Vanishing Unicorns: Real or Myth?

On April 26 2022, a Chinese financial media outlet?Jin10 Data?published?an infographic?(in Chinese) comparing the “market cap of US smartphone maker Apple with Chinese tech firms, showing that Apple’s $2.7 trillion valuation was worth more than double the value of China’s top 49 tech firms combined.”?

Suddenly, the observers are having a field day speculating if this is the end of the Chinese tech growth that seems so uncontrollable in the last decade? Are we staring at the reality of tech bubble finally bursting and what we always know about China’s tech unicorns’ growth are not sustainable? Or is there more to it than meets the eye??

Signs of changes are already in the air, with Alibaba Group fined 2.78B in Apr 2021 for abusing market position and then Ant Finance’s IPO attempted blocked in Jul 2021. Many can’t help but wonder what happened to the golden boy of China Internet who can’t seem to do wrong and is welcomed everywhere globally.???

Before jumping into conclusion that China’s Tech giants are losing its magical dust, let’s look at more facts to understand the underlying factors that is changing the landscape.

National Growth Policies & Priorities??

During the unveiling of 14th?5Yr plan in Aug 2021, Party Secretary XJP emphasis that relentless effort to help millions of Chinese citizen to be lifted above the poverty line and achieving?Common Prosperity?(共同富裕Gong4Tong2Fu4Yu1) remains?a key focus of the Party’s policy making compass. By 2035, the middle class will form a larger segment of the China society makeup.??

This is also known as the Third Redistribution of Wealth (Read Here in Chinese)??whereby a segment of HNWI willing/proactively contributed/donated wealth and resources that is for the good of the society.?

Once the 14th?5Yr plan is release, tech giants put action into motion and donated billions, with more corporations pledging earnings to further said cause in months to come.?

Technology & Digital is key to unlocking China GDP

Technology Leadership 2035, Digital China 2035, Smart City 2.0, Digital Transformation are some key milestones set, with 10% of GDP by 2025 to be contributed by digital enable economy.?Read my earlier Post on?14th-5yr-growth-pockets

Advancing technology innovation in spaces of AI, Cloud Computing, Neural Science, Genetic/Bio Science, Blockchain, AR/VR, Space/Deep Sea Exploration represents new growth pockets for technology driven companies operating in China.???

No reason to stop investing now when Technology is identified as the cornerstone for a new Digital China and world domination is on the agenda.??

Internet Users reaching point of Saturation??

China registered 1B internet users mark in 2021, which is a massive 73% penetration into its population. For most tech companies, this is almost a dream world for rolling out MVPs and App beta version where mass adoption makes or break a unicorn dream. For most of the unicorns, growth hack and massive incentive (cash burn) to grow users is the way to jack up valuation in series of funding.?

But where is the next wave of user growth going to come from with 81% of internet penetration in urban areas, as the unicorns continue to fight for eyeballs and attention to satisfy their investors.?

Answer: Think “Rural Areas”, only 57.6% penetration with close to 500M population, huge potential.?

Consumer Regains Control over Conversation??

Most China Tech giants’ revenue model revolves around advertising dollars and having massive reach is basic to survival. By end of Q4 2021, China advertising market have rebound from the impact of COVID and is at its peak over last 8 quarters, hitting a mind boggling RMB 199.6B / USD 29.9B.?

The sentiment quickly changes when Personal Information Protection Law?(Full explanation of PIPL)??is in full force?Dec 2021.

PIPL is a new data privacy protection law that protect the personal information of a user, very much like GDPR or PII. The new PIPL law forces a company to gain consent or authorization from a user, before information can be pushed to the user mobile.

This is game changing as the only claim to massive reach to users by tech giants, is via mass spamming, which obviously high-cost low efficiency. With this channel locked down by PIPL, tech giants now must spend more effort to create attractive and compelling content that engages their audience, in the hope of getting a “YES” to follow. No different from a courtship between individuals, just that this has a lot of advertising dollars at stake here. May the courting game, begins.?

In short,?

-???????The future of technology innovation looks bright with government policies supporting over the next 5-10 years?

-???????While the tech giants are allowed to gain riches and fortunes over the last decade, under the Common Prosperity thinking, they are now expected to share their knowledge and expertise to benefit the next wave of growth?

-???????Next 100m users will likely come from rural area and there is still a China growth story to tell here

-???????Not a bed of roses ahead as tech giant’s ad revenue are now impacted with PIPL in place, turning the table on them and giving power back to the people?

-???????And obviously a lot more underlying factors to consider … such as breaking down of "Wall-garden", new challenger to existing incumbent *TikTok vs Alibaba/Tencent, impact of immersive Metaverse experience vs a limited mobile experience???

Last check, the western tech giants are not having an easy time too with their stock prices plummeting putting them in a very uncomfortable position.?

So, the questions we should all be asking,?

Unicorns: Are they morphing into something else or are they really going into extinction??

Happy Weekend?ahead !

JT?