Was Zuckerberg crazy buying WhatsApp for $19B? Crazy like a fox!
We have posted recently about the Chinese holding company Alibaba, who will soon surpass Amazon in size. But, my real story coming out of China last week is the emergence of a whole new kind of internet company. Zuckerberg grabbed the US headlines with his "outrageous" $19 Billion purchase of WhatsApp. Very few had previously heard of WhatsApp. Even fewer know of the new "beast of the east" simply called 0.1 or Tencent. Tencent is a new model that might best be described as a FB+Twit+Tmall+Goog+Paypal conglomerate touching all consumer experience in a mobile world. Zuckerberg may still be a wunderkind.
Why this is important: Mobile devices are rapidly replacing PCs for email, search and purchase. Creating the "stickiest" preferred mobile relationships means that holding company can make money in many ways beyond just selling products at lowest prices.
A quick apology upfront for what turned out to be a much longer blog than normal. I had an opportunity to get personally educated on Chinese retail last week when I went to teach IMS Retail University. Suffice it to say that the "professor" got an eye opening first-hand experience of how fast retail is changing in China … and how the future of retail worldwide will be impacted by new models unfolding there now. WhatsApp is just the tip of the iceberg.
A stark photo of contrasts and the Future of Retail in a mobile world …
While the Best Buy sign is still up, the BBY stores have long been closed in Shanghai. The throngs of scouters are symbolic of both the mobile shopping explosion and mobile delivery within hours.
Consumers vote the winners with their wallets based on experience
I took the photo above last week in the heart of Shanghai (March 20, 2014). It is an interesting juxtaposition of the old model of "Big Box" retailing versus the explosion online. Best Buy branded stores have long been closed in China, but Best Buy still does business under 5 Star chain in China. It is not just the western brands like Best Buy who are struggling. China's large national retailers like Suning and Gome are dramatically feeling the pinch as consumers increasingly shop online.
There are at least five factors driving the explosion of online sales in China:
- Increasing internet access and users … 600+ Million and counting
- Growing presence and sophistication of online retailers such as Tmall
- Online payment capability and options including COD
- Explosive growth, and preference for mobile devices in China
- Cheap labor to enable incredible delivery times in major cities
A completely new standard for online delivery … 4 hours or less!
In the US, we have been conditioned that 2-3 days is standard for free shipping, and 24 hour overnight delivery is possible if you pay extra. Most of this has to do with the fact that shipping in the US requires using the air and trucking logistics, which require consolidation hubs to reach household destinations. What is different about China are the high number of dense compact cities. China has more than 160 cities with more than a million people, most with high rise apartments with dense populations in relatively small areas. Within these dense urban centers, the logistics of moving a package involves much shorter distances. (Parenthetically, online retailers have the same challenges of reaching remote rural consumers in China as retailer do in the rural US.)
But, the huge difference in China is the cheap labor and transport for moving packages within the cities. Unless the item is extremely large, it is likely to be transported by one of the millions of scouters seen in the photo. Most of the online shopping in Shanghai offers three delivery slots each day: by noon, by 4 pm or by evening. Beyond this incredible convenience, the prices are dirt cheap. In Shanghai, you can literally order take out from any major restaurant (not just pizza & fast food) and have it delivered to your door for about 25 RMB, which is only $4 US dollars!
Low Internet Prices + 4 hour delivery + Cheap Delivery = Pending Doom for Stores
When online sellers can meet or beat store prices and get items to you within hours, stores lose most of their value propositions IF they don't change the consumer experience. In fact, most Chinese consumers have historically shopped for gadgets in "IT Malls," because the large number of stores offered selection and competitive cut throat pricing. But, the Chinese tech buyer today doesn't have to fight traffic to get to the IT Mall when they can search and purchase at a better price from their phone, and have it delivered to their door in hours.
Any time and everywhere applies to today's explosive use of smartphones in China
Future of Retail … Consumers vote with their wallet and their phones
While the growth of mobile phones is happening everywhere, there is an explosion of mobility in India and especially China. The photo above was from a local market outside of Shanghai. I did not see one "flip phone" … only smartphones with all sizes of touch screens. And because of the two national telecom situation in China, many Chinese consumers carried TWO smartphones … one for each network.
The preference and prevalence of mobile devices over PCs is having a profound impact on consumer experience and shopping behavior. A recent 2013 study of 25,000 Chinese mobile users by Mindshare China and Millward Brown revealed some very remarkable statistics:
- More than 50% of all search is imitated on a mobile device
- 45% of follow up is related to purchase intent
- 80% follow up on mobile purchase intent within 5 hours
If you want to be at the forefront of driving and capturing sales, you must capture mobile!
The current critics often site low single digit conversion rates as a reason why they should not invest in mobile marketing. This research would indicate that mobile search and purchase is much more complex than a linear process, at least for the Chinese consumer. After finding something of interest, the Chinese consumer is highly likely to go check out their networks and friends for opinions and advice. Rather than search to purchase, mobile leads to a complex interactive process of consumer experience across retailers, communities and information sources. Said another way, Chinese consumers are not just using to search for products and price, they view it as a holistic experience of evaluating best personal solutions for their lifestyle.
What does this all mean to retailers … and online?
Retailers have historically been very product centric. Even Amazon and Alibaba's Tmall are all about assisting consumers in filtering through millions of products to find an item at a price. But, the consumer evaluates more than features and price. They always have. It's just that the mobile phone puts it all in the palm of their hand real time.
The double digit growth of B2C online retailers like Amazon and Tmall clearly demonstrates that the consumer is voting with their wallet at these sites when they are finally ready to make their final purchase. But, the future of retail is becoming more about being part of the consumer purchase journey in ways to become "sticky" across their journey, and in ways to monetize services beyond the sale of the physical product. And, if you can be the premier service on as many parts of the consumer journey web as possible, you in fact become part of their seamless experience that creates a higher level of relationship.
Was Zuckerberg crazy to spend $19B on WhatsApp? Crazy like a fox!
It's been no secret that Facebook has struggled to continue its growth curve, especially worldwide. Zuckerberg was smart enough to begin searching for another portal and began courting WhatsApp several years ago. With WhatsApp, Facebook has a new IM and chat style portal analogous to Twitter, plus 400+ million new consumer profiles. I'll leave it up to you to decide if it was worth $19B US. But clearly, Zuckerberg understands that the long term strategy is not just social media, photos or even ecommerce. It's all about how to connect with consumers, where they are and the way they interact … especially on mobile devices!
The future of retail – Look to the east and discover Tencent
I and many others have posted recently about Alibaba, Amazon and the growth of online ecommerce. No question that B2C will continue to grow as an efficient product selling model that severely challenges bricks and mortar stores. But the future of retail lies beyond ecommerce sites. The future may very well be captured by Tencent in China, not Alibaba.
Tencent's tag line says it all … creating value for users … it's all about relationships across platforms, not selling stuff. Actually it's hard to describe Tencent. It is currently the fourth largest internet company, with revenues greater than Facebook. It is a holding company with many different ways to engage consumers. Here are just some of Tencent many tentacles:
- QQ instant messenger … Think of your IM service and Twitter
- iTQQ "smart interactive television" … Think Hulu or cable TV for your phone
- QQLive peer to peer distribution for streaming media … Think Facebook, Instagram
- QQ Player media player … Think Microsoft or Apple media players plus streaming
- QQ Show avatar based social platform … Think gaming and Xbox Live
- Qzone social networking … Definitely think Facebook
- Tencent Weibo microblogging … Definitely think social media and blog sites
- WeChat voice and text messaging … Analogous to WhatsApp, Viber etc.
- TenPay online payment … Definitely think PayPal for B2B, B2C and C2C
And the Tencent list could go on with more about gaming and investment in gaming companies. In short, Tencent has become the one stop shop for where consumers go on their phones … to connect with their friends, get entertained, search for products, look for advice, and finally to purchase products.
I did not meet one Chinese person with a smartphone that did not use WeChat! They setup WeChat groups for everything around family friends and work. If Zuckeberg could have pulled it off, he should have acquired WeChat instead of WhatsApp. But, I doubt that Tencent would have sold off this valuable portal, or if Zuckerberg would have had enough billions. Now that TenPay has been approved by the government for online payment, Tencent has become an absolute end-to-end portal for engaging consumers in everyday and social experiences.
Here's the new face of the Future of Retail … with a new bottom line
Profitable "retailing" will be more about owning and being part of the consumer relationship where ever and however they choose engage on their mobile devices. Whereas Amazon has to make its money on selling and delivering products, Tencent has multiple ways to monetize its value add across many platforms and services … and it's very sticky relationship with consumers. Most importantly, Tencent does NOT have to make money on everything it does. The whole is greater and more profitable than each of the parts.
The future of retail will become creating value by being of as much of the holistic consumer experience, as possible, not trying to just make money selling products!
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Sources:
- Asian Culture Photos: Courtesy of Chris Petersen
- Tencent Logo: Tencent Website
- Yahoo Finance: Mindshare and Millward Brown Partner to Uncover Mobile Search Habits in China; November 14, 2013
Profound and thought-provoking, especially the stats. More intrigued than ever now about WhatsApp.
Posted by: Jacqueline | March 23, 2014 at 03:04 PM