The Rise of the Middle Kingdom:
China now at the center of the Technology world
I recently spent a week in China. It was the first time I had been back in over ten years and I came away amazed at what I saw. The last time I was there Motorola still reigned supreme as the leading brand (and handset maker), Baidu was already giving Google a run for its money, and cranes loomed high across the Beijing and Shanghai skylines. This time, the cranes were still there, the smog was just as bad, but the talk of the town were the dozens of local technology companies with valuations over $10 billion.
Historically and culturally China has always seen itself as a great power, as the “Middle Kingdom” (kind of different from our Western-biased maps that place them on an eastern fringe). And while last week’s Alibaba IPO seems to have made the world realize that there is something special happening in the East, the rise of China in the technology space has been building up steadily over the past decade.
Today, 6 of the top 20 technology companies by market cap are already Chinese (with 9 being Asian). And the data below is outdated, as Alibaba’s market cap is already over $230 billion.
But even before the Alibaba IPO, Chinese companies have already started to have a deep influence in the Western technology ecosystem. For one, they have been active investors and acquirers and this will likely accelerate with the new cash in Alibaba’s coffers.
And while the West seems to have recently discovered the notion of messaging as a platform, China, and specifically Tencent has been cashing in on this for over a decade.
From my post on this last year:
“So, yes this all comes back to Tencent, the Chinese internet powerhouse that in Q3, 2013 generated $2.5B in revenue with $1.8B of that from “value-add services” (ie stickers, digital goods) and $383M in “ecommerce.” That’s IN ONE QUARTER on 55% Gross Margin!
And this revenue comes from its QQ messaging platform which is mainly China centric with 815M user accounts. But QQ is the platform of yesterday and the Chinese giant has awakened and the growth is now coming from Weixin and WeChat which account for 272 MAUs or a 124% YoY growth.”
The scale of the Chinese home market is unbelievable, and all being driven by mobile which benefits new entrants like Xiaomi (who can sell out hundreds of thousands of phones in seconds) but also startups that leverage Messaging platforms, like gaming social network PengPeng which in two months has surpassed 4 million active users.
The market has plenty of cash to support new ventures, be that from well-known Western funds like Sequoia or KPCB or local funds (many funded by the first generation of successful entrepreneurs). As one local VC told me, with the level of competition in China, many of the local funds are now beginning to look West and doing investments into US and European companies. As evidence, in Farfetch’s recent $66 million funding round many overlooked the mention of a Chinese VC Ceyuan alongside European PE shop Vitruvian.
The Alibaba IPO might be the wake up call for the general public to realize the amazing potential of the Chinese technology ecosystem, but for those of us in the technology space, it simply marks a very public milestone for what has already been happening for some time: The East is now teaching the West.
