chinese ecosystems - relayto/ · ecosystems appear almost completely dominant (slide 28 in deck,...

Dr. Richard Windsor PhD CFARadio Free Mobile

Fixed: +1 415 830 6032Fixed: +44 203 239 9904Mobile: +971 56 1142 482Skype: rhswindsorTwitter: @RadioFreeMobile

[email protected] entertain as well as inform

Chinese Ecosystems

September 12th , 2016BATmen

http://www.radiofreemobile.com/

To entertain as well as inform

Digital Life

Source: www.radiofreemobile.com

Radio Free Mobile China Digital Life Pies - 1

Usage between smartphones and tablets is very different.

2015A, % time spent

3

Smartphone Q1 2016A Tablet Q1 2016A

An ecosystem needs more services in China than in developed markets to establish a credible position as an ecosystem provider

Radio Free Mobile, e-marketer, QuestMobile, WBR Research. DataEye, China Internet Watch, Flurry, iResearch

Browsing10%Search

8%Banking and Payments

5%

social networking

20%

Gaming10%

Media consumption

14%

Instant messaging

16%

shopping14%

Microblogging1%Mapping

2%

Browsing12%

Search4%social

networking4%

Gaming20%

Media consumption

35%

e-book reading

15%Instant

messaging10%



Radio Free Mobile China Digital Life Pie - 2Q1 16A, %

4

Smartphone vs. tablets % total time used Weighted average Digital Life Pie

Usage in China is more balanced with the top 2 services making up 35% of usage compared to 51% in

developed markets

Browsing10%Search

8%

Banking and Payments

4%

social networking

18%

Gaming11%

Media consumption

17%

e-book reading

2%

Instant messaging

15%

shopping12%

Microblogging1%

Mapping2%

87%

13%

Smartphone Usage Tablet Usage

Smartphone Usage

Tablet Usage

Tablets are used less as most connect over Wi-Fi with

fixed backhaul resulting in a worse experience than

cellular

Top two services in developed markets

are Social Networking and

Gaming

Radio Free Mobile, e-marketer, QuestMobile, WBR Research. DataEye, China Internet Watch, Flurry, iResearch



77%

45%

53%

44%

30%

Tencent Alibaba Baidu Xiaomi China Mobile

Coverage of Digital Life by each Chinese ecosystem2015A, % Digital Life pie covered.

5

RFM sees Alibaba, and Baidu investing heavily to catch up

with Tencent

When usage is taken into account

the three big ecosystems appear almost completely

dominant (Slide 28 in deck, fig. 14 in

note)

Tencent has a clear lead but has been less effective at

monetisation than Baidu.

Xiaomi has real problems as it lacks the

ability to invest to increase its coverage

Radio Free Mobile, e-marketer, QuestMobile, WBR Research. DataEye, China Internet Watch, Flurry, iResearch, Company data



7 Laws of Robotics


Laws 1 - 4

How good is it today?


Laws of Robotics 1-4 for the Chinese ecosystems

8

= 5

= 1

= 4

= 3

= 2

Source: Radio Free Mobile

An Ecosystem must provide easy and fun access to

digital life

1 An ecosystem must capture

traffic on its own servers

3An Ecosystem must be simple

and easy to set up and use

2 An ecosystem must offer access

to a good range of third party apps

4

Only Xiaomi

has really developed a unique UX across services….

…that is ready to go out of the box

Still experimenting

it seems

1

3

4



Laws of Robotics 5-7 for the top 6 ecosystems

9

An Ecosystem must allow Digital

Life services to share data

5An Ecosystem’s

user data must be integrated

6 An ecosystem must have

consistent device software

7


= 5

= 1

= 4

= 3

= 2

Only Baidu shows any

understanding of the

importance of sharing and integration

Tencent achieves some data sharing

using Weixin / Wechat as its

platform… but shows no sign of integrating QQ

or anything else.



Conclusions from 7 Laws of Robotics Analysis

10

Xiaomi Xiaomi is the most advanced despite being the weakest player. Could be acquired by one of the BATmen.

Baidu The only one that really understands the ecosystem beyond Digital Life coverage.

China Mobile Least developed despite being the biggest and having a billing relationship with 68% of users.

Software Consistency This is huge problem for everyone based on Android




The market in China

China plays to its own rules


How the Chinese market differs

12

Monetisation The same three methods apply but monetization from O2O is much greater.

Privacy No one seems to care about privacy

Default The power of default has yet to emerge in China

Usage Everybody uses everything

Access & Control The quality of fixed and mobile access is the inverse of developed markets. Internet is controlled




Fixed Internet vs Mobile Internet in China & USA

Access : Mobile is the primary choice for users in China, in contrast to USA

Q1 2016A, Users (m), MBPS, %, Milliseconds (ms)

% connections over 4MBPS

Mobile broadband in China has greater penetration, is faster on average with lower latency than fixed. Opposite to USA.

Average speed MBPS Average page load time ms

Akamai, Radio Free Mobile

41%

63%

Fixed Internet Mobile Internet

83%

35%


4.1

4.7


14.2

4.8


2661

2426


2564

3559




109

263

508

659739

812864

8%

19%

37%

48%54%

60%63%

2011A 2012A 2013A 2014A 2015A 2016E 2017E

Ecosystem users (m) Penetration

Number and penetration of ecosystem users in China

Control: The Golden Shield Project has allowed the Chinese ecosystems to emerge with no foreign competition

2011A – 2017E, Users (m), Penetration population (%)

14

The market for the mobile ecosystem has grown up with Chinese Digital Life offerings only.

There is no sign of the Golden Shield Project

coming to an end.

This is very likely to ensure that China

remains a huge market for Chinese Digital Life

services provided to Chinese users by

Chinese companies

Source: CNNIC, Radio Free Mobile



Percentage China ecosystem users with each player

Everyone uses everything

2012A-2018E, % of total ecosystem users in China

15

22%27%

40%

53%57%

61%65%

60%

69% 71%

85% 86% 88% 90%91%

81% 82%89% 89% 90% 91%

2012A 2013A 2014A 2015A 2016E 2017E 2018E

Alibaba Users Tencent Users (China only) Baidu Users

Almost all users in China are members of Tencent and Baidu’s ecosystems and over half are also members of Alibaba’s.

Source: Company Data, Radio Free Mobile



Browsing10%Search

8%


4%

social networking

18%

Gaming11%

Media consumption

17%

e-book reading2%

Instant messaging

15%

shopping12%

Microblogging1%Mapping

2%

The Digital Life of most Chinese users

One of the big three ecosystems dominate almost every single segment of Digital Life.

Q1 2016A

16

Baidu, Tencent and Alibaba are already

in a dominant position.

MusicVideo Video




70%

48%

39%

27%

UC browser (Alibaba) QQ browser (Tencent) Baidu browser Qihoo 360 browser

Penetration of mobile browsers in China

Default lacks power.

Q3 15A, % total smartphone users

17

Despite being included with the device, the stock Android browser

has very low, if any share in the

Chinese market

Users have learned to pick and choose the services that

they want instead of being spoon-fed them by default.

Chinese smartphone users routinely use more than one browser

Source: China Internet Watch,

A good example of how default is

currently irrelevant in China



20%

16%

15%

13%

8% 5%

6%

3%

4%

10%

Market share of App Stores in China Q1 2016A

18

The landscape is very fragmented

creating a frustrating

experience for developers.

The top 4 reach 64% of users

owned by Tencent, Qihoo, Xiaomi and

Baidu.

This is a weak spot for Alibaba

Talking Data, newzoo.com, Radio Free Mobile

Present but questionable

whether it functions



Market forecasts

A greatly slowing outlook


353

430 439 454 46274%

22%

2% 3% 2%

2013A 2014A 2015A 2016E 2017E

Smartphone shipments (m) Growth

17.2

21.519.1 18.1 17.7

67%

25%

-11%-5% -2%

2013A 2014A 2015A 2016E 2017E

Tablet shipments (m) Growth

508

659739

812864

93%

30%

12% 10% 6%2013A 2014A 2015A 2016E 2017E

Ecosystem users (m) Growth

China Smartphone, Tablet and Ecosystem forecasts

Smartphone growth is rapidly slowing meaning that one should look to the ecosystems for growth

2013A-2017E, Units (m), % growth YoY

20

LOW / NO GROWTH

MID LEVELGROWTH

Baidu, Tencent, Alibaba exposed to

users will fare better than Apple, Xiaomi and other handset

makers

Radio Free Mobile, Counterpoint Research



Ecosystem Status Quo.

21


Gated Community concept in Chinese ecosystems

Users can no mix and match Digital Life services from different ecosystems…

China Digital Life Pie, 2015A, %

22

Ecosystem A

Ecosystem B

In China, users have always mixed and matched Digital Life services

The degree to which the user mixes and matches ecosystems

will have an impact on the overall brand strength and monetisation opportunity.

1) The more services of an ecosystem that the user

chooses to use, the greater the potential revenue

opportunity from that the user for the ecosystem.

2) The more of the services that are used, the greater the stickiness and brand

strength of that ecosystem




Browsing10%Search

8%


4%

social networking

18%

Gaming11%

Media consumption

17%

e-book reading2%

Instant messaging

15%

shopping12%

Microblogging1%

Mapping2%

The Digital Life of most Chinese users

One of the big three ecosystems dominate almost every single segment of Digital Life.

Q1 2016A

23

Baidu, Tencent and Alibaba are already

in a dominant position.

MusicVideo Video




The direction the BATmen must take to grow

The degree that the user takes services from only one provider will have a non-linear impact on monetisation

24

An Ecosystem must allow Digital

Life services to share data

5

An Ecosystem’s user data must be

integrated

6

An ecosystem must offer access

to a good range of third party apps

4The better each

ecosystem meets the

criteria of Laws 4,5,&6, the less a

user will want to mix and

match Digital Life services and

the more valuable users will be to that

ecosystem

Value creation is not linear as the having the whole of the pie generates

much more value than the

sum of the parts

654

654


RFM Laws of Robotics.

Potential for value creation / monetisation



Proprietary software development options in China

Software consistency is a huge problem for everyone in China leading to proprietary solutions.

GMS

AOSP

Hardware

MIUI

AOSP

Hardware

YunOS

AOSP

Hardware

AOSP

Hardware

RFM fully expects Google to take GMS fully proprietary in 2017. Alibaba, Xiaomi and Tencent have their own software development but Baidu, and China Mobile effectively have no OS of their own. Cyanogen, Acadine, Sailfish, Tizen and others as well as acquiring Xiaomi are all options.

Source: Radio Free Mobile, Xiaomi, Cyanogen, Amazon, Google

25

Hardware

AOSP

Obscure since 2012

?

?



% China Digital Life Pie dominated by each ecosystemQ1 2016, Sum of Digital Life segments where dominant, %

26

45.0%

34.5%

18.5%

0.0% 1.0%

Tencent Alibaba Baidu Xiaomi China Mobile

Tencent is by far the most advanced

in creating a thriving ecosystem

when its service offering is

considered.

Removing Ant Financial puts Tencent 14.5%

points clear of its next rival.

The battle for China Mobile and Xiaomi

seems already to be lost

The reasons for Xiaomi’s problems start become

very clear

is the missing 1%

Incudes Ant Financial which Alibaba does not own but receives 37.5% of profits. 30.5% if this is removed




China Ecosystem users by provider

The big ecosystems already have the majority of all users on board. Now they must fight for engagement.

2015A,

The main contenders already have the users on board. Now they have to fight it out between them.

The mid-tier100m+ active users

- sustainable

The Top tier300m+ active users - success

Less than 100m- losers

Ecos

yste

m s

ize

27Radio Free Mobile

Very undeveloped

?


Source: www.radiofreemobile.com 28


Disclaimer

The views and opinions expressed in this report represent the views and opinions of Radio Free Mobile. They are not the views and opinions of any third party past or present with whom the author of Radio

Free Mobile has been or is associated. Radio Free Mobile is objective and independent. Radio Free Mobile aims to entertain as well as inform and in this vein can be irreverent at times. This is the

expressive style of the author of Radio Free Mobile and should not be construed in any other manner


chinese ecosystems - relayto/ · ecosystems appear almost completely dominant (slide 28 in deck,...

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