As investors we are always on the hunt for the next big idea or company which will revolutionize its industry and change the world, but more often than not it is hiding right under our eyes. This revelation came to light on a recent trip to Paris. While navigating to Notre Dame with the help of Google Maps, I had my first introduction to contextual advertisements “Did I wish to visit a Geox store on the way?” How did Google know I liked Geox? Were they able to make an intelligent match simply from all the data they have collecting from my phone over the years? This was disconcerting, it gave me a feeling not quite to the level of being stalked, but a clear sense that I was though definitely always trailed and profiled.
Separately, the meteoric rise of technology companies in 2017, Facebook, Amazon, Google, Tencent and Alibaba up almost 30-40% after a strong 2016 and an innocuous query by a friend on how much of my wealth was in technology names made me question the obvious. What is in these companies that help them command a market capitalization way above their brick and mortar peers? Firstly, a subscriber base of 400 mn for Alibaba or 800 mn for Tencent was simply unheard of even for the likes of Unilever and Nestle as there always a question of how to stay relevant for a disparate mass of consumer base across countries and continents. Secondly, how to “know” the consumer better and extract more value from the same consumer? Clearly these technology companies realized way earlier than their brick and mortar peers that future winners of corporate battles would be determined by who controls and knows the consumer data best. Indeed data is the next big thing.
For a company like Tencent, the challenge is to ensure attractiveness of its platforms like Weixin/WeChat, Qzone so that user engagement doesn’t falter while also carefully exploring opportunities like advertisements, lai see or red packet transfers, taxi booking or e-commerce. The underlying message is that the consumer/user comes first; don’t dilute his/her experience to risk that they could turn away from the platform. This is a text book way of treating customers but not based on a gut feeling but rather, sifting through tons and tons of data. Along the way, if the incumbents are sleepy like the SOE banks in China, there is a windfall of opportunity for these big data companies like Lufax, Ant financial and Webank as they access risk profiles better and tap an untouched segment of retail and SME & channel financing. Alipay has nearly 450mn active users with 160 mn daily transactions while Lufax has ramped up to 3.5 mn active customers with retail transaction volume of RMB650 bn in 2015. Equally impressive has been the progress made by Tencent in broad-basing the appeal of its payments platform. Compared to the average transaction fees of 100-125 bps by established credit card companies, Tencent charges large commercial merchants like Starbucks, Yum China merely 60 bps for Tenpay. The double advantage of mobile wallet convenience and competitive charges backed by a large user base has boosted WeChat pay’s share of Starbucks China sales to nearly 30%. Similarly, Yum China also has 31% of sales from mobile payments largely driven by WeChat pay.
Number of times per day that WeChat users open WeChat
[Source: WeChat Economics Social Influence Analytical Report, CAICT, Mirae Asset, Sept 2016]
User time spend in different functions of WeChat app
[Source: Tencent Tech Channel CTAR 2015/2016]
Where the big data has taken battle to the next level is having collected so much information about their humongous data base, these companies are launching bespoke promotions to their users, a strategy of delighting consumer by making him feel special.
The million dollar question is what happens next to the other incumbent businesses? An easy option would be to partner with technology companies e.g. Suning and Intime with Alibaba, Yonghui with JD.com. A tougher but more sustainable way would be to invest in technology, reinvent processes and systems with the focus on the consumer. This has been well achieved by private sector banks like ICICI Bank and HDFC bank in India where more than 70% of the transactions are made online. These banks having refreshed internet banking solutions, launched online wallets and other novel mobile based payment solutions and have successfully withstood the challenge from Alibaba funded financial technology companies like Paytms. However, such examples remain are far and few.
A bigger question from a medium term to long term perspective is should these technology companies continue to emerge bigger and stronger, do we then face a bigger risk of having a significant part of daily life being accessed and controlled by a few large companies?
By Rahul Chadha , CIO, Mirae Asset Global Investments Hong Kong
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