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Analysis EO
Analysis · 2
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Analysis EO
Oct 14, 2020 11:16 am ·

Xiaomi and Huawei Ban Top Mobile Games, Indicating Intensifying Competition

Recently, two famous Chinese phone makers, Xiaomi (1810:HK) and Huawei, announced that they would not allow access to two popular games on their application stores: Genshin Impact and Rise of Kingdoms. The reason is that they could not reach an agreement on revenue distribution with the game publishers. According to the Chinese Apple App Store, Genshin Impact and Rise of Kingdoms’ rank number 3 and 4 on the games list, respectively. Sources released show that Rise of Kingdoms' publisher and developer, Lilith Games, asked for a 70% share of total revenue in recent negotiations with Huawei and Xiaomi. But the two parties split on this issue. Huawei and Xiaomi used to demanding exorbitant prices Unlike a 3 to 7 payment ratio, which is the case between Apple and Epic games, China's gaming distribution channels have strong bargaining power and require more. Big smartphone systems builders like Xiaomi and Huawei ask for 50% of total revenue, topped up by gamers through app stores on the premise of paying off channel fees. In fact, the game developer and publisher can only get less than 50% of the gamers' money contributions. Rewinding the history of the main channels – the smartphone app stores spent several years building their dominant positions. As smartphone shipments rose steeply from 2012 to 2016, the top phone makers in China, including OPPO, Vivo, Huawei, Coolpad and others allied, demanding 50% of the total topline for distribution. At that time, even developers like Tencent (0700:HK) had to accept this rule. The atmosphere has changed as smartphone shipments have declined in recent years. Content providers like Tencent acquired game studios, enhancing their bargaining ability. Tencent's games accounted for 65% of total sector revenue in 2019. As game censorship tightened in recent years, the reduced games supply highlighted the success of Tencent's strategy, which helped Tencent reach a 70% distribution ratio deal on its games such as Crazyracing Kartrider, Jianwang 3 with Huawei and Xiaomi. Another gaming giant, NetEase (NETS:NASDAQ; 9999:HK), claims that it only receives 70% of the total revenue on its two games: Fantasy Westward Journey and Journey to the West. Other phenomenally popular games like Onmyoji couldn't sign such a deal. Alternative distributors are thriving Official app stores, third-party app stores and vertical apps make up the field of gaming distributors in China. Now developers and publishers are cultivating alternative channels: apps like 9Game and Tap Tap, implying that the phone maker alliance is likely crashing. Tap Tap has been a runaway success, turning into a prevalent mobile game sharing community with 4,400 listed games and 7 of them downloaded over 10 million times in 5 years. And 9Game, founded in 2009, a subsidiary of Alibaba, has become the largest Chinese android games distributing platform. These two channels provide mobile gaming news, installation packages, online communities and games ranks. They primarily generate revenue through online advertisements and can return more to the upstream. Analysys, a Chinese research body, said these vertical channels grow faster than hardware channels and third-party players. Besides, alternative media have better stickiness to gamers than other platforms, reflected by their apps' average opening times per day and daily usage. Specifically, apps of vertical channels are clicked 6.35 times per day, compared with 1.94 times for official app stores and 2.24 for third party app stores. What's more, gamers spend 23.89 minutes per day. By contrast, the figures for the other two types of apps are 4.5 and 7.87 minutes, respectively. Large games developers enjoy the fruits The bargaining power between game developers and publishers and distribution channels is decided by how much loss they can afford. The more loss a company can accept, it tends to achieve the dominant position. For example, small gaming studios that generate considerable revenue from a single platform like Huawei or Apple tend to fulfill their requirements. Instead, large gaming companies like Lilith gamers may choose to give up a vital channel like Xiaomi or Huawei while seeking revenue supplements from other media when they choose to suffer the pain. As intensifying competition on downstream, companies like Tencent and NetEase benefit from more choice on selecting partners, grasping more bargaining power.

Analysis EO
Analysis · 2
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Analysis EO
Sep 1, 2020 10:17 pm ·

Digital Currency Electronic Payment: Death Notice for Alipay and WeChat Pay?

The DCEP, the Chinese government’s new project, will digitalize the cash in circulation, becoming an alternative to the local tech giants’ payment products, i.e. Ant Group’s Alipay and Tencent’s WeChat Pay. The new project’s competitiveness in the market is yet to be determined.  China has been planning to replace the bills with digital currency since at least 2014. On  August 3 of 2020, the central bank announced the launch of Digital Currency Electronic Payment (DCEP).  Along with the launch, some Chinese Internet companies have reached an agreement with the central bank to pilot the digital currency trial. One example is the country’s ride-hailing giant DiDi, which has inked a deal with the monetary authority to apply and test the digital yuan in the smart traveling field.  Meituan Dianping (03690:HK) is another case: the local service provider, with daily transactions over billions of USD, is also discussing the application of DCEP.  What is more, the state announced that DCEP would be tested internally in Shenzhen, Suzhou, Chengdu – and Xiong'an, a Beijing's satellite town that has recently attracted a significant amount of investment from the government, which is planning to turn it into China’s next innovation hub. Some government employees in Suzhou have even started to receive their payrolls in digital yuan.  Looks like DCEP is starting to reshape the public's life in China now. Let us take a closer look at the new buzzword.  DC/EP: Digitalizing the currency for mass electronic payment In light of factors like the increasing anti-counterfeiting costs on issuing paper notes, but with decreasing usage frequency, and the attraction of more efficient supervision, the central bank debuted the digital yuan.  Apparently, DCEP is to be introduced to cover the concept of electronic payment in general in China – the name hints that DC represents the new form of cash, and EP is to be the new payment. This naming approach is therefore broad and ambitious, and both builds upon and may occlude the developments of the digital giants. In a report published by People's Bank of China, the proportion of digital payment usage among adults in China was recorded at 82.39% at the end of 2018. Even in the rural areas, the penetration surpassed 70%. The liquidity of cash is increasing, but in a digital form instead of the bills.  The digital yuan is the M0 (see the explanation in the chart below), which represents the cash in circulation in macroeconomics theory, and the virtual form of cash will not impact the currency issuance. With the application of blockchain, the central bank can easily track the entire cashflow chain with every payment identified. Unlike Alipay and WeChat Pay, DCEP is a complimentary and legal tender that can never be rejected by any merchants.   Similar to the bill-issuance before, the digital yuan will be issued by the central bank to the commercial banks, and therefore be accessed to the public with normal banking services. The certification authority, the registration center and the big data analytic center associated with the DCEP, enable the central bank to monitor the currency circulation easily and therefore apply the monetary policies timely and precisely. Is it set to replace Alipay and WeChat Pay? According to the data from iResearch, the total volume of transactions facilitated by third-party mobile payment platforms reached CNY 53 trillion during the first quarter of 2020, with Ant Group's Alipay and Tencent's WeChat Pay accounting for 55.4% and 38.8% respectively.  Some voices even state that the launch of DCEP is intended to weaken the dominant position of the private sector in the payment industry. Systems such as Alipay and WeChat Pay, which own a large amount of user-related information on the public, have an influence related to the identities of much of the public which the government wishes to redistribute. Is it true? Only partly. In order to envision how DCEP will impact the position of third-party agencies, it is important to understand how they work differently: third-party agencies are ‘bankers’ and DCEP is just the money coated by tech. DCEP is using a Digital Yuan which is still a form of 'cash' – but intangible,  and made by binary codes instead of paper. Alipay and WeChat, on the other hand, are considered to be M2 and M3, using the money in the bank account most of the time. The public can even choose to use debit, credit or even Ant CreditPay (Chinese: 花呗) for purchasing – these are all simply mean to make a transaction.  Also, Alipay and WeChat Pay are the perfect ways for online shopping as it has been linked to almost all online malls in China. While the digital yuan, as a substitute for cash, are being used offline.  WeChat Pay and Alipay, in fact, are barely payment agencies, as they really link the merchants and the users. They provide discount coupons and serve as businesses' news and updates distributors, which attracts people to use the payment methods. DCEP, on the other hand, just provides an alternative payment method for the public.  Does this mean DCEP is non truly an innovation either? Not at all.  It should provide added convenience for the public. Unlike third-party payment agencies, DCEP is backed by the Chinese government and the digital yuan serves as the legal tender, which means no one can refuse a DCEP payment legally.  What is more, the DCEP will be used wider as it can work without the Internet. The transaction can be done easily by the physical touch between two devices. Also, it is entirely free for the public to transfer money between their bank accounts and withdraw to the DC wallet without transaction fees, which is a paid service in third-party payment platforms.  Also, DCEP has certain advantages in curbing crime. In the past, M0, the physical bills, is easily lost and anonymous. The digital yuan is based on the blockchain technology that carries the identity information of the holders. It enables the state to track and supervise but the information are strictly confidential to non-state members.  Therefore, DCEP is likely to hurt Alipay and WeChat Pay to some extent, since the latter ones have cash depositing functions as well, which functions as an e-wallet. The same smartphone-based paying method means fewer users will be left on the third-party payment agencies, with more people using DCEP.  Future of both sides: Competing or cooperating? Though it is said that DCEP will be biting the payment market as soon as the debut, we don't think it will continue the competition for long.  Eventually, it will depend on the market. Public will choose the most convenient one to use. As people are used to powerful Alipay and WeChat Pay, it is hard for DCEP to simply replace them.  A more possible assumption is cooperation. DCEP fits third parties – those digital world residents whom are so fluent and adept at moving between platforms and layers of service will find it helps them in their navigations.  As Alipay and WeChat Pay resemble 'private-owned banks' they could become one of the layers of digital currency services providers working with other state-controlled or state-owned commercial banks to distribute the digital yuan to the public.  The future path for the DCEP is still unknown, but it is certain that digital currency is a general trend of technology development – not only in China.  China’s case will likely see it coexist with the paper note in widespread circulation in the foreseeable future. It might be also used in more fields, from M0 to M1, M2, even M3, to reform the monetary system overall. 

Analysis EO
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Analysis EO
Aug 20, 2020 11:27 am ·

Alibaba, Tencent and Ping An Group: A Healthcare Update

► Ali Health, WeDoctor and Ping An Good Doctor, each backed up by e-commerce, technology and insurance giants, demonstrates a different business logic.  ► Three online healthcare giants are faced with their own problems. The Chinese consumer market seems to call for a one-for-all product. In terms of the ongoing trend of healthcare informatization, the Chinese Internet giants started their business deployment years ago. More than this, titans from e-commerce and insurance have since joined the game, including names such as Tencent and Ping An Insurance Group. After the booming growth during the COVID-19 pandemic, the online healthcare business has entered the public limelight. Millions of patients have realized the importance of online healthcare services and benefited from the remote diagnosis, medical consultations and medicine delivery during the social distancing and quarantine. Ali Health, WeDoctor and Ping An Good Doctor are three pioneers in the area of consumer-oriented online healthcare services. Now Ali Health (0241:HK) and Ping An Good Doctor (1833:HK) are listed on Hong Kong Stock Exchange and WeDoctor has posted for a Hong Kong IPO since May 2019 and plans a listing in 2021. Same market, different logic Even though consumers can use the apps almost interchangeably, the three online healthcare service providers established very different business models. With a grip on various resources, these players also demonstrate disparate patterns in growth logic. Ali Health Ali Health is mostly anchored on traditional e-commerce by taking advantage of relevant technologies, logistics and the influence of Alibaba – the tier-one online shopping platform in China. The gross merchandise value (GMV) is an optimal indicator showing performance. Compared to Ping An Good Doctor, Ali Health successfully leverages consumer traffic on Alibaba's Taobao e-commerce and the extensive exposure of Alipay (Alibaba's fintech app). With a ‘genetic’ advantage that Tencent and Ping An Group can never surpass, Ali Health can smoothly orient the consumption traffic on Taobao or Tmall online shops to the daily healthcare area. To fully utilize the potential of the wide-spread reach-out of the online consumers, Ali Health has made some new moves, catching up with the high tide shortly after COVID-19. First, the healthcare star integrated the Tmall pharmacy business into its local life service platform Ele.me. Since Ali Health launched an online-to-offline (O2O) medicine delivery service in 2018 in Hangzhou, the delivery service provider has expanded into over 120 cities across the country. Moreover, to further deploy the O2O business model, the company explores consumable healthcare in a broad spectrum of medical cosmology, dental, vaccines, physical check-ups and maternal care.  WeDoctor WeDoctor is based on and develops from Guahao.com, an online registration platform for reserving appointments at hospitals. Based on the strong connection with hospitals, WeDoctor eyes in a broader network of partnerships with local hospitals. It built the first-ever Internet hospital in Wuzhen, Zhejiang – a physical hospital that provides online pharmacy, online consultation, registration and education, opening the era of the craze for Internet hospitals. From having the only Internet hospital in 2014 to 128 hospitals as of November 2019, the rise has proved the vast potential for traditional hospitals' digitalization – or moving services online. As the explorer in an unprecedented form, it tried out many measures and now has drawn a three-stage roadmap: the initial online registration platform, the previous linkage between experienced doctors and primary care institutions and the current AI-based alliance connecting across-level clinics, doctors and healthcare insurance. WeDoctor has a clear first-mover advantage in occupying wide-spread hospital resources. There are a total of around 130 Internet hospitals nationwide and WeDoctor engages in over 45 hospitals already. Other Internet hospitals were initiated by various enterprises, with specializations ranging from medical devices, technology, information, distribution, consumable finance and traditional Chinese medicines. However, WeDoctor's primary goal, reflected by the company's strategy, is to resolve the unbalanced situation of medial resources and satisfy the unmet demand for high-quality healthcare services. The company mainly deploys the resources in new first-tier and second- to- fifth-tier cities. These cities tend to have fewer triple-A level hospitals and people there tend to have fewer resources on average due to a more extensive population base. Ping An Good Doctor The insurer-backed Ping An Good Doctor pivots family doctor healthcare services and relies on comprehensive user-oriented added-value services. At an advantage of the user stickiness levered from Ping An Insurance Group, the healthcare app is the last stop of Ping An Group's business chain. Ping An Good Doctor helps to complete the insurance business chain. Users pay for the insurance, the insurance company (Ping An Insurance) purchases services, and the service provider (Ping An Good Doctor) offers healthcare services to users. Its family doctor service distinguishes it from other similar healthcare apps based on the strong backbone of the self-owned doctor team. Even though the family doctor service and online healthcare consultations are the highlights of Ping An Good Doctor, the two services did not accelerate efficiency in conversion as much as online health shop. In the last two years, the online vendor business took up over half of the revenue amount, while the online healthcare services only represented 12% – 17%. Compared to the other two aforementioned, Ping An Good Doctor does not connect with many local hospitals and medicine deliveries, which is considered a prominent disadvantage to building a deeper connection with users. Due to the lack of advanced and high-end healthcare services, the app can only currently satisfy basic and daily healthcare demands for common diseases. Challenges for each The full coverage of business is the ultimate goal for all the online healthcare service providers because the online form can connect medical resources and people without the barriers of regions. The new giants have just set off in their journey into the healthcare area. If every one of them can reach a relatively sound performance within the last several years, it somehow indicates a lower industry entry threshold. As the online healthcare market trend is asking for more comprehensive, or services similar in some ways to real world offerings, market participants need to fast-orient their business strategies to bolster their indispensable value across the industry chain. A positive outlook is that these players currently don't need to worry too much about the lack of demand – but only unmet demand. The domestic market has been widely woken up by the national COVID-19 pandemic. However, they did face many threats from different perspectives. Ali Health will undoubtedly continue prioritizing the advantage of e-commerce and meanwhile, it may further diversify the business coverage. Recently, the CEO rearranged the online pharmacy business into its local life service platform, Eleme. This move will further enhance the synergies between online shops and offline delivery. The greatest challenge could be from the threat of some of its major e-commerce competitors, such as Pinduoduo and JD.com – especially JD Health, which has become the third unicorn of the JD group. It went public (832916:NEEQ) on the Chinese A-share market too. As for WeDoctor, which is building a robust connection with local public hospitals and clinics, it seems that it is bidding on the sizeable Chinese healthcare system. Indeed, Chinese hospitals have a lot of potential to become more digital and cloud-based. So far, in this segment, it faces few competitors and has dug out an unbeatable moat. However, new entrants in the digital health care might be even smarter. When the whole healthcare industry evolves into an end-to-end form, hospitals might well be just conceptual, serving patients without strict physical boundaries. Last but not least, Ping An Good Doctor has achieved considerable progress since the start of this year. The conversion rate of paying users increased from 2.7% in 2017 to 4.0% in 2019. But this was mostly credited to the e-commerce business. Its pilot family doctor service is just a start and try-out area for Chinese families, taking quite a time to go through the business circle. Moreover, the insurance-healthcare business's advantage can also be considered a restriction for accessing more new users. Also, it still faces risks around losing good doctors, because other doctor-centered online healthcare services are accumulating critical resources in this industry, such as DXY.com, Haodf.com, and Chunyu Doctor. Chinese digital healthcare is an exciting industry. The regionally-unbalanced medical resources in China,  which seem to invite help from an advanced digitalization ecosystem, add more potential to this area. Besides the technology and insurance giants hurrying to deploy the healthcare business, participants in medical devices, specialty medicines and information systems are also taking a share of the market.

Analysis EO
Analysis · 2
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Analysis EO
Jul 16, 2020 07:30 pm ·

ByteDance's Next Potential Weapon to Threaten BAT: Chip

► As chips have been a hot spot where BAT names can be found moving hard and fast, following in the steps of the leading three tech giants is a tempting strategy.  ► New business representatives are always specially involved in new national policies such as 'new infrastructure.' As a result, ByteDance has no reason to miss the chip industry, an area supported strongly by the government. ► Internet giants are continuously looking up new initiatives that may form the next direction, such as Cloud services and IoT, so the chip industry which is already grabbing attention is expected to be the next focus as the US intensifies a ban on Chinese high-tech enterprises. ► ByteDance recorded CNY 150 billion in revenue in 2019 with a compounded annual growth rate of 178.8%, indicating sufficient capital support to invest chip in the next couple of years. ► The company might have high intentions for research on chips due to their money-making products needing better support for data processing. For instance, killer apps such as Douyin and TikTok, which have a massive user base, have rising requirements for data processing. With self-developed products such as smartphones – developing fast through the acquisition of Smartsan and brands in the gaming industry – the company is exploring triggered demand as well. As Huawei's 5G networks are taking shape, the US is intensifying its ban on the tech giant, claiming that any company that uses American technology is prohibited from providing services to Huawei. Along with prior restrictions on ZTE and other companies showing up on the 'Chinese entity list,' the new interdiction is undoubtedly a heavy blow to China's lagging chip industry. China imports chips at an increasing rate, recording USD 312.1 billion in 2018, while the US supplies nearly half of the world's chips. With a high entry barrier and massive investment, the chip market has been monopolized by a few developed countries such as the United States, Japan and South Korea. Invading into the chip field seems an attractive way for Chinese star firms to shine on the global stage. ByteDance, a unicorn with a USD 75 billion valuation, has always engaged in global strategy. In 2019, the company applied for a digital banking license in Singapore, expanding its business in Southeast Asia. As of April 2020, TikTok, a short video platform, exceeded 2 billion global downloads, surpassing YouTube to rank seventh among all apps. Besides, on June 1, 2020, Kevin Mayer, the former Disney chief strategy officer, joined ByteDance and was in charge of the global department. ByteDance has achieved what its ‘predecessors’ the BAT companies have not – making a global product like YouTube and Facebook. As it has surpassed the BATs in telling an international story, ByteDance is now strong enough to enter the chip industry – either through acquisition or strategic investment, in our view.  Inferring from BAT and ByteDance's past layout in each industry Founded in 2012 and has rushed to the forefront with its short video platform TikTok, ByteDance is committed to comprehensive development and ambitious growth, eating from each slice of the cake that BAT brands have already carved up, including messaging, education, healthcare, gaming and SaaS. ByteDance seems to be on the heels of Baidu, Alibaba and Tencent all at once. After seeing the top three internet giants' layouts in the chip industry, the technology-driven company is eyeing the chip market. Follow up the national new policy In March 2020, the Chinese government proposed a 'new infrastructure,' including 5G station construction, UHV, high-speed intercity railway and urban rail transit, new energy vehicle charging piles, big data centers, artificial intelligence and industrial Internet. After the release, Tencent (00700:HKEX) announced that it would invest CNY 500 billion in the next five years while Alibaba (BABA:NYSE, 09988:HKEX) claimed it would input CNY 200 billion in next three years. Baidu (BIDU:NYSE) has announced that, by 2030, the number of Baidu's intelligent cloud servers would exceed 5 million to fill out the new infrastructure. At the same time, ByteDance officially established an IoV team, planning to launch its vehicle infotainment system solution. Combined with a huge traffic entrance backed by TikTok and Jinri Toutiao, ByteDance's big data and algorithm technology has a good chance of catalyzing the development of autonomous driving. To get rid of dependence on foreign technology, China implemented tax reduction policies for chip manufacturers in 2018, followed by a USD 29 billion investment to support the chip industry in September 2019. To respond to national policy, BAT successively laid out as well, such as Alibaba's PingTouGe, a self-developed semiconductor company. From this perspective, ByteDance, ambitious to replace BAT's B, has no reason to miss the chip's prospect. Investors have been looking forward to the company's new initiatives Seeing that e-commerce business was getting mature, Alibaba launched Ali Cloud in 2009, aiming at a 'big data + cloud computing' strategy. Ten years later, cloud services have long become a must-have for major Internet companies such as JD.com and ByteDance, while Alibaba generated cloud revenue of CNY 35.525 billion in 2019. According to IDC, Alibaba Cloud's market share in the intelligent voice field reached 44% in 2019, ranking first in China, followed by Amazon AWS. Xiaomi reached its peak in the mobile phone business in 2014 and began to layout the IoT industry to develop Xiaomi’s ecological chain. After five years, the IoT segment accounted for around 30% of revenue. Xiaomi won the largest market share in the TV industry in the domestic and Indian market and became a global championship in the wearable devices field. With the advent of the 5G era, the IoT market will shape the next boom in hardware. As the US cracked down on Chinese high-tech companies, especially Huawei, domestic replacement chip has regained attention. The chip industry is now at the center of a storm of uncertainty but has high potential to become a hot growth spot shortly, as cloud computing and IoT develop. Tesla (TLSA:NYSE) and the BATs have broken into the chip industry sooner or later. With the gradual saturation of the number of TikTok users and the blockade of the platform in markets such as the US and India, for ByteDance, why not turn towards such a promising industry as a new profit engine? Sufficient capital supports chip R&D The chip industry is a money-burning one, from IC design to the foundry to packaging and testing. As a result, many chip companies have gone bankrupt one after the other due to broken cash flows. Internet giants are unable to finish the whole process. However, they can invest in semiconductor companies to follow high-tech trends – and developing relatively easier AI chips seems reasonable, as per the example of Alibaba. Alibaba established the PingTouGe semiconductor company in 2018 when the e-commerce behemoth had reached CNY 300 billion revenue. One year later, the firm released the first AI chip, 'Hanguang 800,' which has been used in multiple scenes such as video image recognition and search function in Taobao. Alibaba expects the chip to be used in medical imaging and autonomous driving in the future. ByteDance generated revenue of CNY 150 billion in 2019 with a compounded rate of 178.8%, faring exceeding BAT's revenue growth rate. Following this trend, ByteDance has a high potential to catch up with BAT in terms of earnings, seeing more than CNY 300 billion in the next two years. With sufficient capital support, the technology-driven company should be able to develop its own AI chips – not accounting for strategic investment in semiconductor companies. Huge user base and self-developed products drive chip demand Multiple successful examples support this position. 1) Ali Cloud thrives from its large e-commerce and third-party payment platform data pool such as Taobao and Alipay. 2) Baidu Apollo’s success relies primarily on the user's data. 3) Tesla's self-developed chips derive from its autonomous driving system. From this perspective, new initiatives have always been triggered by existed businesses and products. When ZTE was banned by the United States in 2018, Yang Zhen, ByteDance Vice President, said "ByteDance has billions of users worldwide that upload videos that need to be analyzed and processed in TikTok. And this process means the purchase of a large number of chips." If the smartphone plays or records video for too long, the phone is likely to overheat. Therefore, the need to improve video performance and reduce power consumption triggered the motivation to develop AI chips. There is a rumor that Douyin is working with Aegis, a fingerprint identification IC factory, to develop AI chips. The product is expected to win orders from major smartphone manufacturers such as OPPO, Vivo and Xiaomi (01810:HKEX). Besides, ByteDance acquired Smartsan's partial business in 2019 to launch smartphones. To avoid repeating Huawei's misfortune, applying the self-developed AI chip to the self-developed mobile phone seems attractive. Whether from the perspective of strategic layout or capital requirement, the allure of chipmaking for ByteDance is too attractive to miss.

Analysis EO
Analysis · 2
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Analysis EO
Jul 10, 2020 11:39 am ·

Time for BAT and TMD to Hit the Driverless Car Road

► The large addressable market and potential revenue synergy is luring BAT (Baidu, Alibaba and Tencent) and TMD (Toutiao, Meituan Dianping and DiDi) to join the driverless car game. DiDi's in-house Autonomous Vehicle (AV)  in Shanghai is accelerating the adoption curve and also heating up the game, making the rest of the names and startups at times breathless.  ► Pure-tech companies in the area have technology solutions but are struggling to step into the growth/mature stage – and with the unviable business model are exposed.  ► The funding market has been cooling down for a while, with some unicorns suffering without new support. Investors are asking for more – and autonomous driving startups suffered most.  ► As massive – in terms of scope, size or capacity – Level-4 AV deployments are at least four to six years ahead, a ticket to the Internet giants' boat is not a bad exit.  2020 was an eventful year that saw increased AV adoption across some tier-1 cities  China saw several Level-4 major deals closed in the first half of this year – DiDi AV spinoff (USD 500 million), Pony.ai (USD 462 million, Series B), Inceptio.ai (USD 100 million).  The descending enthusiasm of investors could have resulted from the repeatedly postponed commercialization timeline of AV technology. Both giant companies like Google's Waymo and ambitious startups as Momenta once claimed that they would materialize mass production of Level-4 autonomous driving vehicles by 2020. Yet, no single company has realized the goal, due to immature technology, stubbornly high costs and inadequate regulations.  While the investors are getting more discreet on their bets, their expectations remain high. Though the number of deals lessened in the past two years, the volume of money raised in each deal is getting higher. At the beginning of this year, Chinese AV startup Pony.ai secured USD 500 million from Toyota, yet another industrial investor following Kunlun (300418:SZ) – a gaming company. The injection will sustain the firm's research on L4 in the coming years but might harm the company's independence, in our view.  L4 tech solutions providers need to reconsider their role – RoboTaxi operator, self-driving car maker or tech providers. Choosing the latter means they only earn licensing fees.  It might be hard for driverless technology alone to take a majority portion of ride-hailing trips while the rest relies on customer service, as Waymo executive John Krafcik implied. Leading companies have been operating their driverless fleet in China on a small scale. For instance, WeRide reported a total of 8,396 orders of its RoboTaxi service to Guangzhou citizens, in December 2019. However, point-to-point operations in some urban areas are still the initial stage of commercialization.  Like Waymo, Chinese VC Blue Run Capital expressed a similar opinion. OEMs, software integrators and channels surrounding the core OEMs are their priority for opportunities of artificial intelligence (AI). OEMs integrate upstream, downstream and third-party resources efficiently. In the direction of AV, those who focus on parts of the value chain can fonds the course hard, as one closes the loop of demand and supply, creating less value. The company has invested in Lixiang four times, the next being – maybe – China EV stocks after NIO (NIO:NYSE).  Who's the next in Internet giants' shopping bags? Internet/industrial conglomerates have an endless appetite for cutting-edge technologies due to the fear of missing out (FOMO). Their deep pockets support the money needed for acquiring the share of a business when they feel there can be a possible revenue synergy going on.  In the auto industry, whose history is almost a history of M&As, we saw many mega-deals happen in the past five years. Chipmakers and tier-1 suppliers – sensitive to the shifts of world science and technology – are engaging in the game. Intel's USD 15.3 billion acquisition of Mobileye and Delphi's several deals is a clear sign. Pure-tech companies that have technologies but are struggling to step into the growth/mature stage and find the unviable business model are being exposed. A leaf in the storm  We view DiDi's driverless service launch in Shanghai as a significant milestone for the auto industry and, at the same time, a considerable challenge to startups in the same vein. DiDi's peers – not smaller ones in the ride-hailing niche but tech giants – will react accordingly, as the cost of missing new chances may be infinite, just as Baidu missed the opportunity of mobile apps and content recommendation in the 4G era.  The large addressable market and potential revenue synergy is luring BAT (Baidu, Alibaba and Tencent) and TMD (Toutiao, Meituan Dianping and DiDi) to join the driverless car game. Meituan, for instance, has been developing and investing in last-mile delivery AVs to better support its food delivery segment. Its new bet on Lixiang shows its ambitions in networked mobility as well.  The greatest strength for Internet giants to rule the AV business is the solid user foundation created by their primary business. ByteDance (BD), for instance – the Daily Average User (DAU) of its hottest app, Douyin (China’s counterpart to TikTok), reached 400 million as of January, the number having hit 900 million during China's lockdown. The advantage that BD has on traffic entry and its intelligent recommendation systems is paving the way to the Internet of Vehicles (IoV). It will take full advantage of in-car times of drivers and passengers by providing short-video content and expects to commercialize from advertising.  Alibaba has made a presence on the upper stream, investing/building ventures of HD map (AutoNavi) and IoV/V2X (Banma Network). E-commerce giants like Alibaba and JD.com all research on autonomous long-haul freight where L4 Autonomous Truck companies like TuSimple Inceptio and Plus.ai leads the game.  The bottom line As DiDi shows a clear mission to envisage itself as operating fleets of autonomous robotaxis in the next ten years, BAT and TM need to consider engaging more in the game. The need to understand who develops owns and operates the driverless robotaxis or trucks and the surrounding systems, and further, how their advance computing capabilities will help or hinder their entry into the market with their more-than-ten-billion customers, is crucial. They can provide the whole autonomous network with the required infrastructure and best customer experience and move the needle for the autonomous driving industry. 

Analysis EO
Analysis · 2
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Analysis EO
Jun 12, 2020 03:35 pm ·

Beyond the Cashless Society: Chinese Prof. Explain Central Bank Digital Currency

China, where, despite a massive population,  third-party mobile payments penetrate every aspect of daily exchange, is leading the race in another form of development, namely the drive towards a central bank digital currency. A People’s Bank of China-backed (PBoC) digital currency, known as the Digital Currency Electronic Payment (DCEP), was put into trial use at the beginning of 2020 as a product of research that was first disclosed in 2014. The bank’s project is not trivial here: it wants to replace cash with its ‘digital yuan’ in the long term, and it is building a stellar payment infrastructure to support that plan.  EqualOcean talked to two eminent Chinese professors on the issue to shed light on this breakthrough. David Wen is a prolific professor at Zhejiang University International Business School (ZIBS) who co-founded eCurrency in 2011, which saw investment from Bridgewater’s Ray Dalio in 2016; Ben Shenglin is the Dean of ZIBS, and is also the founder of the International Monetary Institute (IMI) of Renmin University of China. It is being introduced solely for a greater digital finance inclusion Many pieces have been written about the enigmatic development, claiming sometimes that ‘tracking the money’ and ‘unseating the US dollar’ were the core motivations behind the creation of China’s digital national currency. For the two Chinese professors, the issue is simpler than such speculation supposes. “DCEP was first brought to the table as part of a broader financial digitalization vision of the Chinese government,” said Dr. Ben Shenglin. “Chinese regulators have long been trying to build a digital finance and payment infrastructure; meanwhile, they were not happy watching all these decentralized and speculative cryptocurrencies circulating in society. Secondly, the central authority may have wanted to create an alternative for ‘too big to fail’ third parties like Alipay and WeChat Pay. Lastly, the timing is interesting; PBOC may have been pressured to issue the currency after the announcement of other large-scale digital currencies, like Libra,” explained the Dean. It is beyond Alipay and WeChat Pay in nature “The fundamental difference is its nature,” David Wen says. “The value of cash — as we know it — is claimed by the central bank, whereas a deposit claims a check. The digital money in Alipay and WeChat wallet is claimed on a deposit, as well, while DCEP replaces cash, and its acceptance will be undebatable,” Dr. Wen told EqualOcean. According to both professors, DCEP will exist together will other forms of payment methods. “There will be coexistence for a while, and in the long term, third party payments may lose their unique proposition value,” eCurrency cofounder said. As payment is all about acceptance, DCEP’s acknowledgment will be crucial. “Wallets are not interoperable, DCEP is interoperable, which is another massive breakthrough it brings,” David Wen said. “There may also be differences in use case scenarios,” he explained. “Alipay and WeChat have differences in use: DCEP will serve for distinct purposes, such as tax payment or B2B payments.” Read EqualOcean’s report on Ant Financial, the firm behind the world’s largest mobile payment platform. It is a hybrid system that blockchain is used in different extents There is no simple explanation for the underlying technology of DCEP. “Blockchain means different things to different people. The generally accepted definition of blockchain is about the consensus mechanism,” he explains. It’s a hybrid system of a centralized architecture on the lower layer, where it touches hundreds of millions of people. This is where blockchain technology would not function well – there is no need to use blockchain on this level, but on the upper-level, in cross-border mechanisms between institutions who need trust mechanisms, blockchain may be used as a governance mechanism.” explained David Wen.  “It is definitely not a cryptocurrency: because it doesn't require consensus,” said Dr. Wen. Read EqualOcean’s report ‘Blockchain, China’s Story' to get a glimpse into the country’s initiatives in this budding technology. It is a payment system but not a monetary policy tool “It is not a tool to implement monetary policy,” says Dr. Wen. “DCEP is not a tool to create M2, but it is solely for convenience purposes: it replaces cash, which is a minuscule portion of the money in circulation.” “In DCEP, there is a two-tier process: PBoC cooperates with private Chinese banks and exchanges cash with DCEP, and private banks will exchange the DCEP with the public,” Ben Shenglin said. Central Banks, at least PBOC which serves over a billion people, often cannot engage in Know Your Customer (KYC) and Anti-Money Laundering (AML) investigations fully – the PBOC will work with private banks to do that in DCEP settlements. It is not to build a hegemony over other currencies, but simply for convenience “I don’t see why the Chinese Yuan will overthrow the US Dollar and dominate the world trade after the DCEP,” Prof. Wen said. “It is not about building a hegemony but about collaboration, which is why President Xi frequently uses the term blockchain.” Dr. Ben’s approach is similar on the effects of DCEP on international trade. “It may strengthen the internationalization of the Chinese Yuan, but it is not the reason it was deployed in the first place,” the IMI founder said. “The world will be flat around the new digital infrastructure that will be built with DCEP, which challenges the conventional system only, not any other sovereign money itself.” Disclaimer: The views, thoughts, and opinions expressed in the article by the two professors belong solely to them, and not necessarily to their current or former employer, organization, committee or other group or individual.

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