2013 has been an extraordinary year for Chinese Internet companies. In the last 12 months, they have become more international, taken on a bit of a star gloss, and re-found their footing on the US public markets. If you believe one of China’s leading venture capitalists, however, 2013 is just going to be the start of it.
New GGV Capital partner Hans Tung says that within the next three to five years, Tencent will overtake Facebook in terms of market cap; Alibaba subsidiary Alipay will become a giant global payments network that will internationalize access to hundreds of millions of new consumers; and US Internet companies will increasingly copy monetization models first mastered in China.
Tung, a Forbes Midas lister, recently left Qiming Venture Partners to join GGV Capital. He has made a name for himself in China with investments in several prominent Chinese startups, including Vancl and, most prominently, smartphone maker Xiaomi, where he was involved in luring former Android executive Hugo Barra to the company, which is privately valued at $10 billion.
In an interview discussing his move, Tung said that he came to GGV in search of a global platform, because Chinese companies themselves are starting to look beyond their borders. He believes the advent of the mobile era means that Chinese tech companies must and will look outside their own borders.
In fact, it’s already happening, with Tencent and Alibaba placing bets on Silicon Valley startups and companies such as YY, Qunar, and LightintheBox recently filing on US stock exchanges. Tencent, which has made large investments in Fab, Epic Games, and Riot Games, is rumored to be behind a giant funding round for Snapchat that would value the messaging app at $3.5 billion.
Because of that expanding worldview, Tung found himself looking for a venture firm with the ability to straddle the psychic and physical distance between China and the US. In GGV – which has offices in China and Silicon Valley, wins that include Alibaba, YY, and Tudou, and a portfolio that includes Square, Soundcloud, and HotelTonight – he saw a good fit.
Tung points to Tencent, China’s largest Internet company, as the best example of China’s emboldened international vision. The company, which has a market cap of about $100 billion, built its first fortune off the back of mobile gaming and its QQ instant messenger. Tencent makes most of its money from QQ through the sale of virtual items to power users. Because people largely refuse to pay for software in China, the “value added” monetization model was born of necessity and companies like Tencent took cues from South Korea, where gaming companies such as Nexon and social networks such as Cyworld were already finding success with virtual items. Tencent, like other Chinese companies, later applied the model to gaming, which stoked its revenues further.
While the QQ era of Tencent’s lifespan was lucrative, however, Tung believes that the company is onto something even bigger with WeChat. Its mobile messaging app in less than three years has accrued about 250 million active users (and half a billion registered accounts). WeChat is bigger, more social, and growing faster than QQ, Tung said, and it has more global reach. Tencent says there are 100 million WeChat accounts outside of China. With WeChat, Tencent has opportunities in social, gaming, and payments
“I do think in the next three years or five years, Tencent market cap overtakes Facebook, no question,” Tung said. “Do US investors get that? No. Most don’t.”
He calls Tencent, which is trading on the Hong Kong Stock Exchange for about HK$408 (US$53) a share, “the safest stock to own right now” and predicts a doubling of its market cap within a decade.
Alibaba, meanwhile, has some big tricks of its own, he added. The company’s payments subsidiary, Alipay, is forging partnerships that are opening up the massive Chinese consumer base to new markets. For instance, the PayPal equivalent last week announced a deal with travel bookings platform UATP that will let the world’s largest spending tourist class more easily book and pay for travel via international websites. There are 800 million Alipay accounts in existence. “That’s a huge purchasing power that the world has not seen at that scale,” Tung said.
As companies like Alibaba and Tencent get more active in the US, their ideas will also seep into the ecosystem here, Tung says. He believes that because Chinese entrepreneurs are better at monetizing their Internet products, because they are more closely related to their customers than American entrepreneurs are to theirs.
Most US startups are built by people who come out of elite universities such as Stanford and Harvard who develop interesting, disruptive tools and later figure out how to monetize them, usually with advertising. Because China has not had a large and developed Internet advertising market, companies have instead had to figure out their users’ psychology. He argues that WeChat, for example, does a much better job of connecting with users on an emotional level, as opposed to its US counterparts, such as WhatsApp and Skype (which was started in Scandinavia but is now owned by Microsoft).
“Over the next three years, I think you will see a shift in monetization from advertising to user pays,” Tung said, adding that the US should follow China’s lead.
Look to China. That’s a sentiment, we predict, you’re only going to hear more of in 2014.