord. Tenants were put in a dangerous situation of having no houses to live in but carrying a loan, which eventually required the local government to intervene.

The failure of Luckin Coffee and Danke Apartments marks the end of the era of winning and losing by burning money in the market.

 

#4 New trend: Some innovations have nothing to do with technology

The 'erosion' of offline business by e-commerce is faster this year.

According to China's National Bureau of Statistics, total e-tailing has gradually grown from zero to 20% of total social retail sales over the past 20 years.

And in the first half of 2020, that number increased by another 5% and is expected to become 10% by the end of the year. That's a year that's equivalent to the last 10 years.

The epidemic has accelerated the 'online-ification' of offline commerce, especially by community group-buying. In the past year, community group-buying, a fusion of online and offline businesses, is rapidly taking over every corner of Chinese commerce, even in rural suburbs.

If the impact of e-commerce on offline business is gradual, the community group-buying is drastic. In addition to the superior efficiency of the business model of community group buying, more of this is the capital ambition behind the platform.

From July 2020, the major Internet giants have entered the game, burning money to subsidize has become the main theme of the giants to seize the "new entrance of traffic". Subsequently, the offline commercial price system was disturbed and affected the "food basket" which is related to people's livelihood. Community group-buying fully demonstrates the "brutal" business beliefs and code of conduct that Internet giants used to rely on.

Immediately after that, the cold wave hit. On December 11, the People's Daily issued an article saying that the Internet giants should not "think about the people's bundles of cabbage". On December 22, the Chinese General Administration of Market Regulation, together with the Ministry of Commerce, talked to Alibaba, Tencent, JD.com, Meituan, Pingduoduo, and Didi, and issued the "9 don'ts" of community group-buying.

The "9 don'ts" require Internet platform companies not to abuse their pricing power through low price dumping, price collusion, price gouging, price fraud, and other means. They shall not abuse their independent pricing power and shall not take advantage of data to "trick frequent users", etc.

By burning money subsidies, grabbing customers and other rapid expansion of the Internet classic play may have to fail. This is not only the "restraint" of community group-buying but also the "supervision" of other fields that Internet companies are involved in, as well as a timely reflection on business ethics.

Is community group buying really an innovation at the technological level, or is it just another money-burning battle of the Internet giants trying to centralize traditional supply chains and users on their own platforms?

There are times when some innovations are not necessarily related to technology.

 

#5 New trend: The Icebreaker of Globalization

The situation TikTok faces in the US this year is another crucial battle for Chinese companies going international after Huawei. The key to this battle is the spillover of political conflict into technology companies and the use of political tactics to undermine fair competition in business.

The dilemma faced by Huawei and TikTok is that they have been forced into a deeper conflict between different cultures and civilizations. In the future, this contradiction is a difficult problem for all  Chinese companies who have the ambition to go abroad.

Faced with the dilemma, Huawei's founder Ren Zhengfei gave extensive media interviews to seek public communication while turning to U.S. law to sue the White House for the "unconstitutionality" of the order. In addition to using the law, ByteDance has also chosen to prevent being "muddied" by using "full transparency" in its business mechanism.

Obviously, when political reasons overtake the rules of business, Chinese companies with a heart for overseas markets will need to face this new situation, which is constantly intensifying, for quite some time and new mechanisms will be needed.

#6: New trend: new traffic to create a new e-commerce

Alibaba can't do content, and Tencent can't do e-commerce. This may change because of the emergence of e-commerce livestreaming.

The earliest Taobao live, Li Jiaqi and Weiya become the number one standard of e-commerce livestreaming. This makes the industry realize that through livestreaming to output marketing content in a reasonable form, users not only do not resent but also have more impulse to consume.

The emergence of e-commerce live-streaming has combined content and e-commerce into a new traffic portal, leading to new content e-commerce. However, in addition to selling goods itself, the greater value of content e-commerce may lie in creating consumer fads and achieving long-term brand growth.

 

This is an article from GeekPark(ID: geekpark), translated by Linda Yang.