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Chinese Tech Firms Forced to Choose Market: Home or Everywhere Else

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How China Is Changing Your Internet

What was once known as the land of cheap rip-offs may now offer a glimpse of the future — and American companies are taking notice.

Video Title: How China Is Changing Your Internet Video Description: In China, a sheltered internet has given rise to a new breed of app, and American companies are taking notice. What was once known as the land of cheap rip-offs may now offer a glimpse at the future. PART I: Intro 1. If you are sitting in the United States or Europe right now, you’ve probably never used a Chinese app, but the reality is, if you want to know how the internet will develop, China, the land once known for its cheap rip-offs, has actually become a guide to the future. PART II: The creation of the Chinese Swamp Monster 2.1 You know, the internet is the internet, but for China the internet is more like an intranet. It’s largely walled off from the Western world by this incredible complex system of filters and blocks that we call the Great Firewall. And basically the Great Firewall blocks any foreign site the Communist Party doesn’t think it can control. 2.2 So that means there is no Facebook, no Twitter, no Google. Instead, what filled the internet vacuum was a generation of Chinese copycats that have grown into huge companies. 2.3 So for Google, you had Baidu; for YouTube, you had Youku; for Twitter, you had Sina Weibo, and the list goes on and on. 2.4 It’s almost as if the Chinese internet is a lagoon as an aside to the greater ocean of the internet, and in that lagoon there are these swamp monster apps that bear some resemblance to the creatures in the ocean but are mutated in some ways because they evolved in a different kind of environment. PART III: The Chinese Swamp Monster Leaves the Pond 3.1 But things have started to shift, in the sense that before, no one outside of the lagoon really cared about the swamp monsters. But now all of a sudden, some of the features they’ve developed are so amazing that Western apps are trying to copy them. And the greatest example of this is WeChat. 3.2 WeChat is an example of, for lack of a better word, a super-app. It’s a Swiss Army knife that basically does everything for you. 3.3 It’s your WhatsApp, Facebook, Skype and Uber. It’s your Amazon, Instagram, Venmo and Tinder. But it’s other things we don’t even have apps for. There are hospitals that have built out whole appointment booking systems. There are investment services. There are even heat maps that show how crowded a place is, be it your favorite shopping mall or a popular tourist site. The list of services goes on basically forever. 3.4 But it’s not the variety of things you can do on WeChat that makes it so powerful, it’s the fact that they’re all in one app. So why does that matter? PART IV: The Power of the Super-App 4.0 These are real people. Using the app in real ways. (We just made up the story.) 4.1 Hypothetically, imagine you’re sitting at home and one day you notice your corgi is dirty. You open WeChat, hit a few buttons and a few hours later a man shows up at your door with some shampoo and a big vacuum. Your dog gets cleaned, and he looks great. You take a photo. You share it with your friends and tag the dog cleaning business. You haven’t left the app. 4.2 Your friend who likes Hello Kitty and works a boring office job is slacking off at work and looking at WeChat. She sees the photo of your clean corgi. She decides she wants her poodle cleaned. She clicks the tag on your photo and orders the same service. Within seconds the man with the big vacuum is on his way to her house. She pays him, and he’s happy because he got paid instantly on WeChat. She starts chatting with you to thank you. Neither of you have left the app. 4.3 While chatting, she tells you about a new, hip noodle joint. She says, “You have to come.” It’s a shlep, but you accept. She orders food while still at her desk. You order a taxi. She pays for the food. On the way to her house, the man with the big vacuum invests the money he earned from both of you into a wealth management product that’s probably a little too risky. Neither of you, nor the man with the big vacuum, have left the app. 4.4 Both of you arrive, and the app tells the kitchen you’re there. Your WeChat profile photo pops up on the wall. Its an old photo from that year you had that weird part in your hair. Of course, she makes a comment. Your food is served. You notice your meat is a bit overcooked, so you snap a photo and post a disparaging restaurant review. You’re already on your phone, and you remember you still owe your friend money because she paid. You transfer her money. Neither of you, the man with the big vacuum, nor the restaurant, have left the app. 4.5 At the restaurant: There are no menus. There are no waiters. There is no cashier. There is only WeChat. 4.6 By rolling so many functions into one single app, it’s altered the concept of virality. It’s no longer just videos or images or tweets that can go viral — it’s a dog washer, noodles, all sorts of companies and products that get the push of a social network. 4.7 Here in China, that network is 700 million people. Part V: The Costs of the Super-App 5.1 Sounds great, right? Well it is, but using a single app to find a date, schedule an oil change or notarize a document also enables WeChat to collect a staggering volume of personal data. 5.2 They know what you talk about, who you talk about it with, what you read, where you go, why you’re going there, who’s there, how you spend money when you’re online, how you spend money when you’re offline. The list goes on indefinitely. 5.3 For advertisers, this is miracle: It’s the combined data of Facebook, Amazon, Google and PayPal, all in one place. The problem is, all of the data is information Chinese companies are forced to share with the Chinese government, which has a long record of human rights violations and isn’t exactly shy about stalking its citizens. Part VI: Outro 6.1 So if you’re not in China, why does this matter? It matters because we’re starting to see a number of Western tech companies attempt to replicate super-apps like WeChat. 6.2 For the companies, it’s incredibly powerful, and for you and me it’s a convenient and even transformative technology. 6.3 But of course, it could also be problematic. Concentrating so much data in so few hands could lay the groundwork for an Orwellian world where companies and governments can track every single movement you make.

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What was once known as the land of cheap rip-offs may now offer a glimpse of the future — and American companies are taking notice.CreditCredit...Damir Sagolj/Reuters

HONG KONG — For teenagers who like to sing along with Ariana Grande and Flo Rida, Musical.ly is a must-have. The app that lets users lip-sync and dance in their own music videos boasts 100 million users and partners with pop stars like Ms. Grande and Meghan Trainor.

It’s not easy to tell Musical.ly is Chinese — and that’s deliberate. To find success in America, its parent company has ignored China, its home market and a country with 700 million internet users.

The reason is simple, says Alex Zhu, co-founder of Shanghai-based Musical.ly: China’s internet is fundamentally different from the one used in much of the rest of the world.

“It’s still very difficult to get into China,” said Mr. Zhu, who studied civil engineering at Zhejiang University in the eastern city of Hangzhou. “It’s a closed environment, and you have to be quite different to compete in that market.”

Two decades after Beijing began walling off its homegrown internet from the rest of the planet, the digital world has split between China and everybody else. That has prevented American technology companies like Facebook and Uber, which recently agreed to sell its China operations, from independently being able to tap the Chinese market.

For China’s web companies, the divide may have even more significant implications.

It has penned in the country’s biggest and most innovative internet companies. Alibaba, Baidu and Tencent have grown to be some of the world’s largest internet companies, but they rely almost entirely on domestic businesses. Their ventures abroad have been mostly desultory, and prognostications that they will challenge American giants internationally have not materialized.

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Alex Zhu, co-founder of Musical.ly, in a meeting with staff members at the company’s offices in Shanghai.Credit...Gilles Sabrie for The New York Times

For Chinese web start-ups like Musical.ly, the internet split has also forced them to choose — either create something that caters to China’s digital population or focus on the rest of the globe.

In many ways, the split is like 19th century railroads in the United States, when rails of different sizes hindered a train’s ability to go from one place to another.

“The barrier to entering the U.S. or China market is becoming higher and higher,” said Kai-fu Lee, a venture investor from Taiwan and former head of Google China.

The difficulties that China’s internet companies face in expanding their success abroad are epitomized by WeChat, the messaging app owned by Tencent. In China, WeChat combines e-commerce and real-world services in ways that have Western companies playing catch-up. It has about 700 million users, most of whom are Chinese or use it to connect with people in China.

In 2012, armed with a cash stockpile of several hundred million dollars, the world soccer star Lionel Messi as a spokesman and local ads like Bollywood-inspired commercials in India, Tencent began a push that executives said would be its best chance of breaking out of China. The effort flopped.

Critics pointed to Tencent’s lack of distinctive marketing, a record of censorship and surveillance in China and its late arrival to foreign markets. Yet the biggest problem was that outside of China, WeChat was just not the same. Within China, WeChat can be used to do almost everything, like pay bills, hail a taxi, book a doctor’s appointment, share photos and chat. Yet its ability to do that is dependent on other Chinese internet services that are limited outside the country.

That leaves WeChat outside China as an app that people mostly use to chat and share photos — not that different from WhatsApp and Messenger, which are both owned by Facebook. Baidu and Alibaba have apps that similarly offer a range of capabilities, yet are less useful outside China.

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A screenshot of a video by a popular user of Musical.ly, an app that combines social media and music.Credit...Gilles Sabrie for The New York Times

The same problem hurts start-ups in China. Those companies start out accustomed to using Chinese internet sites and apps to market and enhance their business. But going abroad means a different world of services to master, such as a solid understanding of Facebook and Google’s platforms and ads, not Baidu’s and Tencent’s.

By contrast, Musical.ly chose the opposite approach and linked itself to the most popular social networks in the United States. If someone records an impressively coordinated dance or flawlessly lip-synced song, the person can put it up not just on the app, but also add it to Instagram, send it on WhatsApp or post it to Facebook. That has helped Musical.ly grow naturally to Europe, South America and Southeast Asia, Mr. Zhu said.

“The thing about this young generation in the U.S. is, they’re creative,” said Mr. Zhu. “They’ll say, ‘Please follow me on Instagram or Snapchat.’ If your app can attract some people in an age group and make them super excited to share, you will probably grow.”

For Cheetah Mobile, a maker of smartphone utility apps based in Beijing whose users are mostly outside China, the solution was finding a steppingstone to the rest of the world. In early 2014, it opened an office in Taiwan, where use of Google and Facebook dominates. That helped it gain employees who intimately understood Facebook, YouTube and other major Western platforms that could be used for advertising.

“Taiwan served as a bridge for us across the Pacific to the United States,” said Charles Fan, Cheetah’s chief technology officer.

Tencent, Alibaba and Baidu have all opened American offices, but they have mostly turned to investments and acquisitions to gain footholds overseas. Over the last two years, Alibaba has invested in emerging markets, including two online commerce companies, Paytm and Snapdeal, in India. It also spent $1 billion to acquire Lazada, an e-commerce site popular in Southeast Asia.

Tencent has been more aggressive in Western markets. In June, it made its largest overseas deal, paying $8.6 billion for Supercell, the Finnish company that created the popular mobile game Clash of Clans. Tencent also has a stake in the games company Activision Blizzard and bought one of the most played games in the world, League of Legends.

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The Shanghai offices of Musical.ly, a Chinese start-up that chose to build its business abroad.Credit...Gilles Sabrie for The New York Times

Perhaps the greatest indication of Tencent’s overseas ambitions was a deal that never happened. In 2014, with its global WeChat campaign faltering, it was preparing to start negotiations to bid for WhatsApp when Facebook swooped in, according to a senior Tencent executive who asked for anonymity in discussing corporate strategy.

Tencent and Baidu declined to comment. An Alibaba spokeswoman referred to recent remarks by Alibaba’s president, J. Michael Evans, in which he pointed to acquisitions as a way the company was attracting new consumers in developing markets. He also said Alibaba was focused on attracting more foreign businesses to sell on its markets in China.

Mr. Lee said it might take a new technological jump for Chinese companies to get a chance at building a platform inside China and internationally. He said Chinese companies could prove competitive in emerging sectors like virtual reality, artificial intelligence and robotics.

“I think what might be surprising is, China will catch up rapidly,” he said. “Partly because of Chinese universities, partly because of returnees to China who form a portion of the top engineers in the world.”

Musical.ly is in many ways a product of the cultural exchange between the United States and China that Mr. Lee described. Mr. Zhu, 37, graduated from a Chinese university, but moved to the United States with the German software company SAP in 2010. He had the idea for the music app while riding the train from San Francisco to Mountain View, Calif., in a car full of high school students.

“Half were listening to music and the other half were using their phone to take photos and add emojis, and they were passing them around,” Mr. Zhu said. Then it hit him: combine the selfie and social media part with the music part and turn it into one product. In 2015, Mr. Zhu moved to Shanghai, where his co-founder has been based since Musical.ly’s 2013 inception.

Yet Musical.ly is unlikely to be the social network to link both sides of the Pacific. For the demographic the app is focusing on, it’s far better to be outside its home market, Mr. Zhu said.

“Teenagers in the U.S. are a golden audience,” he said. “If you look at China, the teenage culture doesn’t exist — the teens are super busy in school studying for tests, so they don’t have the time and luxury to play social media apps.”

Follow Paul Mozur on Twitter @paulmozur.

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Internet’s Great Wall. Order Reprints | Today’s Paper | Subscribe

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