wednesday, june 14, 2017 |r1 indefenseofthegiants · the wall street journal. wednesday, june 14,...

© 2017 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Wednesday, June 14, 2017 | R1

JOURNAL REPORT

Qi Lu on turning Baiduaround and how the driver-less-car race is going, R2

Richard Liu of JD.com saysthe Chinese retailer is goingto have to diversify, R2

Microsoft’s Alain Crozierexplains the mind-set neededto succeed in China, R3

Connie Chan and David Suon venture capital in Chinaand learning from productsthat originate there, R4

Jonathan Larsen on what’sholding back fintech, R4

Andrew Ng and Tong Zhanon how AI is going to trans-form every industry, R5

Kavin Bharti Mittal andJi-Hoon Rim discuss howmessaging apps are chang-ing and how their companieswill compete, R6

Anthony Tan and DougParker discuss where theride-sharing industry isheaded in Asia, R6

Nadiem Makarim andWilliam Tanuwijaya on thetechnology battle raging inIndonesia, R7

INSIDE

ful in capturing this opportu-nity. And these companiesover time became big compa-nies.

MR. BAKER: These companiesare enormously dominant.Their scale is extraordinary.Apple approaching a trilliondollars of market cap. Google.Facebook. How concernedshould we be about the domi-nation in all kinds of things?MR. MILNER: The key questionwe all collectively need to askis, what is best for consumers?What is best for all of us?Let’s also not forget that thesecompanies became big in amostly organic way. There wasnot a significant amount ofM&A happening.

MR. BAKER: You’re comfortableright now that the concentra-tion that we’re seeing is notfundamentally either anticom-petitive or harmful to the con-sumer?MR. MILNER: Obviously, therehas to be a balance. Govern-ments are looking for ways tofind this balance. What Iwould like to focus on andwhat I do focus on is whatvalue these companies canbring to all of us in the future.

As I mentioned, the sectorreally dominates in R&Dspend. If we focus on the big-gest projects that requiremany billions of dollars infunding—like, for example,virtual reality or artificial in-telligence—those projects re-quire an enormous amount ofcapital. They require computa-tion. They require server ca-pacity. And I think we all havean intrinsic interest in thoseprojects getting funded. SoPlease see MILNER page R7

In Defense of the GiantsYuri Milner on why big projects need the big internet companies For many years, technology firms in Asia were dismissed

as merely copycats, with much of the innovation comingfrom Silicon Valley giants. But at the inaugural Wall StreetJournal D.Live Asia conference last week in Hong Kong,more evidence emerged that companies and startups fromthis region are creating unique products and services thatare being emulated in the West. That’s largely due to Asiancompanies’ intense focus on what consumers want on theirmobile devices.

Asia is home to more than 2.5 billion mobile-phone us-ers, with China being the world’s biggest smartphone mar-ket, according to researcher eMarketer. Tech startups in theAsia-Pacific region raised more than $100 billion over thepast five years through venture-capital funding, according todata from CB Insights, highlighting just how much growthis coming from this region.

The Wall Street Journal convened over 300 tech execu-tives, entrepreneurs and investors to address topics rangingfrom the future of the internet to technologies that arechanging our world such as artificial intelligence, driverlesscars and mobile payments. In onstage interviews, executivesdiscussed how the fintech revolution is unfolding, whereventure-capital money is flowing, which companies are win-ning the AI battle, how Asian internet firms are plottingtheir future and how Western companies are navigatingChina’s opaque market. Edited excerpts are presented here.

—Yun-Hee Kim

THEASIANTECHREVOLUTION

What does the future holdfor the internet giants of to-day—and the companies thatwill rise to prominence downthe road?

The Wall Street Journal’seditor in chief, Gerard Baker,spoke with Yuri Milner, thefounder of technology-invest-ment firm DST Global and co-creator of prizes to honor sci-entific achievements andreinvigorate the search for lifein space. Here are edited ex-cerpts of the discussion.

The internet futureMR. MILNER: It’s not a secretthat the internet as an invest-ment class did very well in thelast 10 years. I just wanted toreflect on some of the reasonswhy and make predictions on

how well this asset class willdo in the next 10 years.

There is common knowl-edge about why this specificasset class is so powerful.There is no need for physicalinfrastructure. All the heavylifting has been already done:low operating costs, globaldistribution networks, viralcapabilities to distribute prod-ucts and a very fast product-development cycle.

I wanted to focus on twomore reasons.

Internet companies spenddramatically more on R&D perdollar of revenue. The secondreason is that internet compa-nies have been extremely suc-cessful in attracting and re-taining talent. All of thosereasons lead to value creation.

But we asked, what’s going tohappen in the next 10 years?

And you only need to makesome relatively conservativeassumptions to come up witha significant number. Whatpercentage of consumption ishappening online, the numberis only 6% globally. We believethat in the next seven to eightyears, this number will morethan double. That means thatthere will be an additional $4trillion created in that space.

MR. BAKER: What could changethat trajectory?MR. MILNER: It looks like that’show innovation is taking placein the 21st century. The inter-net is enabling innovation. Inthe last maybe 20 years newcompanies were more success-

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China’s outbound tourismindustry is growing rapidly.Ctrip.com, China’s biggest on-line travel site, is challengingPriceline to become theworld’s biggest online travelplatform.

To discuss Ctrip.com’sgrowing ambitions, WallStreet Journal senior editorYun-Hee Kim spoke with thecompany’s chief executive,Jane Jie Sun. Here are editedexcerpts of the discussion.

Buying strategyMS. KIM: You did a major ac-quisition last year, the $1.7 bil-lion deal to buy travel searchsite Skyscanner. When youlook at acquisitions, what doyou look for?MS. SUN: First, it needs to beclosely related to our corebusiness, which is travel. Thesecond thing is, normallywhen we look at the target, itneeds to be the No. 1 or No. 2industry leader in that verti-cal. The third criteria is thevaluation needs to be reason-able.

MS. KIM: You have also beenacquisitive in the U.S. How isyour strategy in the U.S. dif-ferent from Europe?MS. SUN: In the United States,we saw a very strong trend forcustomers to move from therest of the world to the UnitedStates.

The visa restrictions in theUnited States were finallylifted up. Chinese citizenswere able to get 10-year visas.Second, lots of young kids arevery curious and want tostudy in the United States.And third, the U.S. has lots oftravel resources, and it’s rela-tively very safe.

So when we saw the trendto move customers from therest of the world to the UnitedStates, then we needed tomake sure our customers wereprovided the best service, bestproducts.

So our three investments inthe United States will be ableto block the best hotels, thebest transportation for ourcustomers.

MS. KIM: Has your businessbeen impacted at all by thepolitical climate in the U.S.?MS. SUN: So far, not signifi-cantly, because travel is notpolitical. When we send a cus-tomer to the rest of the world,I always encourage our teamto tell our customer, “You rep-resent China. You are the bestdiplomats of China. Pleasebring the best of the culture ofChina to the rest of the world.And when you come back,bring the best of the worldback to China.” Travel encour-ages international cultural ex-change and therefore pro-motes peace. So far, so good.

Going globalMS. KIM: Ctrip.com has prettymuch consolidated China’s on-line travel market. Do you seefurther room for consolidationin the global market?MS. SUN: We are the No. 1player in the China market.There is lots of room for us tofurther penetrate into the sec-ond-tier and third-tier cities.In the global space, though,Ctrip is an infant. I think thegolden years are yet to come.So we are very excited aboutthe future opportunities.

MS. KIM: You have a 10% stakein MakeMyTrip in India. In-dia’s a very competitive mar-ket, but also very differentfrom China. What are the big-gest challenges there and why

did you decide to invest?MS. SUN: India will overtakeChina as the most populouscountry in the world. Althoughthe GDP per capita is quitelow, it has potential to growthe affluent portion of its peo-ple. And these people will beable to travel.

The India market is verysimilar to China in the sensethat it’s very localized. Onlylocal people know how to dealwith the government, how todevelop that market. We be-lieve MakeMyTrip is a verygood player in that market.

MS. KIM: Let’s talk about regu-latory challenges. What arethe headwinds that you seecoming from the government?MS. SUN: The government isvery supportive of travel, be-cause we are nonpolitical. Webring people together. So ourgovernment supports us. Andenterprises also like us be-cause to conduct businessmeetings, they need a goodsupplier to make good ar-rangements for their travel.

And the citizens like Ctripbecause after they buy ahouse, buy a car, they want totravel. So as long as we de-liver a high level of service,provide the most comprehen-sive products and offer thebest price, I think we will beable to serve the government,enterprise and individualsvery well.

Ctrip Sets Its Sights GloballyCEO Jane Jie Sun says that while her company isNo. 1 in China, it is an ‘infant’ around the world

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R2 | Wednesday, June 14, 2017 THEWALL STREET JOURNAL.

Richard Liu is the chairmanand chief executive of JD.comInc., China’s second-largestonline retailer after AlibabaGroup Holding Ltd.

He sat down with Li Yuan,The Wall Street Journal’sChina technology columnist, todiscuss e-commerce in Chinaand how his company plans toexpand internationally. Editedexcerpts follow.

Going upscaleMS. YUAN: Where is the Chi-nese e-commerce marketheaded and how much successdo you predict you will have?MR. LIU: During the past de-cade, we have had a lot of suc-cess with logistics. The recordspeaks for itself. But now wehave to diversify.

Five years ago, everybodywas overwhelmed by the rock-eting increase in the numberof e-commerce orders. Butnow everybody is getting ashare of the market. For cou-rier companies that means youeither have to control costs oryou go away. So we are tryingto diversify because that’s theonly way to survive.

MS. YUAN: You want to makeinroads in the U.S. Are you go-ing to recruit new brands tosell or just export what you al-ready have?MR. LIU: In the past, we haveconcentrated on small sellersand small suppliers. We triedto get business throughcheaper prices, but we believethat things have gotten to apoint where this has becomequite unsustainable. If we keepselling cheap stuff, then peo-ple will only patronize us afew times and then leave us.And so we are going to moveup the market. And the firststep is we’re going to intro-duce marquee Chinese brandsinto the U.S.

MS. YUAN: You recently saidyou were developing heavy-duty drones to deploy inShaanxi province. You also arebuilding up smart warehouses.How do you plan to use tech-nology to position yourself forthe future?MR. LIU: From acquisition andprocurement to warehousingto logistics, everything is nowbeing placed under the controlof smart technology. We planto make use of artificial intel-ligence and robots to create abusiness model that is almosttotally out of human control.This is going to cut our costsand improve our efficiency.

MS. YUAN: If you are going toresort to a lot of automation,what does that mean for your

staff?MR. LIU: I’m not saying that wecan do away with all blue-col-lar workers. Right now maybewe need 10,000 customers tomake even. But in the futurewe may only need 1,000 cus-tomers to break even or tomake a profit due to automa-tion.

We aim to eventually havemore than one million dronesto carry out our various oper-ations. But we would need ahuge team of maintenancestaff to keep them up, so wewill have to continue to trainpeople.

Two channelsAUDIENCE MEMBER: What isyour strategy for enteringoverseas markets?MR. LIU: We have two chan-nels. The first is to transplantour [Chinese business model]to developing markets such asIndonesia. That means deploy-ing things like smart ware-housing to keep costs low.This year, we definitely plan tomake inroads in Indonesia.

The other channel is theEuropean and the U.S. market.We believe it’s only a matterof time before many Chinesebrands such as Huawei Tech-nologies and others becomeworld-renowned. So we aregoing to concentrate on high-end Chinese products and tryto introduce them to devel-oped overseas markets.

MS. YUAN: You already arelocked in a fierce battle withpeers in China. Won’t you bestretched too thin if you openup a second battlefront in aplace like Indonesia?MR. LIU: When we were onlydoing $12 million worth ofbusiness, Alibaba already washuge. We had no businesscompeting with them. But af-ter a decade, we can fightthem on equal footing. Now, ifwe can make it in China, wecan make it in many, manyother places in the world.

Moving Up the MarketRichard Liu, CEO of JD.com, says the Chineseretailer is going to have to diversify

If we’re to take a perspec-tive three years from now, fiveyears from now, what’s the de-termining factors—who will beahead in five years? The de-ciding factor is the speed of it-eration [or developing soft-ware].

It’s about writing softwarethat learns. Data and algo-rithm and iteration is thegame. The speed of iteration iseverything.

I announced Project ApolloApril 19. This is the key:Apollo is an open platform. It’sopen software, open servicesand open capability. We aregoing to open up our code.We’re going to open up our ca-pabilities for critical [proprie-tary technology]—very high-barrier [technology], veryhard for any company to de-velop, it needs time to accu-mulate. That’s number one.

Number two, by design, theApollo is an ecosystem, withOEMs [original-equipmentmanufacturers], with tier-onesuppliers, with any serviceproviders. Because the nameof the game is for people toparticipate and collaborate.Imagine, the ecosystem on anygiven day would drive moreroads, see more situations.The ecosystem algorithm can

turn around at a much fasterpace than any single closedcompany. If you take that per-spective, I would make a casethat in three years or in fiveyears, the ecosystem—notBaidu as a company—the eco-system of Apollo will be aheadof any single closed endeavorsby one company.

MS. YUAN: Can you tell us whoare going to be the OEMs whowill be under Apollo and whoare the startups, and why theywant to be on this? BecauseI’ve talked to many industrypeople and they just don’t be-lieve that the big OEMs wantto be on an open-source plat-form; first-tier startups wantto be on this platform.MR. LU: We will announce inthe first week of July thenumber of partners that willparticipate. The feedback hasbeen genuinely positive. Be-cause this is genuinely win-win. Baidu’s going to makemoney in areas we’re goodat—algorithms, data—we’renot getting into their space.We’re not a disrupter. Wewant to empower the OEMs.They will have access to tech-nology. They can innovate at afaster pace. They can havebetter products to the market.

Baidu Inc. is a company intransition, driven by Qi Lu,who joined the Chinese tech gi-ant as its president earlier thisyear. Baidu, which rose toprominence as a search en-gine, has stumbled in recentyears as it tried to expand intoadditional online services, andits profits have fallen.

Mr. Lu’s plans to turn Baiduaround include a big invest-ment in artificial intelligencefor the development of newtechnologies for search andother businesses—includingdriverless cars, a technologywhere Google, the acknowl-edged leader, has a big headstart. Mr. Lu announced inApril that Baidu will open itsself-driving car technologies toothers, on a platform calledProject Apollo, to help developautonomous vehicles.

At last week’s D.Live con-ference in Hong Kong, Mr. Lu

discussed his vision for Baiduwith The Wall Street Journal’sChina technology columnist, LiYuan. Edited excerpts of theirconversation follow.

Improving searchMS. YUAN: Baidu has had apretty tough year. How areyou going to move the com-pany forward?MR. LU: The focus is always ondriving innovation that leadsto a better user experienceand better overall economics[for the company]. On the userexperience side, our focus ismultifold.

One is adding more andmore and better and bettercontent as part of search’sscope. For example, video,particularly the emergingshort form of video. It can bean extremely powerful newmedium, to transfer informa-tion, to communicate.

And the second is to makethe user interactions richerand better. Because the inspi-ration for a user to searchnever came out of the blue.The reason you’re searchingfor something is because youhave a purpose in mind, youwant to accomplish something.You want to listen to a song.You want to ask a question.You want to study.

We want to bring the user alot closer to the [subject]. Sothat, for example, if you wantto listen to a song, you canplay the song. You can watch amovie, watch video clips—in-teracting with the services di-rectly.

MS. YUAN: But the problemnow is that people increas-ingly rely on social media forinformation. And people don’tsearch as much as before. Howare you going to tackle that?MR. LU: I do not agree withyour premise. Social media isa great product. However, hav-ing said that, each social-me-dia product is a proprietary,closed information ecosystem.That’s number one.

Number two, the digitaluniverse is expanding at sucha vast pace, it will outstrip anysocial media, any proprietaryclosed world. And users, ourinterests, our needs are long-term. This is why search suc-ceeded—it never ends. If youblend these two, there’s peo-ple always seeking more infor-mation.

The key is the search expe-rience needs to be better.What search brings the user,the interaction needs to bericher. We want to enable ev-ery human being to easily dis-cover access to anything theycare about.

The driverless carMS. YUAN: Baidu and Google,who’s going to have a driver-less car on the street first?MR. LU: First of all, let me de-scribe what I think is the stateof the driverless-car industry.There’s a bunch of companies

in that space. And I believeBaidu is among the tier-onecompanies. And I believeGoogle is substantially aheadagainst everybody else. Theystarted earlier and I have hugerespect for Google as a com-pany. They did a great job de-veloping that technology.

Second, the technologicalfoundation of a driverless carhas lots and lots of compo-nents. It’s a high-barrier busi-ness, because the depths oftechnology you need to de-velop is enormous.

Start with perception. Be-cause to be able to perceivethe road, the driving environ-ment, as of today, you need touse Lidar, radar, cameras, acombination of sensors, fusethem together. And then youneed to do mission-criticalpredictions about cars. Whichcars are maneuvering and atwhat speed? How to prime ourvehicles to maneuver in thoseenvironments? It’s called plan-ning control, and there’s manydifferent aspects of it.

Baidu’s Turnaround StrategyPresident Qi Lu’s view on how the driverless-car race is shaping up

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* Includes products or services ordered using the internet, regardless of the methodof payment or fulfillment; excludes travel and event tickets

Source: eMarketer THEWALL STREET JOURNAL.

Projected retaile-commerce sales*

Projected growth in retaile-commerce sales, 2017-21

Projected share of globalretail e-commerce sales

GlobalNorth AmericaAsia-Pacific

Western Europe

Asia Leads a BoomRetail sales online are expected to surge in the next few years,led by shoppers in Asia

$5 trillion

0

1

2

3

4

2017 2018 2019 20212020

ASIA-PACIFIC

120%67%

60%

NORTHAMERICA

71%21%18%

2017

2021

WESTERNEUROPE

36%15%

10%

GLOBAL OTHER96%5%4%

JOURNAL REPORT | WSJ D.LIVE ASIA

TheWall Street Journal

would like to thank the

sponsors of D.LIVE Asia

2017 for their generous

support.

For more information, please visit DLIVE.wsj.com.

© 2017 Dow Jones & Co. Inc. All rights reserved. 3DJ5590



THEWALL STREET JOURNAL. Wednesday, June 14, 2017 | R3

face. If everything goes well,China is going to be the firstmarket for Microsoft from ahardware standpoint.

The second one is also veryimportant. We have now aWindows 10 government edi-tion available for the Chinesegovernment but also for thestate-owned enterprises.

With another big piece ofMicrosoft’s business, a cloudbusiness, a joint venture thatwe started some time ago herein China, is experiencing verynice and very solid growth.

MR. ANDERS: I know this pro-cess involved some amount ofsharing some proprietary codewith your Chinese partners.Western companies have longbeen cautious when it comesto sharing technology in China.Was this something that youconsidered to be a risk?MR. CROZIER: When you are asoftware developer and youput a lot of effort and researchand development into code, itis clear that when you developa solution or product, youwant to keep the code foryourself.

And the reality is at somepoint you have to also decidewhat is best for customers,what is best for governmentand what is best also for Mi-crosoft. And I think we’ve de-cided that now was a time toopen up as a software com-pany to initiatives like thisone. Is there a risk? I’ll tellyou that in 10 years.

It’s a decision that I know alot of people don’t really wantto take. But I think a lot ofthings are changing in China,from an IP standpoint. I thinkthere are also more reformsthat really help companies likeMicrosoft make decisions likethis one.

MR. ANDERS: With Windows

Microsoft’s PerspectiveOn the Chinese MarketAlain Crozier explains why tech companies mustchange their mind-set to succeed in China

10, while Microsoft has saidthis software is as robust asthe software anywhere else,this still puts some doubt insomeone’s mind that perhapsyou weakened something likesecurity to break into the Chi-nese market.MR. CROZIER: Windows 10 isthe most secure operating sys-tem Microsoft has ever built.When you look at how Win-dows 10 is used by all types ofgovernments, including somevery conservative govern-ments, Windows 10 is by farthe best operating system.

We have also been verytransparent. If you are a gov-ernment and you want to seeexactly what’s going on withWindows 10, our doors are to-tally open.

MR. ANDERS: I want to ask youmore broadly about the expe-rience of a Western company,especially a Western technol-ogy company, doing businessin China in 2017. Obviously,Microsoft has a couple of de-cades of experience here.You’ve worked in a lot ofplaces yourself. To be blunt,how level or not is the playingfield today, for Western firms,especially technology firms?MR. CROZIER: The field is agreat field. But the thing is,every company’s built on somevalues. You have some strict

values. You also have somestrict principles. And we livein a world today where some-times maybe some of thoseprinciples will evolve becausethe times are different and be-cause the customers are dif-ferent and because the compe-tition may be different.

You have a lot of forces thatat some point will maybe haveyou change your mind a littlebit on how you want to dothings.

A lot of players come andonly have one play, which is anIP play. And it is, “I protect myIP, and I’m going after piracy.”And, “I’m fighting that on myown.” As a software company,you have to change that. Youhave to, first of all, work withlocal partners, extensively.

So you have to potentiallychange the way you think. Youhave to change your businessmodel one way or another andsay, “Hey, you know what? Iwant to really do something inthis country. I find a partner. Iwork with this partner. I sharemaybe more than I used toshare.”

A different mind-setMR. ANDERS: We were talkingabout what it takes to be suc-cessful in China. And you weresaying it takes a very differenttype of person, really, a differ-ent kind of mind-set than it

does to work in Silicon Valleyor Europe. Can you elaborateon that a bit?MR. CROZIER: You have to belong-term focused when youcome to this market. That’sthe first thing.

The second thing is, thepeople you hire to be in thismarket, they have to be long-term focused.

And for that, you need ma-turity. You need to be careful.When the wind is coming hereor it’s coming there or it’ssnowing or it’s too cold, peo-ple start to say, “Hey, I don’tlike this weather. I don’t likethis. I don’t like that.”

So, you need to have peoplewho have a certain maturity atsaying, “Yeah, you know, thisisn’t going to be easy. But Ineed to stay put. And I need tomake sure that when I come toChina, I love the place.”

Because I’ve seen too manypeople coming and saying,“Hey, I’ve been sent by mycompany to come here.” Andthen a year later they say, “Oh,this place, I don’t like.”

Why? Because it’s very dif-ficult. Because it’s complex.Yeah, sure. But you knowwhat? If you do well, if youhave a long-term mind-set andif your company is committedto doing business in China,you’ll experience a fantasticlife, I can tell you that.

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Capital CreatesMore CommerceNew technology can make even small businesses big.E-commerce leader Alibaba Group built an online and mobilemarketplace connecting small businesses to customers inChina and beyond. Morgan Stanley helped take the companypublic, leading a $25 billion IPO— the largest in history.Alibaba’s subsequent growth is helping fulfill the company’sambition of giving rural communities access to goods andservices once considered out of reach. Across the globe,we’re working to advance the technologies that help morepeople to prosper. Capital creates change.

morganstanley.com/alibaba

© 2017 Morgan Stanley & Co. LLC. Member SIPC. CRC 1122237 04/15

Western tech companieshave had a turbulent relation-ship with China—particularlyover issues concerning theprotection of intellectual prop-erty. How does one of the big-gest players handle it? TheWall Street Journal’s JasonAnders spoke with MicrosoftCorp.’s chairman and chief ex-ecutive for greater China,Alain Crozier. Here are editedexcerpts of the discussion.

Recent successMR. ANDERS: Microsoft has

been doing business in Chinafor something like 25 years,How would you say it’s going?MR. CROZIER: It’s going verywell. In the past 10 days, as anexample, we’ve done two verylarge announcements. First,we did the first world-widelaunch of any product out ofChina with the new SurfacePro. That’s a big sign that theChinese market is very impor-tant for Microsoft. Most, if notall, products are launched outof the U.S. Already, this is oursecond-largest market for Sur-

Source: KPMG Technology Innovation Survey of 841 C-Suite and other global technologyindustry leaders, conducted online September to November 2016

THEWALL STREET JOURNAL.

ELONMUSKTESLA/SPACE-X

TIMCOOK

APPLE

JACKMAALIBABA

LARRYPAGEALPHABET

SUNDARPICHAI

GOOGLE

In addition to Silicon Valley/San Francisco,which three cities around the world will beseen as a leading technology innovationhub over the next four years?

Who is emerging as the top global technology innovation visionary?

Which country shows the most promise for disruptivetechnology breakthroughs that will have a global impact?

High ProfileHow technology industry leaders around the world answered somequestions on technology innovation in a KPMG survey

U.S.

5 | LONDON 3 | BEIJING

3 | TOKYO

1 | SHANGHAI

2 | NEW YORK

SAN FRANCISCOSILICON VALLEY

26% 25% 10%11%

China India U.K.

1 2(TIE)

(TIE)

(TIE)

(TIE) (TIE)3 3 3




Jonathan Larsen is the newchief innovation officer at Chi-nese insurance giant Ping AnInsurance (Group) Co. of ChinaLtd. The former global head ofretail banking at CitigroupInc., Mr. Larsen now runs PingAn’s $1 billion Hong Kong in-vestment fund, which is on thehunt for deals in the financial-technology space.

Mr. Larsen spoke with An-drew Dowell of The Wall StreetJournal to discuss where fin-tech is headed and what hethinks is holding it back.

Edited excerpts follow.

MR. DOWELL: Why are banksstill so bad at technological in-novation?MR. LARSEN: There’s an enor-mous amount of opportunityto overhaul banking and finan-cial services generally. So whyhasn’t it happened yet?

I can tell you, it isn’t aneasy transition. First, clientsare quite sticky in their prefer-ences and their behavior, sowhile it may make sense to usto move everybody on to mo-bile instantly, there are plentyof people who are quite happyand comfortable with the waythey’re doing business. Sec-ond, most of these banks havelayers and layers of technol-ogy. Simply wiping the floorand starting over is an option,but it’s a very challenging,risky and costly option. And

third, regulators put brakes oninstitutions everywhere. Cloudcomputing is a really good ex-ample. There are very few reg-ulators in the world who[truly understand] cloud com-puting and have clear guide-lines about what is and isn’tacceptable.

MR. DOWELL: How would youassess fintech’s prospects?MR. LARSEN: This technologytransformation is going tohappen. But it’s going to hap-pen at different paces in dif-ferent markets and in differentareas of the business. Think ofthe functions that take placewithin financial-services insti-tutions as being sort of de-composed or atomized, andthen re-solved in a new wayusing technology.

And some of those thingscan scale to be business mod-els. I think we’ve seen thatclearly in mobile payments.

MR. DOWELL: Ping An also hasa position in Chinese lenderLufax. Do you want to talk alittle about what Ping An’s in-terest is in fintech?MR. LARSEN: In the last decadeor so, Ping An has made amassive investment in tech-nology. It has 20,000 technol-ogy developers and scale plat-forms that run on blockchain.We’re doing advanced re-search into voice recognition

and facial recognition for allkinds of different applications.

Alongside that, [founder,chairman and CEO] Peter Mahas been able to incubate andcreate new platforms repeat-edly. Lufax is a good example.We’re talking about a $19 bil-lion company as of its last val-uation round. GoodDoctor.comis another one—140 millionregistered users, consultingphysicians via chat and image.

There are probably a dozensimilar potential platformsthat are at various stages ofincubation within the group.And then there is a hugeamount of effort around artifi-cial intelligence and machinelearning in particular.

Our vision is that our busi-ness will be a data business.

MR. DOWELL: What types of in-vestments is the $1 billionGlobal Voyager Fund seeking?MR. LARSEN: Our focus will bemostly strategic and our sweetspot is investments in the $10million to $30 million range.That will naturally lead to big-ger opportunities for compa-nies that are in their rapidscaling phase. [We want to in-vest in] people we can learnfrom. We can access their ca-pabilities through joint-ven-ture agreements, distributiondeals, technology deals, licens-ing. The cooperation can takemany forms.

What’sHoldingBackFintechJonathan Larsen says it’s partly customers,partly technology and partly regulators


an original investor in Ofo. Ithink you did the series A atabout a $30 million valuation?And now they’re at $2 billion,in what, 12 months?MR. SU: It was just operating inseveral universities in Beijing.They were doing maybe 30,000to 40,000 rides a day. As of lastweek we are doing, like, 20 mil-lion daily average rides. Theyhave maybe seven million bikesin a hundred cities. So Ofo andMobike now dominate the bikespace. The growth has beenphenomenal.

MR. WINKLER: Are these com-panies profitable?MR. SU: Not yet. Ofo is goingthrough this neck-to-neck com-petition with Mobike. Both aregetting subsidies and waivingperiods of usage. But eventu-ally, when things settle down, Ithink the numbers will work.

MR. WINKLER: Payments is sostrategic for some of thesecompanies,MR. SU: Yes. I think the nextfew years you will see lots andlots of innovation in paymenton mobile that’s going to drivea lot of consumption, changein behavior. I think all this isdriving a lot of changes inconsumers. And there’s veryminimal friction to using theseservices.MS. CHAN: The way Chineseapp companies think and thedesigners think is they want togrow deep, not just wide.Meaning, they want to controlall aspects of your day from

morning to night. It might juststart with your transporta-tion—but it can branch beyondthat.

MR. WINKLER: Why do theywant to control all that?MS. CHAN: Because you getmore of the users’ time. Youcan send them to differentservices, different apps, youcontrol distribution, you cando different kinds of advertis-ing. You get more data aroundthat consumer. So anythingthat’s a daily-use, high-fre-quency app is very valuable.And I think China, with the su-per app design model, recog-nizes that biking is one ofthose companies.

MR. WINKLER: What companiesstarting today will be the nextBaidu, Alibaba and Tencent?MR. SU: We were looking atsoftware services and security.You know, this is a space we’revery interested in. No. 2: allthis micropayments. If youwalk today in Shanghai andBeijing you are starting to seepop-up KTV [karaoke TV]booths with two or threeseats. You scan your phone,you open the door, you go inand you can sing two songs,take pictures with yourfriends, capture the image andsend it to whatever accountyou have. It’s instant gratifica-tion. And that’s all powered bymobile, powered by payment.Areas like that we are very in-terested in, where young con-sumers will be very interested.

Venture capitalists are of-ten among the first to recog-nize big trends in technology,and, if they’re lucky, to backthe companies best positionedto profit from those trends.

Wall Street Journal re-porter Rolfe Winkler sat downwith two successful VCs famil-iar with China’s tech market,Connie Chan, a partner at An-dreessen Horowitz, and DavidSu, founding managing part-ner of Matrix Partners China,to find out where tech—andthe money—are headed next.Edited excerpts follow.

MR. WINKLER: Where is venturecapital flowing right now, inChina and the U.S.?MR. SU: Software services is aspace we’ve been investing inover the last four years. Hu-man capital is getting increas-ingly expensive in China. Inthe last four years we proba-bly invested in about 30 com-panies in early to early growthstage. We’re seeing tremen-dous growth in that space.

We’re also looking at secu-rity. We’re looking at enter-

prise-security, internet-secu-rity companies.MS. CHAN: A couple of yearsago my partner, Marc An-dreessen, wrote an essay say-ing “software is eating theworld.” We think that samemessage holds true today. Ifyou look now at all these tra-ditional industries that werenot software-led, they are do-ing whatever they can to buildsoftware teams, engineeringteams. Look at the auto indus-try, for example.

We’re seeing so much dis-ruption happening. We’relooking at a lot of areas wheretraditional industries are get-ting massively disrupted bysoftware.

MR. WINKLER: Why doesn’t An-dreessen invest in China?MS. CHAN: We have a strongoperating-partner focus wherewe introduce networks of in-vestors, engineers, product de-signers, marketing folks to allof our portfolio companies.And a large part of our net-work is centered in SiliconValley. So our biggest value-

add is most likely to a com-pany that has its headquartersin and is based in the U.S.Most likely Silicon Valley. Wehave made investments out-side of the country. But that’sdefinitely not the norm.

However, we do spend a lotof time thinking about China. Icome to China, I come to HongKong quite frequently becauseI think there’s so much tolearn. There are so many port-folio companies trying to fig-ure out their China strategy.

MR. WINKLER: We’ve heardmany times that China is fullof technology copycats. Thathas reversed a little bit. Giveus examples where you’ve hada portfolio company learnsomething product-wise, rolledsomething out because theysaw it here first.MS. CHAN: Earlier this year wemade an investment in Lime-Bike [a bike-sharing companybased in San Mateo, Calif.]. Af-ter talking to lots of my Chi-nese investor friends who hadinvested in Ofo and Mobike,the two leaders in bike sharing

in China, I learned about theunit economics of this model,and I saw some very strongproduct market fit. In manyways, LimeBike is kind of aChina copycat in the sensethat they’re taking that Mo-bike, Ofo model and bringingit to the states.

MR. WINKLER: David, you are

Where VC Money Is Going in ChinaConnie Chan and David Su discuss venture-capital trends, and whatinvestors can learn about products that come out in China first

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By company location By industry group

U.S. IndiaChina† Europe Consumerservices

Healthcare

Businessand financialservices

Informationtechnology

*Equity financings include cash investments by professionalventure-capital firms, corporations, other private-equity firms andindividuals into companies that have received at least one round of venture funding.

†China doesn't include Taiwan or Hong Kong Source: Dow Jones VentureSource THEWALL STREET JOURNAL.

Venture-Capital FlowsEquity financings for venture-backed companies*

$60 billion

0

10

20

30

40

50

2012 2016

David Su and Connie Chan

DigitalMcKinseyis proud to partnerwithWSJD.Live Asia

For our latest thinking on digitalreinvention visit mckinsey.comand subscribe to receive ourarticles and reports. Or followus @DigitalMcKinsey




will probably transform it, justas 100 years ago the rise ofelectricity transformed indus-try after industry—everythingfrom transportation and com-munications to manufacturingto health care.

So I hope that whatever in-dustry you’re in, you’ll figureout how to leverage AI, be-cause I think it will create newwinners and losers in almostevery category.

MR. DEAN: Tong, do you sharethat basic optimism?MR. ZHANG: Yes. Nowadays, AIcan solve a lot of specializedproblems, in some cases evenbetter than humans. But thereis no single solution for AI tosolve all problems simultane-ously.

It takes a lot of human ef-fort to deliver a specialized AIsystem for medicine, for exam-ple. And that doesn’t translateto other problems as easily assome people might think. Thatisn’t singularity. That’s farfrom it.

MR. DEAN: Part of the hypearound AI is that every com-pany in the technology indus-try and even some that aren’tare saying, “Oh, we’re doinggreat stuff with AI.” It can behard to tell how much of thatis real and how much of thatis baloney. Where do you thinkthere is more malarkey thanactual substance in the AItalk?MR. NG: Here is one patternthat might be useful for spot-ting when AI might affect yourindustry or some other indus-try you care about. First, theindustry is digitized, meaningactivity is moved to comput-ers. That creates data, whichgives AI an opportunity tocome in and eat the data andautomate decisions or dothings more intelligently.

The Optimistic PromiseOf Artificial IntelligenceAndrew Ng and Tong Zhang on how AI is goingto be like electricity, transforming every industry

The single most lucrativeapplication of AI today mightbe online advertising, or de-ciding what ad to show peo-ple. Because the online adver-tising realm has always been adigital realm, there is tons ofdata, and as a result the AI forthat is very sophisticated to-day. The fintech industry isanother area where a lot hasmoved to the digital realm.Health care is a bit further be-hind. So is construction. Butyou see this pattern wherefirst comes digitization, whichcreates data, and then comesthe AI.

Lifelong learnersMR. DEAN: Let’s be predictive.My nine-year-old twins are inthe phase now of coming tome and saying what they wantto be when they grow up.What jobs should I tell themprobably won’t exist once theyare adults? Radiology is oneyou’ve mentioned before. Whatelse is in the target zone?MR. NG: If any of you havefriends or children in medicalschool—AI is getting muchbetter at reading radiology im-ages, frankly. So if any of yourfriends are going throughmedical school and graduatingwith a degree in radiology, Ithink they might have a per-fectly fine five-year career asa radiologist. Maybe 10 years.

Again, the broader pattern

is that in any task in which alot of people are doing rela-tively routine, repetitive work,that creates a very strong in-centive for AI teams to comeand automate that task.

There is one other rule ofthumb, which is that almostanything a typical human cando with less than one secondof mental thought, we canprobably now or in the nearfuture automate using AI.

Take a security guard look-ing at a video feed and saying,“Are there people in this? Arethey doing something suspi-cious?” That task is actually alot of one-second judgmentthoughts strung together, so Ithink a lot of it can be auto-mated.

I do think we’re entering anera in which lifelong learningis no longer optional. The oldmodel of education, where yougo to college for four yearsand coast through the next 40makes no sense in today’s rap-idly changing world.

In IT, half the stuff we in-vent today will be obsolete infive years. The sands are con-stantly shifting. You have tokeep learning. This is becom-ing much more pervasive else-where in our economy, too.

So tell your children:“Learn to be lifelong learners.”

MR. DEAN: It seems like theU.S. and China are the two

places where the most is hap-pening with AI in terms of de-velopment and deployment ofthe technology. You both haveworked in both places. Whatare the strengths and weak-nesses in each?MR. NG: The U.S. is very goodat inventing basic technolo-gies, a lot of the latest AI in-novation.

I think the China ecosys-tem is very strong at takingthings to market—it movesshockingly fast. In the U.S.,when you launch a new prod-uct, it feels like you alwayshave to fight market segmentby market segment for users.And there are so many marketsegments.

China is a relatively homog-enous society, so once you findthat beautiful product marketfit, you can scale reallyquickly.

The flip side of that, ofcourse, is that if your competi-tors find product market fit,you can also lose share morerapidly than in the U.S.MR. ZHANG: I think the U.S. hasmore innovations nowadaysthan China.

But Chinese companies, aswell as universities, are tryingto do more innovative re-search in terms of both quan-tity and quality. So I think it’shappening, but the U.S. on thisparticular aspect is definitelyleading.

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Tong Zhang and Andrew Ng


Artificial intelligence maybe one of the technologyworld’s current obsessions, butmany people find it scary, en-visioning robots taking overthe world.

Two top experts in thefield—Andrew Ng, a StanfordUniversity adjunct professorand former AI scientist at Al-phabet Inc.’s Google and Chi-nese internet giant Baidu Inc.,and Tong Zhang, executive di-rector of the AI Lab at Ten-cent Holdings Ltd.—sat downwith The Wall Street Journal’sglobal technology editor, Ja-son Dean, to explain why theybelieve the opportunities asso-ciated with this technology faroutweigh the bad.


The new electricityMR. DEAN: Let’s start with thescary stuff because that’s the

most fun. The title of thispanel refers to “the singular-ity,” or the idea that artificialintelligence will become sopowerful that robots will takeover. Andrew, I know you’reskeptical of that. What shouldwe be worried about with AIand where are the biggest op-portunities?MR. NG: Worrying about evil AIrobots today is a lot like wor-rying about overpopulation onthe planet Mars. You know,some day we might get toMars and we might actuallyoverpopulate it and we’ll needto worry about it then. But to-day, we haven’t even landedon Mars yet, so I don’t knowhow to productively work onthat problem.

Having gotten the scarystuff out of the way, I think AIis the new electricity. What-ever industry you work in, AI

Thinking About AIHow consumers in the U.S. feel about some aspects of the growinguse of artificial intelligence

HOPES63%

Agree AI will help solvecomplex problems that plague

modern societies

59%Agree AI will help people live

more fulfilling lives

FEARS46%

Believe AI will harm peopleby taking away jobs

23%Believe AI will have seriousnegative implications

WEIGHING THEPROS AND CONS

80%Say it’s more importantto have access to moreaffordable legal advicethan to preserve the jobs

of lawyers

69%Would rather have

more affordable, convenientand reliable transportationthan preserve the jobs

of taxi drivers

64%Would rather have

instant access to qualitycustomer service than preservethe jobs of customer-service

representatives

Source: PricewaterhouseCoopers survey of2,500 U.S. consumers and business leaders,conducted in February 2017

THEWALL STREET JOURNAL.




Few battles in the techworld have been as bruising asthe global ride-sharing wars.Who will come out on top?

In Southeast Asia, Singa-pore’s GrabTaxi Holdings Pte.is slugging it out with UberTechnologies Inc. and othersfor dominance. Grab is now in55 cities across the region. Itlaunched a mobile-paymentsbusiness known as GrabPay,recently bought an Indonesiane-commerce firm and is team-ing up with Cambridge, Mass.,startup nuTonomy Inc. to testself-driving cars in Singapore.

Grab co-founder AnthonyTan and Doug Parker, chiefoperating officer of nuTon-omy, sat down with Jason An-ders, The Wall Street Journal’sglobal business editor, to dis-cuss where the industry isheaded in Asia.


Perfect complementMR. ANDERS: Ride sharing isbooming, especially here inAsia. Anthony, Grab is focusedon Southeast Asia, on lettingfolks hail private cars, taxisand motorbikes. But lately,you’ve been pushing pretty ag-gressively into mobile pay-ments and other businesses.Why?MR. TAN: The payments experi-

ence and the entire ride-shar-ing experience—they are per-fect complements, right?Today we do about 2.5 millionrides a day. That’s a lot ofsmall transactions, rangingfrom $3 or $4 to $11. And youjust sort of use GrabPay all thetime. That frequency builds ahabit. That habit then be-comes something you’re com-fortable with. Our credit wal-let, because of that, has grownabout 80% month on month.

MR. ANDERS: You recentlybought Kudo in Indonesia,which helps consumers whodon’t have internet connec-tions, or even bank accounts,buy things by connecting themwith local agents who they candeal with face-to-face. Whatdoes that have to do with ride-hailing?MR. TAN: Think about the digi-tal divide. In Southeast Asiathere are about 630 millionpeople and a lot of them stilldon’t have a bank account.They don’t have smartphonepenetration. It’s growing veryfast but is far from where itneeds to be. GrabKudo hasabout 400,000 agents. Theyare community guys and theycome up to [people] and theysay, “Hey, if you want accessto any of the e-commerce

sites, I can get you access. Doyou want to sign up as a Grabdriver?” They have been sign-ing up thousands of drivers ona daily basis.

MR. ANDERS: So Doug, nuTon-omy is looking to make thecase that not only do we notneed to own cars, we actuallydon’t need drivers. How doyou convince ride-hailing com-panies that this is where theyshould be investing?MR. PARKER: There has been abig step change in experiencefrom the taxicab drive of the1990s in New York City to thetaxicab or Uber, Grab or Lyftdrive of today. Autonomous[driving] is the next big stepchange. Your experience todayis about 10 times better thanthe old taxicab ride, but thereare things you probably don’tlike about it. Maybe I wouldlike to sit in the front. I’d liketo look out a front window,control the radio myself, con-trol the temperature.

Autonomous is also goingto be a safer ride. Somethinglike 1.4 million people die ev-ery year in auto accidents.That’s equivalent to 10 747scrashing every day. You wouldnever let United get away withsomething like that, or Boeing.

Please see TAN page R7

TheRide-SharingBoomAnthony Tan and Doug Parker on where theindustry—and driverless cars—is heading in Asia

eight, 10 close friends.Whereas WhatsApp is usedwith your parents, your driver,your colleagues, your plumber.

The more pervasive Face-book and WhatsApp are, themore the need for Hike. Be-cause in a market like India,there is a very large divide be-tween the older, conservativepopulation and the youngeryouth who are much more lib-eral. As a result of which, peo-ple need a space to be them-selves. And Hike is thatapplication.

MS. KIM: Kakao hasn’t reallygained much traction over-seas. What went wrong?MR. RIM: I don’t want to say itwas wrong. Actually, it was apath that we chose. We real-ized that it’s going to be verytough for us to compete as amessenger globally, becausethey were big companies.

We chose a path wherewe’ll do platform business inKorea, since we’re a dominantplayer, and we’ll do contentbusiness globally. Contenthere means offering music,gaming, entertainment andcomics.

MS. KIM: Do you have plans totake Hike outside of India?MR. MITTAL: Not yet. We feelthat the market is very big.There is enough and more forus to work on in India.

Do we foresee ourselves go-ing outside the country? Well,we’d hope so.

There are many countriesout there like Bangladesh, SriLanka, Africa as well, thathave a very similar character-istic to India. Where data’stricky, where smartphones arecheap.

Maybe in the next 12 to 18months, we’ll consider one ofthese markets.

Where the money goesMS. KIM: You’ve raised morethan $250 million from inves-tors. What are you using thefunding toward? Is it improv-ing your features or expandingperhaps outside of your homemarket?MR. MITTAL: Definitely improv-ing the product. We’re big be-lievers that as consumers getused to technology, consumer

needs grow. So you can’t staystagnant in the technologyspace. You have to keep evolv-ing and improving your prod-uct 24/7.

We’ve been working on alot of stuff that we’velaunched in the last sixmonths. Hike, by the end of2017, will look very different.

Because we have the fund-ing, and more important, wehave a lot of access to peoplelike Tencent [a Chinese com-pany that created the messag-ing app WeChat and backsHike].

There are a lot of insightswe’ve got around whatWeChat’s doing with the plat-form, or what they’re doingwith messaging, what they’redoing with photos, whatthey’re doing with videos,what they’re doing with call-ing, payments and a bunch ofother stuff. We’ve definitelyused that to improve our ownset of tactics and strategy inIndia.

MS. KIM: In light of the terror-ist attacks in Europe and theU.S., there has been a lot ofdebate about whether messag-ing companies like yourselvesshould give away data of theirusers to government agencies.I wanted to hear yourthoughts on that issue.MR. MITTAL: One thing that wedo well with Hike is we actu-ally don’t store any messages.We just don’t do it. We don’tplan to change that over time.But I think it’s not wrong forthe governments to ask fordata if the situation is right.

I can only speak for India.The internet is so new in Indiathat the government’s alsotrying to figure out what therules are in the online world.What does it mean to have se-curity and privacy online inthe virtual world?

Because now people spendfour hours of their day on av-erage on the internet. In acountry like India, one dayyou’ll have a billion people ac-cessing the internet throughtheir smartphones. So timewill tell.MR. RIM: Privacy of data isvery important. And Kakaoputs in every effort to keep itup.

In Asia, many smartphoneusers use messaging apps towatch videos, make calls, hailrides and play games. AndU.S. giants WhatsApp andSnapchat are getting morecompetition from challengersfrom Asia. To get a glimpse ofwhat the future may hold formessaging apps, Wall StreetJournal senior editor Yun-HeeKim spoke with Kavin BhartiMittal, founder and chief exec-utive of India’s Hike Messen-ger, and Ji-Hoon Rim, CEO ofSouth Korea’s Kakao Corp.

Here are edited excerpts ofthe discussion.

What’s aheadMS. KIM: What is the next-gen-eration messaging app goingto look like?MR. RIM: Artificial intelligence.I personally think that thenext messenger is going be thevirtual personal assistant.MR. MITTAL: Yeah, absolutely.I’m a big believer that we’re ata stage in the evolution oftechnology where humans arestill forced to adapt to the way

technology works. And I thinkAI’s going to change that.

It’s going to spin it back-ward, where technology can fi-nally adapt itself to how hu-man beings live their lives.

We’re only using AI in smallamounts of the application to-day in Hike.

Based on the time of theday, based on your location,based on the weather, we canchange the recommendation ofstickers [images people cansend to other users] that yousee in your palette. It’s a verysmall example of what’s possi-ble with big data and AI insidemessaging apps going for-ward.

MS. KIM: How does Kakao planto use artificial intelligence inits KakaoTalk messaging plat-form?MR. RIM: It’s going to be natu-ral-language processing andunderstanding. In the mobileservice right now, we’re al-ready connected to the biggestfranchise deliveries like PizzaHut, Burger King. All those

things you can actually orderon mobile right now, and getdelivered.

If that’s connected with AIand a conversational [user in-terface], rather than typing ortouching the phone, you canjust say, “Please order thesame pizza that I did lastweek.” Or “I want to go toHong Kong Disneyland. Pleasecall me a taxi.”

I’m pretty confident thatwe could show how the futureis going to be. Because Koreais relatively small. We canshowcase how it really works.

The competitionMS. KIM: There are many othermessaging apps globally thatare offering quite similar ser-vices. The market is quite com-petitive. In terms of users,both Hike and Kakao trailWhatsApp, which has morethan a billion monthly activeusers. So how do you take ona giant like that? Do you haveambitions to even attempt tocompete with WhatsApp?MR. MITTAL: In any realm of

industry, you try to sort ofcompete as little as possible.You go around the competi-tion.

We focus on the youth. InIndia, about half a billion peo-ple are under the age of 24.

So we focus on our userbase and deliver what is im-portant to them. In India,given that you have so muchdiversity, it allows for peoplelike us to exist, because wecan solve very local problemsat scale.

MS. KIM: But in India, Whats-App actually has double theamount of users as Hike. Whatare they doing right? Andwhat do you guys need to doto catch up?MR. MITTAL: We don’t look atHike as catching up at all.We’ve made it very clear thatfor us to win, WhatsAppdoesn’t have to lose.

As a matter of fact, peopleuse WhatsApp and Hike very,very differently together ontheir phones.

Hike is used with seven,

The Future of Messaging AppsKavin Bharti Mittal and Ji-Hoon Rim talk about how the apps arechanging, and how they plan to take on the industry’s leaders

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Kavin Bharti Mittal and Ji-Hoon Rim

Anthony Tan and Doug Parker


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The Technology BattleRaging in IndonesiaNadiem Makarim and William Tanuwijayaon the targeted market—and how to tap into it


MR. BAKER: Our opening pollquestion was about finding in-telligent life. Some peoplewould be happy if we foundmore intelligent life on Earthfirst rather than finding intelli-gent life in the rest of the uni-verse.

You’ve got a very strong in-terest in this. You’ve put upmoney for a prize. Why is thissomething you regard as soimportant?MR. MILNER: We should belooking beyond the horizon. Itruly believe that we collec-tively as a civilization shouldallocate a small fraction of ourresources to try to solve exis-tential questions. “Are wealone in the universe?” is oneof those existential questions.

byproduct of these massivecompanies that have been cre-ated is that the employees andthe founders of those compa-nies, obviously they reap thebenefits of the success. Andthe byproduct of this is thecreation of a very vibrant an-gel community.

From the angel communityfollows a VC community. Andthen a VC community is fol-lowed by growth stage, latestage and then public stage[companies]. In order to cre-ate a Silicon Valley-type phe-nomenon, an angel communityis critical. And an angel com-munity is really very depen-dent on those massive successstories. So that’s how the cyclegets going.

what I’m saying is that in or-der for all of us to reap thebenefits of AI, for example, assoon as possible we need acertain amount of concentra-tion of capital so that thoseprojects get funded.

A separate setupMR. BAKER: Can China go on,in political terms and from aninvestment perspective, to con-tinue to develop its own sepa-rate internet companies? AndFacebook and everybody elsewill just have to deal with therest of the world?MR. MILNER: The interesting

ContinuedfrompageR1Milner

Consumer spending isbooming in Southeast Asia,thanks in part to the growingadoption of smartphones andother technologies that make iteasier to shop for goods andservices and to pay for them.

Indonesia, with the world’sfourth-largest population, is amarket where local tech com-panies and regional giantsalike are focused on tappingthe potential of e-commerce.

Nadiem Makarim, founderand chief executive of Go-JekIndonesia, which started withmotorcycle-hailing service andhas expanded into other onlineservices, and William Tanuwi-jaya, co-founder and CEO ofIndonesian online marketplaceTokopedia, discussed the op-portunities and challenges intheir home market with TheWall Street Journal’s technol-ogy editor, Jason Dean.

Following are edited ex-cerpts of their conversation.

MR. DEAN: In the past the In-

donesian tech market has beensomewhat overshadowed byother regional giants likeChina and India. But it’s be-coming a real battleground.Let’s start with why. William,Tokopedia is an online con-sumer-to-consumer market-place. What makes Indonesiaan attractive market for thisbusiness, especially given howfragmented it is and relativelypoor?MR. TANUWIJAYA: The beautyof Indonesia is that you canreally predict the future, bylearning what happened in thepast from the U.S. market,China market, Japan market,India market.

It’s very similar with Chinain 2008.

Indonesia’s GDP per capitalast year is the same asChina’s in 2008. We also have3G, 4G now in Indonesia. Sowe can see the boom that willhappen if in the next fiveyears we can follow that pat-tern.

Branching outMR. DEAN: Nadiem, you startedout with ride sharing for mo-torcycles and you’ve expandedinto food delivery, package de-livery, on-demand beauty andcleaning services, and pay-ments.

What’s driving your expan-sion into so many different ar-eas?MR. MAKARIM: First and fore-most, as William said, the op-portunity in Indonesia is reallymassive.

I think that the risk is actu-ally in not diversifying. We arebig students of China, Indiaand other regions. And it’svery obvious that it is difficultto defend a single vertical. Thedynamics of competition al-ways dictate that someonewith a lower price will alwayscome in, et cetera.

But what is defensible, fromwhat we’ve seen in China’scase, is a platform. A platformis basically a mind-set, it’s athinking of your business thatfollows the consumer’s needas opposed to what you thinkthe business is.

So that is the primary phi-losophy of Go-Jek, to go wherethe consumer goes and to beruthlessly obsessive aboutcustomer needs and the prob-lems they face.

So for us, diversification isa matter of not only survival,but thriving and being able todefend ourselves as an overallplatform.

MR. DEAN: How do you decidethen what to move into andwhat not to?MR. MAKARIM: We target all ofthe highest-frequency middle-class transactions that a per-son does in their daily life andmove it to your smartphone.

So let’s look at how a per-son lives in Indonesia in the

Feeling GoodConsumer confidence grew last year in Southeast Asia, withoptimism increasing in all three measures of confidence in thePhilippines and Thailand and in the region overall

Level of optimism in the fourth quarter of 2016

Immediatespendingintentions

Personalfinances

Jobprospects

SOUTHEAST ASIA PHILIPPINES THAILAND

87% 15

86% 5

60% 8

65% 7

49% 3

66% 3

72% 2

52% 5

561%

Percentage-point change from the first quarter

Source: Nielsen Co. survey of nearly 3,000 consumersin Southeast Asia, including nearly 500 each in thePhilippines and Thailand. THEWALL STREET JOURNAL.

in it?MR. PARKER: We will still havea safety driver in the car for anumber of years. There is along process to convince regu-lators that this is safe. Wehave to find the right way toprove, through on-road tests,that this is entirely safe totake the driver out. Part ofthat is we’re going to have re-mote safety officers who willmonitor the cars and take overif there is a problem.

‘Brothers in this’MR. ANDERS: NuTonomy isworking with different ride-hailing partners and automakers. Many of these compa-nies are locked in some prettybitter blood feuds. How do youstay neutral?MR. PARKER: Right now, we’retrying to work with the goodguys—the Grabs and the Lyftsof the world that really wantto drive a better experiencefor people. But also, at thispoint, Grab and Lyft aren’tcompeting with each other.We actually have three part-nerships with ride-hailingcompanies. We haven’t an-nounced the third one yet.

MR. ANDERS: You haven’t an-nounced the third one yet?Here we are. Let’s have it.MR. PARKER: I know. It’s agreat forum. But…

MR. ANDERS: Anthony, let’stalk about competition. Ubergave up the fight with Didi[Chuxing Technology Co.] in

China, and I know Didi is oneof your investors. How are yougoing to avoid one of these re-ally protracted, and wildly ex-pensive, battles in SoutheastAsia?MR. TAN: It is very different inSoutheast Asia. For one thing,Grab embraces the taxi world.In Singapore, Grab combinesall the taxis, all the cars, withone touch of a button. And be-cause we work so closely withthe Singapore government,they have allowed us to be thefirst company with the abilityto price dynamically for taxis,which is essentially a publicutility vehicle. So with justGrab, you now get taxis thatcan have dynamic pricing atpeak hours, and be cheaperthan the meter during off-peakhours.

MR. ANDERS: If Didi wanted toacquire Grab outright, wouldyou be open to it?MR. TAN: Right now, we workhand in hand. They aren’ttypes who say, “I want to bethe boss, and that’s it.” Theyare much more like, “We’rebrothers in this. How do wemake sure that we win this lo-cal style, respecting the localnuances.”

They realize that SoutheastAsia is a fragmented market.The countries are similar inmany ways but still so differ-ent in terms of language, reli-gion, etc. The ability to em-brace that fragmentation butalso see the common patternsis what Didi respects about us.

So once you have big compa-nies taking on this role ofdriving the cars, we are goingto end up with a safer, morecomfortable, more efficientride.MR. ANDERS: You’ve workedwith Grab on a test in Singa-pore. And you just announcedyou’re going to collaboratewith Lyft on a similar test inBoston, with real-world riders.What are you learning fromthese tests?MR. PARKER: When you startputting people [in self-drivingcars] who aren’t roboticists orscientists, what they tell you isamazing. They have a lot offear when they first get in,when the car starts driving it-self. But after five minutes,they’re playing with theirphones. So there is this veryfast adoption curve. But whenthe car goes to make a turn ata busy traffic light for the firsttime, it is a little scary.

It’s kind of like people whoare scared of flying. Theyaren’t scared of the engineer-ing, or that the plane won’tfly. It’s that they have no con-trol. It’s the same thing withautonomous cars. We have toget used to the fact that thecar is going to make the rightchoice. Every time.

MR. ANDERS: How long will itbe before I hail a car, and itpicks me up without a driver

ContinuedfrompageR6Tan

middle class.Your highest-frequency

transactions are transporta-tion, food, sending stuffaround, buying [cellphone] airtime, and then paying for stuffat a store. And then of courseyou’ve got utilities, bills. Andso our goal is to cover thatgamut of transactions so thatyou will not be required totransact outside of yoursmartphone.

And that’s why Go-Pay isnow one of the biggest focusesof Go-Jek, because it’s the gluethat ties the platform all to-gether. In a country whereyou’ve got 70% of the popula-tion that is unbanked and theremaining 30% is severely un-derbanked, it’s practically anopen market for this kind ofinnovation.

What we call the four uni-corns within our business aretransportation, logistics, foodand payments. Those are ourfour kind of core pillars.

Sizing up the marketMR. DEAN: Indonesia’s totalpopulation is about 260 mil-lion. How much of that is re-ally addressable for both ofyou?

Not everybody, right? Youmentioned the middle classyou’re targeting. What is the

size of the middle class withinthat total number?MR. MAKARIM: The middleclass is kind of the fattestchunk. You’ve still got thismiddle-lower to lower classthat’s quite big as well. In ourbusiness, we are necessityproducts in many ways, bothWilliam’s company and myown.

Everyone needs food. Ev-eryone needs to get around.Everyone needs stuff. So theaddressable market really isnot so much the income level,it’s how many people have anAndroid. IOS as well, but IOSis in the higher end of thespectrum.

MR. DEAN: So what is thatnow? What is the penetrationof mobile phones or smart-phones?MR. MAKARIM: I believe rightnow smartphone penetrationis at around 70, 80 million.MR. TANUWIJAYA: Google lastyear announced that Indonesiaalready has 100 million inter-net users. But from that 100million internet users, onlyperhaps 40 million have abank account, 3% have a creditcard.

We see this gap betweenpeople that are already onlinebut they cannot transact on-

line. And we see this opportu-nity to innovate.

So, for example, the pasttwo years we’re building cashcollection points at stores inIndonesia. People can buy on-line and pay in cash throughtheir nearby store.

Looking abroad?MR. DEAN: What about theidea of going beyond Indone-sia? Do you think about thatnow at all?MR. MAKARIM: We think aboutit all the time.

We have two principles.One is you cannot win South-east Asia without winning In-donesia. We have to be com-fortable across all ourverticals before expanding.

The second principle is wedo not believe in just expand-ing for the sake of expanding.We believe in partnershipswith locally founded compa-nies.MR. TANUWIJAYA: We are sortof the same school.

In the past eight years,Tokopedia is only focused onthe Indonesian market. Andwe think that it’s big enough.

Our vision is to really de-mocratize commerce technol-ogy. That done, and then we’llconsider to expand in othermarkets.

MANUELWONG/DOW

JONES

William Tanuwijaya and Nadiem Makarim

© 2017 Dow Jones & Co., Inc. All rights reserved. 3DJ5599

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