Götterdämmerung: the Final Weapon to defeat FAANG

There’s only one truth. The “war” will break out soon.

The Internet giants were ambiguous when entering the 2nd half of the game, remain unknown to others how they have been prepared for the upcoming war?

We can judge the approx. financial situation of Baidu, Alibaba and Tencent from 2019Q1 financial report. BAT gained reputation through monopolizing the core services of Internet since 2012, and remained active in every major Internet news.

As I mentioned in the previous article, the landscape of Internet was formed in 2000, when BAT was born and grew to a multipolarity of Internet Industry in China — as Alibaba in consuming industry, Tencent in social media, and Baidu in information acquisition — aiming to build their own ecology.

In the era of post mobile Internet, as new giants such as Toutiao, Meituan, Didi and Xiaomi emerged, BAT changed the previous strategies 5 years ago and still occupies the core market of Internet. We can tell from Q4 2018: Alibaba revenue, number of Tencent users, and Baidu profit have soared.

Market value of Baidu is far less than Alibaba and Tencent. As the latest data shows, Ali reached 485.4 billion USD, Tencent reached 483.5 billion USD, while Baidu worth only 60.4 billion USD. Tencent and Ali have covered almost all Internet businesses. Baidu focuses on search + information stream, with strategic planning of AI; Tencent aims at consuming and industrial Internet; while Ali is forming partnerships, and empowers enterprise via digitalized technologies, to form network externality.

Baidu’s current growth depends on search and information stream, but will transit to AI Conversation and unmanned vehicle in future. While the vision is practical, but who will trust the AI technology built by Baidu based on past scandals? It’s been exposed that the death of student Wei Zexi was caused by the ads result on Baidu under Putian system, which created huge conflicts between Internet service providers and users. Baidu co-founder Robin Li is a pure technician who lacks sufficient management skills to prevent such tragedies. While AI improves the efficiency of productive force, it is fed by data. Therefore, unbiazed data source is vital to produce healthy solutions.

Jack Ma said on 2018 Global Investment Summit that Ali will continue to follow the “5 new strategies” in new retailing, new infrastructure, new technology, new finance and new energy, in order to empower wider economy by digitalizing global enterprises. Ali learned from Amazon, as Ali Cloud becomes the 2nd largest sources of cashflow following e-Commerce. However, the difference is Ali’s core business is Taobao, whose trading volume exceeded 213.5 billion in 2018 — an increase of 26.9% as compared to previous year.

But how reliable is the data? I seriously doubt that. What we already know is that network traffic becomes increasingly expensive, but the return is decreasing. As an important indicator of Chinese economy, Taobao’s trading volume in 2018 is higher than 200 billion CNY, but will it exceed 300 billion CNY in 2019? If the economic environment is not getting better, consumers won’t spend more on e-Commerce. I would assume Jack Ma has realized the dilemma, so he wisely retired last year.

Founder’s vision determines the fate of an enterprise. Every fight should be a final war.

Tencent changed its strategies last year: from consuming Internet to Industrial internet + Consuming Internet. Pony Ma established cloud data intelligence solution department to underpin Tencent revenue. Data from Q3 last year has proved the feasibility of the strategy. Currently Cloud service exceeds game and live broadcast businesses, which also expanded the market share in Finance and Retailing. Together with the IPO of Meituan, the impact of policy restrictions on gaming have been offset. Profit was increased more than expected. In the future, we may witness another Tencent to rise.

Once a Tencent senior employee wrote, Pony Ma is a guy with long-term vision. Two years ago, most people were celebrating sharing economy, which has been proved to be a false idea. Internet is wearing the mask of sharing economy, but actually plays as intermediaries. For instance, Didi lives on the 20% — 25% of commission from the drivers. How many drivers are still providing hitch ride service?

It’s a war of network traffic.

Investor of sharing-economy projects Xiaohu Zhu had a famous quote about the war of traffic: the key to the success of a sharing economy project is — suitable for all in every day life with frequent usage.

Didi is a typical example with the above features since car is needed anytime anywhere during daily commute, let alone weekends. The success of Meituan also explains how it works. Food is an inelastic demand, when people spend more time at home for work and holidays, it creates demand for food deliveries. The same rule also applies to Airbnb.

Business of food, clothing, housing and transportation, which meets basic human needs, worth more investment. Continuous investment will help retain network traffic and convert it to ROI. While other industries seem more difficult to succeed. Even the car-sharing industry once had more than 1,000 investors in 2014, failed in 2016.

It is predicted that Toutiao will fight a fierce war with Tencent in the next few years, as the incremental market saturated. Since 2019, 2C network traffic becomes too difficult to obtain, so the future competion will transit to stock market.

Network traffic price has rised unbelievably high since 2018. SEM can’t afford to purchase new users, such as click farming in application market. Fake cpa and cpd data becomes prevalent, and no one is willing to buy cps. Data is merely a perfunctory response to the investors.

As I mentioned earlier, competition is caused by demographic dividend plus economic cycle. Technological innovation is the only variable. As Internet penetration rate increased, demographic dividend will reduce, making it more expensive to attract new users. For instance, as Internet product penetrates into rural areas recently, the last incremental market is occupied.

Therefore, the battle field of demographic dividend has moved to the length of user retention. While Tencent develops mini programs, Baidu focuses on short videos and information stream, and Alibaba aims at new retailing, to compete for users’ time spent across platforms.

With the increased and diversified services provided across industries, user free time becomes the new competition. For those platforms, spending more time watching short videos means less time on playing games. To explore the new incremental market, it is in due course to penetrate to 2B market, except from going overseas and less-developed 2C market.

In the past decade, various industries have developed core technologies in applicable internet to realize upgrades. The value of Industrial Internet has been created in retail, entertainment, finance, manufacturing, logistics, etc, which empowered Internet companies to explore the new growth point. Tencent transitioned to Industrial Internet decisively at this point.

Pony Ma once mentioned the key to second half of the game: “the strategic upgrade is the new starting point for Tencent’s next two decades. In previous game, we provided high-quality services to customers through social connections, while the next game belongs to industrial Internet. Tencent will build more open connection ecology based on industrial internet.”

BAT’s every movement reflects the trend of Chinese traditional Internet in the next two decades. When Internet demographic dividend vanished, who can be the avenger to save the world?

Pony Ma already gave the answer: blockchain. A centralized Internet is built based on profits. If Tencent builds a decentralized IM application, it needs to issue digital currencies — which is illegal in China — and giving back the revenue to users. While blockchain is a paradox to the nature of capital market, as the data is encrypted and open,.

If 2C market will be replaced by public chains or Dapps, the right decision is transit to industrial internet.

Blockchain is replacing the Internet during the evolution. Traditional Internet relies on consumer data to provide high quality service. However, due to network marginal effect, traditional Internet companies failed to exceed beyond the level of 2 billion users. Therefore, BAT decides to sink from 2C market to B2B2C even 2B market.

The true sharing economy can be achieved when application public chain is built.

Dongdong Zhao — co-founder of Moji weather — is a famous blockchain practitioner. He joined cryptocurrency market from traditional internet as a fundamentalist. But I prefer to call him and people of his kind as Bitcoin Pharaoh, since they currently stand at the top of the “food chain”. Dongdong believes that all except Bitcoin are copycat coins, and claimed that the competition of infrastructure operating system will end in the coming years, when a killer project will come into view with bull market. But he did not recognize which is the killer project, so he temporarily returned to bitcoin financing product.

Let’s see what is happening in Silicon Valley. FAANG had a bad 2018 privacy leakage scandals. The only good news is GDPR regulation was promulgated to protect privacies. According to GDPR, enterprises that hide privacy leakage issue will face severe penalties. However, the impact of regulation enactment on Internet enterprises is to be explored

According to the data from DarkReading, there were 3,676 data leakage incidents throughout Q1 to Q3 in 2018. U.S becomes the country that leaked most privacies as reported in 2018.

On 17th March 2018, <Guardian> and <the New York Times> revealed that, more than 87 million user data on Facebook was stolen by a Q&A app by British political consulting firm Cambridge Analytica without having acknowledged the customers. Cambridge Analytica then sold the data to Donald Trump’s eletoral campaign team, to manipulate the voters of 2016 U.S. presidential election through precise ads promoted online.

Google figured out the bugs in Google+ leaked more than 52.5 million user privacies last year. These personal information cover name, email address, age, gender and occupation. Last year, Google was fined with 8.8 billion EUR by EU, and Facebook was fined with 12.6 billion EUR. Users in more developed countries and regions seem to be more sensitive about privacy issues, where a P2P privacy IM such as Telegram has attracted 200 million users globally.

The share price of FAANG closely links to their privacy strategies. Although Europe enacts privacy law to regulate FAANG, the act contradicts with FAANG’s profit model, since the nature of traditional Internet obtains profits from data sales business.

Let’s get back to China. The issue of user privacy leakage by Didi and Huazhu last year triggered social disputes, which exposed the fact that China lacks policies and Internet technologies to regulate privacy overuse. In addition, Chinese users have limited perceptions about the value of individual data and the importance to protect privacies. For instance, many failed to realize the consequence of phone fraud caused by privacy leakage.

The key for blockchain to defeat traditional Internet is it solves privacy issue, which is the weapon to win the final war with FAANG.

The collection and usage of personal data on blockchain is recorded, and immutable. In the meantime, data transaction is more transparent, and value can be traced back to the data owner. The issue of asymmetric information is prevalent across industries. For instance, patient records are kept by hospitals, and patients have limited access to the data they should own.

To enable AI in healthcare to upgrade with information collected, encrypted and open data is preferred instead of captive data. Since the risk of privacy leakage will be the barrier to industrial Internet development. Currently more than 90% of data is monopolized by government or FAANG. However, Internet has entered the 2nd half of the game. The war between blockchain and Internet can be expected within the next 2 decades, when industrial Internet reaches diseconomies of scale.

Both BAT and FAANG are 2C businesses, which link closely with privacy issues. In future, blockchain technology will be most ideal solution to “trust issues” by its nature. Thus I believe large amount of privacy-oritented public chains will appear in near future.

Like Bitcoin, many cryptocurrencies include privacy feature. As Zcash and Dashcoin appear, many start to trade with privacy coins for private transactions. In Venezuela, bitcoin ranks the 1st amongst popular cryptocurrencies, followed by Monero.

The application of privacy technology is more than payment and underground transactions — such as to secure personal properties in Finance. Matching personal data with on-chain transaction information, the past and future transaction records will be easy to trace. The information will be traded for profit if exposed, even blackmailed for profiteering.

This is the reason why privacy coins became popular in the previous bull market. In future, more privacy-oriented projects will be applied to the market, such as privacy e-commerce, and it prevents personal consumption behaviors from being stolen by third party platforms. Instead, blockchain network will match advertisement with anonymous user information for security and privacy.

Today, Hyperion has launched Titan — the first global privacy map product. When Hyperion Map Chain is built, a large number of privacy projects will explore application scenarios for more new comers to enter the world of blockchain.

In future, when all the avengers join privacy alliance, and use blockchain technology to save the world, the bull market will rise.