Author: Di Yuan
In the past 10 years, China’s mobile industry has expanded their businesses into overseas markets by producing innovative content and products. To understand the strategy behind Chinese mobile industry’s overseas expansion, Source Code Capital conducted a thorough analysis and we exclusively present Source Code Research Report Issue No. 4.
- In the past nine years, Chinese mobile products have seen dramatic growth in the overseas markets (from our perspective, this means regions outside of China). In the past, such products lacked effective ways to reach international markets. By matching supply and demand with capital assistance, the expansion of Chinese mobile products overseas has now entered into a new stage through innovative content-based products.
- With the development of successful American products such as Facebook and YouTube, domestic entrepreneurs are able to leverage “macro, meso, and micro level” methodologies to discover more opportunities in overseas expansion.
- When comparing the development and evolution of China’s content-based products, we believe that Chinese products need to go through the three stages of “scale, popularization, and platformization,” in order to compete with other popular international products.
1. The new stage of content-driven products
Since Apple released its App Store in July 2008, Chinese companies such as iHandy, Tap4Fun, and Zenjoy began their expansion into the overseas market. This expansion has been going for ten years.
Throughout the past nine years, China’s mobile industry’s overseas expansion have transformed to provide advanced tools applications, enhanced security, as well as desktop apps and light gaming. In 2015-2016 the industry experienced an explosive growth in content-based entertainment.
Tools and utility applications satisfied smartphone users’ demand for convenient, efficient, user-friendly and aesthetically-pleasing functions. Nevertheless, it lacked geo-cultural attributes, making it difficult to be called a long-term solution. With the constant improvements to the Android system, along with the integration of super-apps, many sub-categories have opportunities to undergo transition.
Since Musical.ly went viral in North America in 2015, an army of Chinese innovators began preparing advanced materials for overseas expansion. This “army” comprised of domestic Internet talent and individuals with years of working experience in the overseas market. Additionally, market “elders” and experts returned to help with the overseas expansion. The collaboration resulted in a product that can distribute content in a news and graphics form, support short video communities, globalize mobile games, and host live broadcasts, among other functions. Matching supply and demand along with capital assistance have helped move this “exportation” of Chinese mobile technologies to a new stage where content-based products come first.
(1) Supply side
China’s massive online population and rapidly-developing infrastructure provide perfect examples of an user base that aids in developing different variations of custom-made mobile products. The rapid creation of content-based products in recent years not only reflects the strength of domestic companies’ product operations, but also generates an overflow of experience and productivity with respect to content-based products.
Due to the youthful demographics in emerging markets such as South East Asia, the Middle East, and India, entertainment products that are considered more suitable to local consumers (better than Facebook and YouTube) are in great demand. In addition to an increasing preference for rich media content, there is also an opportunity to see consumers transition from offline entertainment options and content consumption, to online options. One cause of this would be that non-English-users are having difficulties consuming content on these platforms. This is due to a lack of localization of foreign products and a lack of indigenized products. Other contributing factors to this possible transition could be a poor performance history, increase in network speed, or a drop in data costs.
In mature American and European markets, the younger generation is hungry for the next best thing in technology and they demonstrate a greater willingness to venture out into unchartered territories, whether it be by webcam, AR or another new technology-driven product. As a result, new content and social platforms were born, such as, SnapChat and Monkey.
Regardless of these social advancements, in comparison to the U.S. and Japan, China is far behind as “cultural exporters.” With that said, the export of content abroad is limited to the export of the product content ecosystem and distribution methods. When speaking of Chinese companies and overseas expansion, these companies are faced with major formidable challenges when it comes to identifying a suitable opportunity model, localizing products, and content ecosystems.
2. A model for identifying opportunities for overseas expansion
Overseas market varies greatly from region to region, and no country is completely consistent with a certain stage of development in the history of China’s Internet. When adopting the Copy from China approach, it is easy to become dependent on benchmark products and strategies, which can make it difficult to cater to localized needs. American products have already established successful connections with many countries across the globe. Facebook, YouTube, and Twitter act as industry leaders, therefore, stunting the growth potential of new content products produced by competitors.
For local Chinese entrepreneurs who are accustomed to domestic content such as WeChat, Weibo and Bytedance, awareness of the target market and recognition of opportunity models is extremely important. In order to take advantage of these opportunities, we suggest implementing a macro, meso, and micro level methodology.
Macroeconomic indicators focus on the target market’s GDP growth rate, GDP per capita, disposable income per capita, Internet policies, demographics, languages, religions, and cultural characteristics. An Internet-driven expansion of a new economy overseas must adhere to basic business guidelines. The essential elements one must prioritize from a macro perspective are the economic developmental levels and the target markets’ per-capita, disposable income.
This infographic uses a basic ROI calculation, in other words, the ratio between the customer acquisition cost (CAC) and the loan-to-value (LTV). Although not all content-based products pursue high ROIs as their core index, the macro environment has an impact on the products’ path towards commercialization. This also indirectly reflects the operational strategy of products, companies’ developmental strategies and the pace of financing.
For example, if there is a three-fold difference in per capita disposable income between an emerging market country and China, the gap between the remaining disposable income after deducting essentially the same living expenditures will be even wider. This suggests that that particular emerging country’s users will be more sensitive to the level of “spiritual consumption” and that the short-term commercial value will be discounted.
If content-based products use this emerging-market strategy as their starting point while taking commercialization into consideration, they must proceed with caution in a few areas. These areas would include customer acquisition costs, and the pace at which they promote their products. In terms of macro-information acquisition, macroeconomic indicator reports can serve as first-hand sources of data, while the activation cost (CPI) and effective cost per mile (eCPM) data can be obtained via advertisement platforms. Advertising platforms can often be a helpful reference.
Factors such as demographics, language, culture, and religion cannot afford to be ignored in macroeconomic indicators. Emerging markets that feature younger demographics focuses on entertainment and recreation. In countries with complex language structures, obstacles can be overcome by using intricate multilingual operations. In religious countries, belief-based concepts can provide content consumption methods. On the other hand, the process of secularization can also provide new-product experiences to a younger generation, as well as opportunities to get a head start in the marketplace.
In addition to the benefits of expanding overseas and China’s One Belt One Road policy, there are also opportunities brought by the changes in Internet policies regarding target markets. One example of these factors includes the loosening policies from six Persian Gulf nations on IP communications (VoIP). Another example would be Indonesia’s president encouraging innovation by withdrawing the ban on the illegal operation of motorcycles introduced by the Transportation Ministry. This also includes the Indian Modi government’s policy of abolishing high denomination banknotes, in addition to tax reforms substantially encouraging Internet entrepreneurship. All of these changes pose latent opportunities for the future.
Important factors impacting consumer product behavior consists of mobile Internet penetration rates, smartphone shipments, basic network changes and costs. Since the infrastructure of the mature market is solid, user demand for stronger interaction, new technology, and innovative ways of playing have increased. By contrast, users in this emerging market did not experience the PC Internet era. Aside from cultivating user behavior, products need to have graphics, smooth operation flows and offline scenarios or distribution.
However, rapid changes are transpiring within the meso-level landscape of the emerging markets. Indian mobile network operator, Jio, is a prime example. The company rolled out a promotion offering six free months of 4G mobile Internet. Not only did they acquire 100 million users in merely 170 days, they also increased the penetration rate of 4G mobile Internet users in India from 5% to 70%. This has generated amazing results in terms of content product innovation.
Regarding information retrieval on the meso-level, other than relying on media and research reports, another effective method of predicting trends is to establish links with global CDN service giants such as Huawei, ZTE, Akamai, and Wangsu Science & Technology. These companies are actively influencing global network infrastructure construction.
The target market trend includes changes in user behavior (among mobile device users), such as switching from PC to mobile, and from graphics like GIF and videos. Additionally, the increase of online payments contribute to content-based product opportunities that are waiting to be capitalized.
There are key points to be observed and analyzed at the product-level. First, how does one form differentiated competition with dominant foreign products already in existence? Second, can a short-term propagation effect be produced? Third, can the cultivation of localization establish both offensive and defensive barriers? Lastly, does the opportunity exist for the upgrade and migration of content forms?
Social media tends to serve as a guide and test-run for content-based products. There is a great referential value dealing with the preferred topic and focal points of Facebook and Twitter users in relation to popular trends standards set by the “Big V” (meaning verified Weibo users who have more than 500,000 followers) and online celebrities.
On the topic of product research and development, besides the minimum viable product (MVP) testing and rapid iterative development, social media can also be an effective channel for collecting and delivering materials advertisement tests. More specifically, these may be tests pertaining to content types and user preferences.
3. Attaining a team ratio of 1:1
Compared to tool-based products, the strategy for content-based products is much more complex with its “sea, land and air” integration. This involves many parts, including product positioning, research of target user demands, construction of the content ecosystem, operation strategies, and commercialization. At the same time, it has higher requirements when it comes to indicators such as user retention, duration of use, content distribution, and circulation efficiency which ultimately requires stronger localization support.
By analyzing start-up companies Source Code Capital encountered this past year, we discovered that many domestic Chinese teams have been formed. These teams consist of folks with internet talent, folks with years of experience, and returnees who are well-versed in the local markets. This is gradually becoming the norm for companies expanding content products overseas. Local market teams and domestic teams are typically seeing a staffing ratio of 1:1 or even higher.
- Graphics and short video content products: must establish PGC, UGC, and OGC production capacity supply and organizational forms, plus develop ecosystems.
- Gaming products: Issues surrounding the integration of game design and localized culture need to be solved. Companies are looking to the public as a means to discover different ways to play feature games while avoiding cultural and religious taboos.
- Live-streaming products: Many markets require the overall output of China’s live streaming industry chain in order to support platform operations. As a result, there is no way around getting involved with the construction of organizational forms such as Anchor Guild and Online Celebrity Alliances, among others.
Localized operations should adopt an online-offline integration strategy. The online aspect can use store reviews, feedback, and mail as a means of communication with users. It can use social media as operational support for understanding the needs of users. As for the offline aspect, in addition to the need to obtain external content authorization for graphics and short video products, there is also a need to establish an ecosystem for original content. At the same time, operations should be solving the problem of incentives for content producers on the level of “fame” and “profit.”
4. Scale, Dissemination, Platform
Compared to the development and evolution of China’s content-based products, there are three stages to establish a high-quality content platform: achieve scale, popularization, and platformization.
(1) Achieve Scale
Large-scale production is the top priority for gathering users and discovering businesses when it comes to value content produced by PGC, OGC, and UGC. This is in relation to public presence, receiving likes, reviews, and forwards. When it comes to traffic acquisition and monetization, domestic media content producers such as news, entertainment and vertical outlets are being faced with formidable challenges. The media development of many target markets is below par in China, therefore, more effort needs to be directed towards cultivating scale and sustainability.
The second stage involves empowering the popularization of content. This is achieved through refinement operations, where groups are divided according to their content consumption behavior. In turn, this creates media value or IP precipitation, and promotes connections between content producers and consumers. This also works to create dissemination among target user groups and encourages users’ emotional appeal to, and interaction with, content, all while leaving a lasting impression.
After production and dissemination systems have been established, platformization of content ecosystems follow. This requires labeling and user classification, among other methods, to construct a diverse content distribution system. Additionally, other distribution methods such as feed streams and recommendation algorithms are used in order to satisfy user differentiated consumption demands.
During the process from achieving scale to platformization, the formation of content ecosystems can be divided into various links such as production, labeling, selection, distribution, consumption, and evolution. Production mechanisms, distribution model, and traffic efficiency are all indicators by which the consistencies of platform ecosystems are measured.
In terms of the production process, the key to establish content-based product barriers is to see how content producers sustain a highly-efficient output under a standard platform.
With regards to distribution and traffic, the basis of which distribution efficiency can be increased is through the building of user hierarchies and content labeling systems. The integration of content presentation, artificial operation assistance, and recommendation algorithms can promote a rise in distribution and traffic efficiency. Refining granularity and operational data feedback, especially in terms of content grading, screening, and evolution, contributes to the evolution of platforms. This also aids in deciding to preserve or discard content according to its superiority or inferiority while establishing content platform barriers.
To conclude, specifically in emerging regions, we believe that the Copy from China method requires establishing platforms from 0 to 1. The content form, presentation methods, and mechanisms guide user consumption, and is the key to cultivate user relationship with the platform. Fine localization operations are defined by which barriers are established. In mature or developed markets, in addition to the various elements of scale, dissemination and platformization, the road to victory is achieved by carrying out product innovation through various technical means. These innovations include maximizing the performance of mobile devices, as well as grafting real-time interaction, webcams and AR together. We believe that this original framework of ours is a way to differentiate from competition, and lead the new consumption trends of younger user groups.