The Great Internet Divergence: Cross-Geo Business Model copying is dead.
My thesis is simple:
Circa early 2000's/10's, the world (first the West and then the East), largely faced Internet 1.0, which was a great place. Fundamental foundations of the internet and digital economy was being built everywhere. In the East, I joined Rocket Internet and helped clone e-commerce companies in South Asia. Those business models made sense.
Localization was always crucial but manageable with Internet 1.0 business models. Along the way came the Great Internet Divergence.
The Great Internet Divergence saw Governments, Culture, Regulations and various pieces of complex parts of local society react to technology in a way that fundamentally caused divergence in different business models in different countries, particularly emerging markets.
We first saw this in China with models like Tiktok, Alibaba, and Ant Financial. “But China’s communist!”, we said, “Of course it would look differently. We can still clone business models in other countries!”
But other regions started to see dramatic divergence in infrastructure:
EU Open Banking Regulations fundamentally changed the nature of fintech in Europe.
India launched demonetization and Unified Payments Infrastructure (UPI) that invalidated a wide range of business models and created a whole lot more.
Newer ways of thinking emerged — business models that we had not seen anywhere else sprung up in India and many other places, shaped in large part by the different economic and demographic market constraints and opportunities, that never existed to a similar degree in developed markets.
CRED, Udaan, Bharatpe, Zillingo, Byju from India have no real historical tech comparable from developed markets. Fawry from Egypt springs up. The best comparable for Kopi Kenangan in Indonesia is Starbucks, but more aptly, Luckin Coffee from China.
CRED was founded on the single insight that the fast-growing mass market of India was less interesting than the premium market — an insightful contrarian observation that is contrary to what most investors looking at India think of.
Edutech was boring until Byju came about to dominate and build a 15B edu-tech roll-up company (basically about as large as all the US edutech unicorns put together).
Even similar concepts have very different implications — In the US, Embedded Finance is an interesting way to build a better customer experience. In developed markets, it is a crucial means of proving monetization and business model sustainability in shallower emerging markets.
So what should founders and investors do?
Go back to first principles — being innovative is back to being sexy and now pays off even more.
The days of copying business models like Uber and Amazon on a wholesale basis for emerging markets is waning. If you only benchmark and copy, you’re screwed.
Developed markets (and other markets all around the world) still have a lot of lessons to teach us about what works in other countries, but instead of copying business models, I would think more about the specific levers that made those models and see what innovative business models can exist.
Business Process Innovation still drives most of the innovation in emerging markets so I would focus on thinking deeply about why certain offline business models or economics in a country act the way the do and innovate from there. Developed markets have a history to learn from, not just business models to copy.
As an example, I am spending time thinking about why Costco was successful in the US, and seeing how those fundamental offline retail principles interact in the age of group-buying and micro-warehouses for Tier 2/3 emerging market cities.
I am also spending time thinking about how Korean and Chinese social influencer models have affected the way we think about social commerce and the influencer economy across both the US and the rest of Asia.
Finally, I have also been thinking through how Asian concepts of social commerce interacts with post-covid travel, building on my earlier thesis on travel.
To Founders: capital is cheap — challenge your investors on how they can push you to think about local nuances with global lessons and first principles.
Chia Jeng Yang, Principal at Saison Capital, dives into consumer, SaaS, and fintech investment trends across the U.S. and Asia, builds projects in the venture capital and public policy space, works closely with early-stage (Pre-A) founders and can be contacted at firstname.lastname@example.org. Previous work here: http://chiajy.com