Over the long run, China’s Duopoly and America’s oligopoly may become more of an bug than a feature
Let’s start with a truism: Southeast Asia is extremely fragmented. While the fact is certainly true, it is also extremely obvious.
Language, culture and laws fluctuate dramatically over just a few hundred kilometers. When it comes to economics, it is easy to travel from one of the richest countries in the world to one of the poorest over a two-hour plane flight.
The fragmentation has become a go-to cliche for VCs and is widely considered the region’s greatest ‘unique challenge’. Unlike China, Japan and even South Korea, startups need to think regional from day one — a burden that many coffee-shop-companies simply can not handle.
But what if the disintegration is not a bug, but a feature?
In the US and China, the two largest global tech markets, they have become dominated by giants. In China, nearly the entire software economy is divided between Alibaba and Tencent.
In the US, oligopoly may be a better word because it’s not two companies, but a handful. Amazon, Apple, Facebook, Google and Microsoft are kingmakers, Lords of the Silicon Valley who tolerate only what is not a direct threat.
Adam Smith and Karl Marx must be rolling over in their graves.
A duopoly in China
Every now and then, a story will hit the newstands that becomes a stark reminder of the all-encompassing influence of Alibaba and Tencent. Today, it was news that Ant Financial has 622 million users, making it THE dominant online finance play in China.
Ant Financial is an arm of Alibaba, the largest e-commerce company in the country. Thier payment platform, Alipay, claims 520 million users. Alibaba is also the company behind Taobao and Tmall, AliCloud and AliTrip. Other major companies that fall within the Alibaba umbrella are ofo, Weibo, UCBrowser, Ele.me and Youku Tudou.
Tencent is arguably more powerful. WeChat dominates every day life in developed China — and now has over 1 billion daily active users. Besides WeChat, Tencent also created QQ and Tencent Video. The former has grown to be as dominant in China as Netflix is in the US. Companies under the Tencent umbrella are MoBike, Meituan-Dianping and JD.com
China’s dominant car-sharing company Didi Chuxing has received significant investment from both Alibaba and Tencent.
Here is a tweet from WeChat expert Matt Brennan that helps visualise the power of Alibaba and Tencent within China.
Baidu is a large company and its focus on artificial intelligence makes it interesting, but it is a step behind Tencent and Alibaba.
The American oligopoly
The recent history of Snap Inc., Walmart, LinkedIn and Cambridge Analytica prove that the American industry is run by 5 (or six if we include Netflix) Nobles of Commerce with everyone else operating under their system.
The Soveirgn nation of Snap was too large of a threat to embraced, so Lord Facebook declared war. The Lady of LinkedIn could have become royalty, but it was too valuable, so it was bought out by the Baron of Microsoft.
The King of Retail, Walmart, saw the Monarchy of Amazon threatening its territory so it too has fought back.
The peasant, Cambridge Analytica, is now in the gallows because it scorned royalty.
If anything should convince people of the power of these tech giants, let’s compare the fates of Facebook versus that of Cambridge Analytica.
Over the past few months, Mark Zuckerberg has been dealing with the largest scandal in company history. Yet its ad revenue in Q1 2018 jumped by 49 per cent to US$12 billion. After its stock crashed in the immediate aftermath of the news, prices have risen to the exact same place they were before the controversy.
And as for Cambridge Analytica? They are now out of business.
This power of the oligopolies in Silicon Valley has resulted in a tech-lash. Data privacy is a genuine concern and now American cities are actively grappling with the very real social paradox created by the firms. (The Bay Area has spent the past decade navigating the paradox of economic growth with growing inequality and now Seattle seems to be entering a similar battle).
Why would Southeast Asia be different?
As Southeast Asia’s startup ecosystem begins to mature, there is not a single company that seems poised dominate the regional internet in the same fashion as Alibaba, Tencent or the American giants.
Grab or Go-Jek would probably be considered the most likely candidates because they dominate ride-hailing and both have an interesting payment infrastructure, but the smart money is to bet against that outcome.
For some perspective, neither Grab nor Go-jek have 622 million users on an insurance platform plus 520 million people using its payments. Alibaba does, and it also has market dominant services in travel, bike-sharing, cloud computing, e-commerce and ride-hailing.
The reason companies Southeast Asian countries can’t grow into all-consuming behemoths is because the fragmentation allows for competitors to catch up while incumbents are gaining market share.
While Go-Jek spent its resources trying to dominate Indonesia, Grab was given time to nab the same amount of customers across Malaysia, Thailand, Singapore and the Philippines.
For Uber, as it jumped nation-to-nation, it was slowed by regulatory differences, customer demand nuances and bureaucratic red tape across a relatively small geographic regions. The company could not move fast enough to put Southeast Asia in a stranglehold and eventually Grab and Go-Jek would eventually surpass their American counterpart.
Another example is in e-commerce. Alibaba has a horse in the race with Lazada and Tencent has Tokopedia. But if we are entering the quarter-pole of the derby, those two are dead even with Bukalapek, Qoo10, Carousell and Shopee. Amazon is pulling up the rear but it is still presenting a threat.
Yes, all of these massive tech companies will be involved in Southeast Asia, but while they impact the scene, it’s not dominant.
Let’s break down the regional unicorns to highlight this fact.
- Grab: Investment from Alibaba and Softbank,
- Go-Jek: Investment from Tencent, Google and Temasek.
- Sea Group: Various investors with none being any of the companies mentioned in this article
- Tokopedia: Alibaba and Softbank
- Traveloka: Largest backer is Expedia
- Bukalapek: EmTech Group
One of the most exciting parts about Southeast Asia’s tech scene is that there seems to be real opportunity in the region. Sure, China and America have more mature markets, but imagine being a social media company facing the prospect of eventually competing with Facebook or WeChat. That’s a daunting task.
Fragmentation allows for disruption and while the next great startup might lose Thailand, it can make up ground in Malaysia and Indonesia.
In this part of the world, opportunity feels more attainable for anyone with a dollar and a dream.
Copyright: martince / 123RF Stock Photo
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